We often hear the term TDS or Tax Deducted at Source regarding salaries or income from fixed deposit interest or dividend payments. TDS allows those making payments to deduct income tax and deposit the amount with the central government. This system of TDS applies to real estate sales and purchases, too.
According to Section 194-IA, it is the buyer’s responsibility to deduct the TDS amount from the payment made to the seller. This amount must be deposited with the central government within 30 days of the end of the month in which the TDS has been deducted. For example, if the property sale was concluded and payment made to the seller on 21 August, the buyer must deposit the TDS from this payment by 30 September of the same year. The buyer must also fill in the TDS information through the TIN website and furnish the seller with Form 16B.
Under section 194-IA, the seller of the property is required to furnish his or her PAN to the buyer. This is important because the buyer must mention this PAN when depositing the TDS. If the seller does not furnish the PAN or provides an incorrect or invalid PAN, the buyer may deduct TDS up to 20% of the sale value according to the Finance Bill 2013.
The seller must obtain Form 16B from the buyer within 15 days of the TDS deposit deadline and furnish this with his or her annual tax returns.
The growth and potential of the Indian real estate market are very attractive to investors who are non-resident Indians (NRI), overseas citizens of India (OCI), and people of Indian origin (PIO). Section 194-IA does not apply to NRI property sellers.
According to current tax provisions, when an NRI sells a property in India, the buyer must deduct 20% of the sale consideration as TDS. If the property was owned by the NRI seller for less than two years, a TDS of 30% of the sale consideration must be deducted and deposited with the government.
As a property buyer, you must understand the implications of Section 194-IA of the Income Tax Act. This is because you are responsible for the collection and deposit of TDS on this sale of property. You may incur a penalty or a fine in case of a delay or failure in depositing this TDS with the government. If you are unclear about the terms of this section, it is a good idea to consult a financial advisor specialising in real estate taxation before concluding the sale of the property.
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