What is Section 194 IA? Why Property Buyers Know About This?

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.

What are the provisions of Section 194-IA?

• According to Section 194-IA of the Income Tax Act, the buyer of any property is responsible for deducting TDS from the payment made to the seller. This provision applies to the sale of all real estate property except agricultural land. So, if you are buying land, a building, or a flat, you must deduct TDS from the payment you make to the seller.
• According to this section, you must deduct 1% of the sale consideration or the property value from the payment you make to the seller, irrespective of the mode of payment.
• This TDS is only applicable on the sale of the property if the sale consideration and the stamp duty value are over INR 50 lakhs. It is also applicable only when the seller is a resident Indian.
• To make it easier for the buyer to deduct TDS under this section, property buyers have been exempted from Section 203A. As a buyer, you need not have a tax deduction and collection account number or TAN to collect the TDS on property sale.

What are the responsibilities of the buyer?

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.

How is the TDS deposited?

• The buyer of the property can deposit the TDS on the sale of the property through the NSDL TIN web portal. The deposit transaction can be made online on the TIN website at www.tin-nsdl.com through the e-tax payment option.
• Alternatively, the buyer can deposit the TDS using his or her net banking account or by visiting an authorised bank. The challan for the offline payment is available on the TIN website.
• Now, the buyer is required to fill in Form 26QB on the TIN website and save the acknowledgement number. The buyer can download Form 16B from the Centralized Processing Cell of TDS (CPC-TDS) website at www.tdscpc.gov.in within 15 days of depositing the TDS and filling in Form 26QB. This must be given to the seller for tax filing.

What are the responsibilities of the seller?

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.

Does Section 194-IA apply to NRI sellers?

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.

Conclusion

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.