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In India, the Tax Deduction at Source (TDS) mechanism applies to various transactions, including the sale of immovable property. Understanding how to calculate TDS on property purchases helps both buyers and sellers navigate the process smoothly. This article provides a comprehensive guide on calculating TDS on property purchases, covering essential aspects, calculations, and frequently asked questions.
Key Takeaways
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Tax Deducted at Source (TDS) is mandatory in the sale of immovable property if the consideration value is more than ₹50 lakhs.
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The buyer is responsible for deducting the TDS under section 194-IA. The deduction is applicable for all properties, except agricultural land.
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The rate of deduction is 1% of the sale consideration or the stamp duty, whichever is higher.
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The buyer must deposit the deducted TDS within 30 days of the month-end of the property sale.
Also, check out What is TDS in detail here.
Who is Liable to Deduct TDS on Property Purchase?
The responsibility to deduct TDS on a property purchase falls on the buyer (deductor) if the transaction meets specific criteria:
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Sale Consideration: The total value of the property, excluding any additional charges like registration fees or club memberships, must be ₹50 lakh or above.
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Nature of Seller: If the seller is a company or a cooperative society, regardless of the property value, TDS needs to be deducted as applicable.
Properties Covered
TDS is applicable to transactions of immovable property, and the buyer has to deduct TDS. Under section 194-IA, the buyer has to deduct 1% TDS if the consideration is more than ₹50 lakhs. This is applicable to all types of properties, such as land, commercial, or residential, except agricultural land.
It is also important to note that the TDS for NRIs on property transactions is different because it’s deducted from their capital gains.
What is the TDS Rate on Property Purchase?
The current TDS rate on property purchase in India is 1% of the sale consideration (excluding any additional charges). However, there are certain exceptions:
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Lower Deduction Certificate (LDC): If the seller holds a valid LDC issued by the Income Tax Department, the TDS rate on property purchase may be lower or even nil, depending on the rate specified in the certificate.
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Non-Resident Indian (NRI) Seller: For NRIs selling property in India, the TDS rate is generally on the capital gains (profit earned on the sale). However, NRIs can apply for an LDC to potentially reduce the applicable TDS rate.
Also, read more about Types of TDS here.
When and How to Deduct the TDS?
Section 194-IA provides that buyers buying immovable property other than agricultural land, with a sale consideration of 50 lakh or above, need to cope with the TDS deduction. The amount that is deducted will be 1% of the value of the sale consideration or stamp duty, whichever is higher. The buyer has to deduct the TDS at the point of the payment or credit, whichever is the earliest. To comply, the buyer uses Form 26QB to compute and deduct the tax and must generate Form 16B as a certificate to the seller.
Details Required for TDS Payment
To complete the TDS deduction process correctly, buyers should gather certain details, including the PAN of the buyer and seller, their names, addresses and contacts, the address of the property, the date of agreement, the total consideration value, and the mode of payment. TAN is not required for the buyer when paying the TDS deduction under Section 194-IA. The payment is usually made through online payment through Form 26QB on the TIN/NSDL portal or through authorised banks.
Calculating TDS on Property Purchase
Here's a step-by-step breakdown of calculating TDS on a property purchase:
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Determine the Sale Consideration: Identify the agreed-upon total cost of the property, excluding any additional charges incurred during the transaction. This forms the base amount for TDS calculation.
Example: The agreed-upon sale price of a property is ₹75 lakh.
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Apply the TDS Rate: Multiply the sale consideration by the applicable TDS rate (1% in this example).
Calculation: TDS amount = ₹75,00,000 (Sale Consideration) * 1% (TDS Rate) = ₹75,000
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Account for Lower Deduction Certificate (LDC) (if applicable): If the seller presents a valid LDC, use the specified rate in the certificate instead of the standard 1% for TDS calculation.
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Consider Additional Costs (if applicable): While calculating TDS, only the sale consideration is relevant. Additional charges like registration fees, club membership fees, or maintenance charges incurred during the property purchase process are not included in the TDS calculation.
Check out the TDS Calculator here.
TDS Payment and Reporting
TDS Implications for the Buyer
Once the TDS amount is determined, the buyer (deductor) must:
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Deposit the deducted TDS amount with the government within 30 days from the month-end of the property sale.
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Deduct the TDS amount from the final payment made to the seller.
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File Form 16B online on the TRACES (Tax Refunds & Correction e-Settlement) portal, acknowledging the TDS deducted and deposited.
TDS Implications for the Seller
The seller receiving the property sale proceeds with TDS deducted is entitled to claim the deducted amount against their tax liability while filing their income tax return.
Also, Read More About How to File a TDS Return.
When TDS Deduction is Not Necessary
A TDS deduction is not required in the following situations:
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Property value below ₹50 lakh: If the stamp duty value or sale consideration is less than ₹50 lakh, no TDS deduction applies.
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Agricultural land: When the property qualifies as agricultural land, TDS is not applicable. Classification depends on locality and regulatory definitions.
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Non-resident seller: If the seller is a non-resident, Section 195 of the Income Tax Act governs the tax liability instead of Section 194-IA.
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Exempt property types: Properties specifically exempted under the Income Tax Act are not subject to TDS deduction requirements.
Also, check out How to Calculate TDS on Salary here.
Conclusion
When you accept the TDS on the purchase of a property, it is important to understand the kind of properties covered under the TDS. Mostly, any immovable property (except agricultural land) whose consideration is more than ₹50 lakh is covered under TDS. TDS rate on buying of property is 1 per cent of the sale consideration or the value of stamp duty, whichever is higher. The buyers are required to pay tax while making payment or credit, whichever is earlier and file using form 26QB. It is necessary to ensure the information needed to pay the TDS, like PANs, all transaction information of the buyer and seller.
TDS deduction is not required in certain cases, such as: low-value property, agricultural land or non-resident seller exceptions. By staying compliant with these regulations, the buyer and the seller are not subject to any penalty and the process of transfer is facilitated.