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Income Tax

FEMA/RBI Regulations

Attention Property Buyers! Do You Know the Law of TDS Deduction (or Withholding Tax) on Property Purchase?

(nritaxservice/news-articles/dated may 06, 2014)

In recent time, people are investing a lot in real estate. Also for their own occupation, people are buying immovable properties. However, many of them are not aware about the newly inserted provisions of Tax Deduction at Source (TDS) (or also called Withholding Tax) on the payments being made for purchase of property. Effective June 1, 2013, under the TDS Mechanism (Sec 194IA of the Income Tax Act, 1961)(‘Act’), Govt of India has put the responsibility on the shoulders of Buyers to deduct TDS on the payments being made to Seller/Builder for purchase of property.

In this regard, Salient Features are as under:

- Threshold Limit: TDS is applicable on immovable property purchase transaction(s) of Rs 50 Lac or more.

- TDS Rate: 1%of sum being paid.

- Person Responsible: Buyer is responsible to deduct the TDS and pay the same to Govt a/c.

- TDS Deposit Time (Within 7 Days): Buyer shall deposit the TDS (to the Govt A/c), within a period seven days from deduction, online through e-Tax Payment Mechanism (available at www.tin-nsdl.com  or www.incometaxindia.gov.in) through Form 26QB.

- TDS Certificate (Form 16B): Once the TDS is paid to Govt A/c, within 15 days from the due date of deposit of TDS, the buyer need to apply (online through www.tdscpc.gov.in) for TDS Certificate (i.e Form 16B), to be provided to seller. On the basis of 16B, the seller can seek credit in his/her ITR for the deducted TDS.

- Resident Seller: The above mentioned TDS provisions are applicable if property is being purchased from a person who is a Resident’ as per the provisions of Income Tax Act. In case the Seller is a Non-resident (e.g. NRI, PIO, Foreign Citizen etc) then there are different TDS Provisions (i.e. Section 195 of the Act), which is more technical and Buyer must to consult his Tax Advisor for the compliance of same. 

- Other Important Things: TDS is applicable for flat booked with a builder, on all the payments being made to the builder. Buyer is responsible to deduct TDS even on the borrowed money (i.e. loan taken from bank, where bank pays directly in the name of seller). Further, TDS is applicable on all kind of properties (except agricultural properties). Further, buyer must have the TDS payment proof at the time of property registration otherwise the Registrar may deny the registration of property pending TDS Deposit. PAN of buyer(s) and seller(s) are compulsory for deposition of TDS Amount.