TDS on Property Sale and Purchase in India

TDS on Property Sale and Purchase in India

The Income Tax Act of India (1961) mandates every person or company to deduct tax at source while making payments above a certain threshold. These could be salary payments to employees, brokerage payments, or invoice payments to vendors or sellers. However, the rate for the deduction of the TDS or tax deducted at source can be different for different types of payments. 

This article will discuss the rate and norms for TDS on property sales in India. The information mentioned in the article can be useful for both the seller and the buyer of a real estate property. 

What is the TDS? 

The Government of India introduced the concept of TDS to ensure hassle-free payment of income tax by its citizens. Under this concept, any person or a company who is liable to make a payment to another person or company is allowed to deduct a certain amount (known as TDS) before making the payment. This amount has to be submitted to the Government as advance income tax being paid by the person who received the payment. 

How much is the TDS rate in India? 

There is no fixed rate for the deduction of TDS in India. It depends on the amount of payment being made and the type of payment. The exact rates for TDS deductions for different types of payments are mentioned in Sections 192, 193, and 194 of the Income Tax Act. 

For example, a 10% TDS can be deducted from an employee’s salary if his or her annual salary is more than ₹2.5 lakhs. Similarly, a 10% TDS can be deducted on interest payments, a 30% TDS can be deducted from winnings from lotteries, crossword puzzles, card games, horse races, etc., and a 5% TDS can be deducted from insurance commission payments. 

What is the rate for TDS deduction on the sale of a property? 

After the implementation of the Finance Bill in 2013, the sale or purchase of immovable property in India now attracts TDS deductions. As per Section 194-IA of the Income Tax Act, if a person buys an immovable property in India worth more than ₹50 lakhs, they are allowed to deduct a TDS while making payment to the seller. The rate for TDS on property purchases is fixed at 1% by the Government. 

Below are the crucial points that one needs to remember regarding the deduction of TDS on the sale of immovable property in India: 

  • Only the buyer of the property can deduct the TDS amount while making the payment to the seller. 
  • No TDS deductions are allowed if the property price is below ₹50 lakhs. 
  • The buyer can deduct the TDS at the rate of 1% of the total selling price of the property. They can make the payment to the seller after deducting the appropriate TDS amount 
  • The total selling price of the property must include all charges, such as parking charges, maintenance charges, club membership fees, etc. 
  • The TDS has to be deducted from the entire selling price of the property. For example, if a buyer is paying a total of ₹60 lakhs for buying a property, they can deduct 1% of ₹60 lakhs, i.e., ₹60,000 as TDS while making the payment to the seller. 
  • If the price is paid in instalments, then the TDS can be deducted from every instalment at the applicable rate. 
  • The buyer needs to have the PAN of the seller while deducting the TDS amount. However, TAN is not mandatory for TDS on property sales. 
  • The buyer needs to pay the TDS to the Government using Form 26QB within 30 days after the end of the month in which the TDS was deducted. 
  • After depositing the TDS to the Government, the buyer must issue a TDS certificate to the seller. This can be done through Form 16B. 

What is the rate of TDS on the sale of property by NRI? 

If the seller of the property is a Non-Resident Indian or an NRI, then the rate for TDS deduction would be 20% of the total selling price of the property, along with an additional surcharge and cess. The TDS on the sale of property by NRI can be deducted even if the selling price of the property is less than ₹50 lakhs.  

To Conclude 

The deduction of TDS is a vital part of the property sale and purchase process in India. Both the buyer and the seller need to be aware of their responsibilities and complete them diligently while buying or selling immovable property. Non-adherence to TDS rules can attract hefty penalties from both parties. 

Disclaimer- This article is based on the information publicly available for general use as well as reference links mentioned herein. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.

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