Everything A Homebuyer Needs To Know About TDS

Among the many tasks that you have to perform as a homebuyer is the responsibility to deduct TDS (tax deducted at source) from the transaction amount on behalf of the income tax (I-T) department. Let us try to understand what TDS is and how it works.

What is TDS?

To collect taxes in a fast and efficient manner, the government has put in place a system under which tax is deducted at the time of income generation. We know this system as TDS. The tax amount, as prescribed under the rules, is deducted by the person making the payment. This person has the responsibility to credit with the government the amount he deducts as TDS. The TDS deduction provision applies to payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments (which includes property transactions), etc.

TDS and homebuyers

In the Finance Act, 2013, a new clause, Section 194-IA, was introduced that talks about deduction of tax at source when a payment is made for the purchase of an immovable property to a resident of India. Do note that this Section is not applicable if the seller is a non-resident India (NRI). In case of NRI sellers, TDS will be deducted under the provisions of Section 195.

The rate: One per cent of the total amount has to be deducted as TDS by the buyer.

Do note here that if the sale amount is below Rs 50 lakh, no TDS will be deducted. If the amount exceeds Rs 50 lakh, TDS will be deducted on the entire amount, and not only on the amount exceeding Rs 50 lakh. This means, you have to deduct Rs 1 lakh as TDS if the property is being sold for Rs 1 crore.

What are the duties of a buyer?

Here is what you have to do as a buyer of a property:

• Deduct TDS at the applicable rate, which is one per cent of the amount in your case.

• Get the tax deduction account number (TAN) and quote the same in all the documents pertaining to TDS. Do note that a homebuyer is not required to obtain TAN and can use PAN for remitting the TDS.

• Credit the TDS with the government within the specified time period. Also, file the periodic TDS statements.

• Issue the TDS certificate to the payee in respect of tax deducted by him.

What if you fail to deduct TDS?

Do not be under the impression that the seller will have to bear the consequences in case you fail to undertake the task assigned by law to you as a buyer. Any failure to credit with the government TDS deducted by you within the due time period would attract “interest, penalty and rigorous imprisonment of up to seven years”. A seller will have to pay the dues to the government in a buyer fails to deduct TDS. However, he will not have to face any adverse action.