Everything you need to know about TDS on property

For a novice in the field of real estate, the term 'TDS on property' might seem elusive, confusing, and complicated. However, reading and gaining information about it, would easily make you a pro at the subject.

Why Tax Deducted at Source (TDS)?

According to a judgement given by the Supreme Court of India in 2012, property transactions under Power of Attorney were banned. It was during the same year that the then Finance Minister, Pranab Mukherjee proposed TDS on purchase of immovable property during the budget 2012. It was also made mandatory to state Permanent Account Number (PAN) for the transactions.

However, it was noticed that over 40 per cent of the transactions were undervalued and were done without the PAN details. In order to regularise the transactions in the real estate market, TDS on property was introduced. This whole process also helped the real estate market in India to get more organised with electronic documentation of land records.

What is the TDS on property?

As issued by the Central Board of Direct Taxes with effect from June 1, 2013, the buyer of an immovable property (worth Rs 50 lakhs or more) is mandatorily required to pay 1 per cent withholding tax of the total amount payable to the seller, baring the transactions of agricultural lands in notified rural areas. Any transactions that have been completed after June 1, 2013, will fall under the purview of this rule. Since it is the buyer's responsibility to deposit the tax in the government treasury, you should be aware of the steps involved if you are a potential buyer.

The process

• The buyer needs to visit the Tax Information Network (TIN) website at onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp and fill in the details of the property, address, amount payable and other payment details.
• If two or more parties (buyers or sellers) are involved in purchase, Form 26QB should be filled out by each individual for the unique buyer-seller combination.
• Once the form is duly filled, the buyer can make immediate e-payment, delay it to a subsequent date, or visit any of the authorised bank branches for payment.
• After the payment is made successfully, a challan or receipt containing a unique Challan Identification Number (CIN) is be generated that will be the proof of the payment made.
• The Form 16B needs to be downloaded from www.tdscpc.gov.in. The buyer then has to handover the TDS certificate to the seller within a fortnight from the due date of submission of the challan.

Things to keep in mind

• Whether the property is financed by self or externally, the responsibility of deducting and depositing the TDS lies solely with the buyer.
• The TDS payment on sale of the property must be made to the government within a week from the month end of TDS deduction.
• It is mandatory for both the buyer and the seller to provide their PAN details.
• TDS is to be deducted from the seller at the time of payment. For example, if the payment is being made in instalments then the TDS has to be deducted for each instalment.
• The buyer need not have a TDS account number for the TDS payment.
• The acknowledgment number issued after the payment will be required for maintaining further payment transactions.

It is important to note that there is a heavy penalty in case of non-deduction or non-payment of TDS. The penalty under Section 201 is 1 per cent interest for every month the TDS deduction has been delayed and 1.5 per cent penalty for every month the TDS payment to the government has been delayed. Remember, to be forewarned is to be forearmed!