Tax Deducted At Source (Tds) On Property Transactions
By Rajkumar Adukia, LL.B
“A tax is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority” and is any contribution imposed by government whether under the name of toll, tribute, impost, duty, custom, excise, subsidy, aid, supply, or other name.” (Black’s Law Dictionary)
An assessee pays tax in the assessment year on the income earned in the previous year. Due to this rule the tax collection is delayed till the completion of the previous year. Even sometimes people conceal their income and the tax is not paid at all. In order to overcome these problems, government started deducting some amount of tax from the amount which is receivable by the assessee. The amount of tax so deducted is called as “Tax Deducted at Source”, i.e., TDS. This scheme is governed and regulated by the Income Tax Act, 1961 and Income Tax Rules, 1962.
Tax deducted at source is one of the modes of collecting Income-tax from the assessees. Such collection of tax is effected at the source when income arises or accrues. Hence where any specified type of income arises or accrues to any one, the Income Tax Act enjoins on the payer of such income to deduct a stipulated percentage of such income by way of Income tax and pay only the balance amount to the recipient of such income. The tax so deducted at source by the payer has to be deposited in the Government treasury to the credit of Central Govt. within the specified time. The tax so deducted from the income of the recipient is deemed to be payment of Income-tax by the recipient at the time of his assessment. Some of the incomes subjected to T.D.S. are salary, property, interest, dividend, interest on securities, winnings from lottery, horse races, commission and brokerage, rent, fees for professional and technical services, payments to non-residents etc.
Why TDS on immovable property?
The Finance Minister of India while announcing the Budget 2013-14 introduced TDS on property @ 1% on all immovable property transactions (other than agricultural land) over Rupees Fifty Lakhs under Section 194-IA of Income Tax Act, 1961.
While introducing TDS on property, the Finance Minister said that transactions of immovable property are usually undervalued and under reported. Almost half of the transactions don’t even carry the PAN card number of the parties concerned. With a view to improve the reporting of such transactions and taxation of capital gains, Section 194-IA was introduced which states that TDS on transactions of immovable property is to be deducted at the rate of 1% where the consideration exceeds Rs.50 lakhs. This provision has come into force from 1st June 2013.
This provision would also tighten the screws on corruption and black money which is being circulated in the Real Estate Market as property transactions are being used to park and generate black money.
Sec.194-IA – Payment on transfer of certain immovable property other than agricultural land
(Inserted by the Finance Act, 2013, w.e.f. 01-06-2013)
(1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon.
(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.
(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
Explanation. — For the purposes of this section,—
(a) “agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;
(b) ”immovable property” means any land (other than agricultural land) or any building or part of a building.]
Section 194LA deals with payment of compensation on acquisition of certain immovable property.
Section 203A requires every person, deducting tax or collecting tax to obtain a Tax Deduction and Collection Account number i.e. TAN number.
Coverage under the TDS provisions of immovable property
The persons covered under the TDS provisions are –
- Purchaser and seller
- Hindu Undivided Family (HUF)
- Partnership Firm
- Association of persons
- Body of Individuals
- Limited Liability partnership
- Artificial Juridical persons
Types of property covered under the TDS provisions are –
- All types of property other than agricultural land
- Residential property
- Commercial property
Rate of tax to be deducted
Tax at the rate of one percent should be deducted by the purchaser of property at the time of making payment for sale of property.
How to deduct TDS?
TDS should be deducted on the whole amount of property sold and not on the amount exceeding the property value of Rs.50 lakhs.
For example, If amount of property sold is Rs.70 Lakhs, would TDS be calculated at Rs.20 Lakhs or on Rs.70 Lakhs? TDS should be deducted on the amount paid/credited to the seller. In the above e.g. the deduction will be on total amount i.e. on Rs.70 Lakhs.
Due date for tax deduction
Tax should be deducted at the time of credit of the amount to the account of the transferor or at the time of payment of such amount in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.
The tax so deducted should be paid to the credit of the Central Government through online, within a period of seven days from the end of the month in which the deduction was made and accompanied by a challan-cum-statement in Form No.26QB.
TAN and PAN requirements
The Buyer or Purchaser of the property is not required to procure Tax Deduction Account Number (TAN). The Buyer is required to quote his or her PAN (Permanent Account Number) and the sellers PAN.
PAN of the seller is mandatory. If the seller does not have a PAN number, then he should obtain it before effecting the transaction.
Form 16B is the TDS certificate to be issued by the deductor i.e. the Buyer of property to the deductee i.e. Seller of property in respect of the taxes deducted and deposited into the Government Account.
Form 16B can be downloaded from the website of Centralized Processing Cell of TDS (CPC-TDS) www.tdscpc.gov.in and furnished to the transferor, payee or seller within fifteen days of the due date of filing Form 26QB, that is, within twenty-two days from the end of the month in which the tax has been deducted.
Form 26QB is the challan cum statement for electronic deposit of tax deducted. This form includes details such as name, address and PAN numbers of the transferor, payee or seller. Form 26QB has to be submitted separately for payments made to each transferor, payee or seller.
Payment of tax
Tax so deducted should be deposited to the Government Account through any of the authorized bank branches using the e-Tax payment option available at NSDL.
E-Payment facilitates payment of taxes online by taxpayers.
– To have a net-banking account with any of the Authorized Banks
– For list of authorized banks, please refer https://onlineservices.tin.nsdl.com/etaxnew/Authorizedbanks.html
Steps to pay tax online –
– Log on to NSDL-TIN website (www.tinnsdl.com)
– Under TDS on sale of property, click on the option “Online form for furnishing TDS on property”
– Select Form for Payment of TDS on purchase of Property
– Select Financial Year from the drop down for which payment is to be done
– Select Tax applicable for which payment is to be done
– Mention PAN of Transferee/Buyer
– Mention PAN of Transferor/Seller
– Re-enter PAN of Transferee/Buyer
– Re-enter PAN of Transferor/Seller
– Provide Complete address of Transferee/Buyer
– Provide Complete address of Transferor/Seller
– Provide Complete address of Property transferred
– Mention the date of Agreement/Booking of property
– Mention the Total value of consideration (Property Value)
– Mention if the above payment is done in Lump sum or in Installments
– Please select the amount paid/credited (Enter the amount paid to the Transferor/Seller)
– Please enter the TDS rate (Tax rate at which the TDS was deducted by the purchaser at the time of purchase of the property)
– Please enter the TDS amount to be paid (amount deducted by the purchaser at the time of purchase of the property)
– On proceed, confirmation page is displayed to verify the details entered
– If all the above detail including the name displayed (as per ITD) is correct then, click on “SUBMIT” button
– In case you have made a mistake in data entry, click on “EDIT” to correct the same.
– On confirmation, nine digit alpha numeric Acknowledgment number would be generated
– To do the required TDS payment, please click on ‘Submit to the Bank’ button
– On clicking on Submit to the Bank, deductor will have to login to the net-banking site with the user ID/ password provided by the bank for net-banking purpose.
– On successful login, enter payment details at the bank site.
– On successful payment a challan counterfoil will be displayed containing CIN, payment details and bank name through which e-payment has been made. This counterfoil is proof of payment being made.
Although the procedure for deducting TDS on property transactions is quite cumbersome, the Government is keen on curbing irregularities during sale of property and controlling the flow of black money.