All About TDS That Buyers, NRIs And Renters Need To Know About
Among the several expenses that are part of property transactions in India, is tax deducted at source (TDS.) “As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee), shall deduct tax at source and remit the same into the account of the Central government. The deductee from whose income, tax has been deducted at source, would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor,” says the Income Tax Department website.
Here is everything homebuyers and tenants need to know about TDS on property purchase and TDS on property renting.
TDS On Property Purchase
Under Section 194-IA of the Income Tax (I-T) Act, an Indian buyer of flat, land and commercial property, has to deduct one per cent of the transaction value as TDS at the time of purchase. If the property is being registered for Rs 1 crore, for example, the buyers will have to deduct Rs 1 lakh from this amount as TDS.
Property deals where this deduction is not applicable: No TDS will be deducted for property transactions that are lower than Rs 50 lakh. If the amount exceeds Rs 50 lakhs, TDS will be deducted on the entire amount, and not only on the amount exceeding Rs 50 lakhs. If the deal is being registered at, say, Rs 52 lakh, Rs 52,000 will be deducted as TDS and not Rs 20,000. Also note here that Section 194-IA is only applicable on native buyers. The rate is much higher if you are buying a property from an NRI (non-resident Indian). Also, this Section does not cover transaction of agricultural land.
The form: Buyers have to fill Form 26QB to credit the TDS. In case there are multiple buyers or sellers involved in the transaction, separate forms have to be filled for each party.
Mode of payment: After deducting the TDS, the buyer has to submit the amount to the government within 30 days from the end of the month in which it was deducted. So, if the TDS was deducted sometime in March, the buyer has to credit the amount with the government by April-end. The payment could be made online as well as offline. Authorised banks can help buyers make the payment. Those buyers who have taken a home loan to complete the transaction, can also ask their lenders to help them deduct the TDS and credit it.
Issuance of certificate: After the tax has been credited with the government, the buyer has to download the TDS certificate in Form No 16B from the website of the I-T Department and issue it to the seller within 15 days.
Penalty on delay: In case the buyer fails to deduct and credit TDS with the government, the seller would do the same. However, if both fail to meet this obligation, the buyer will have to bear the brunt. Defaulters have to pay Rs 200 per day fine for missing the deadline. A penalty of up to Rs 1 lakh for defaulting can also be imposed. Apart from interest and penalty, the buyers may be sent to jail for up to seven years.
TDS On Property Purchase from NRIs
TDS on real estate transactions where the seller is an NRI is different from what it is in case of a resident seller. Depending on the deal value, the buyer has to deduct over 20 per cent of the transaction value as TDS.
- If the deal value is less than Rs 50 lakh, 20.80 per cent has to be deducted as TDS.
- If the deal value is worth anywhere between Rs 50 lakh and Rs 1 crore, 20.80 per cent has to be deducted as TDS.
- If the deal value is worth over Rs 1 crore, 23.92 per cent of the deal value will be deducted as TDS.
In case the seller is making short-term capital gains (if the property is sold within two years of purchasing it), the rate of tax would be 30 per cent.
Why is the tax rate so high?
In case of an NRI, a buyer basically deducts tax on the capital gains made by the seller. In this case, the buyer has to use Form 27Q and has to issue the seller Form 16A after crediting the payment with the government. Also worth noting is the fact that while a buyer does not have to obtain a Tax Deduction and Collection Account Number (TAN) to deduct and credit TDS in case of a seller who resides in India, a buyer who is purchasing a property from an NRI has to get a TAN number to be able to make and credit the deduction.
The TDS money has to be deposited with the income tax department within seven days after the month in which the transaction takes place. You are also responsible for filing TDS returns and issue Form 16A to the seller after depositing the amount with the authorities.
If the buyer fails to deduct the TDS, they will be liable to pay a penalty of 100 percent on the outstanding amount. In case they fail to issue the certificate to sellers within the 15-day limit, they are liable to pay Rs 100 per day as penalty. Apart from interest and penalty, the buyers may be sent to jail for up to seven years.
Also read: Buying Property From An NRI? Take Note
TDS on Rent
A landlord’s rental income is taxed under the 'income from house property' under the provisions of the Income Tax Act. Under Section 194-IB of the I-T Act, 1961, individuals and Hindu Undivided Families (HUFs), who pay a monthly rent of Rs 50,000 and whose accounts are not audited, have to deduct five per cent of the annual rent as TDS. This provision was launched in the Budget of 2017, and came into effect in June, 2018.
In case a landlord earns over Rs 20 lakh in rent by letting out a commercial building, the tenant must also deduct goods and services tax at 18 per cent. This rule does not apply in case of residential properties.
Renters have to fill Form 26QC to pay TDS, and must issue the landlord a certificate, Form 16C, that the payment has been made within 15 days of the payment.
Also read: How To Pay TDS On Rent?