The TDS on sale of property is important for ensuring that buyers and sellers comply with regulations. Therefore, understanding TDS is necessary for tackling property transactions, avoiding legal hassles, and preventing tax-related errors.
This guide will provide you with an overview of TDS on the sale of property regarding the latest updates and practical steps of compliance in 2024.
What is TDS on Sale of Property?
TDS on sale of property is an income tax mechanism wherein while making any payment to the seller, the buyer has to deduct tax at source and deposit it with the government. This system ensures that the tax obligations are discharged at the very moment of transaction rather than at the end of the financial year.
The whole concept of TDS on property transactions was for anti-tax evasion and to facilitate easy collection of taxes. In fact, the provision was, historically, aimed at bringing in more compliance and proper taxation on the income through the sale of properties.
The legislative intent is to provide an easy way for the government to collect taxes directly from the transaction, thereby offloading the task of tax collection from individual sellers.
Key Changes in TDS Rules for 2024
Summary of Amendments Coming into Effect October 1, 2024
Major changes to the TDS rules on property transactions take effect on October 1, 2024. Firstly, the rate of TDS on the sale of immovable property will be brought under change for better compliance and proper deduction. New threshold limits may be specified, reducing the amount of sale consideration below which the TDS must be deducted.
Furthermore, the manner of filing and documenting TDS will also undergo changes to ease compliance and reduce administrative costs. The amendment proposals should also resolve past ambiguities in tax laws and move in parallel with the general tax reform. This will simplify the TDS on property transactions and improve transparency.
Implication of the Changes to Buyers and Sellers
Revised TDS rates and limits will require the buyer to adjust his calculations and payment arrangements. If the limit is brought down, it will automatically result in a higher TDS. The seller must be vigilant about such changes to avoid a mismatch in their tax return and ensure proper credit for the TDS deductions.
The new documentation requirements will draw the attention of both parties to the closeness of the filing procedures, which will affect their compliance.
The changes are brought closer to improving the purchase and the efficiency of tax collection and reducing disputes regarding TDS on property transactions. Sellers and buyers should explore and understand the new rules of TDS on purchase of property as well as sale of property so that transactions will be smooth and the tax calculation will be done correctly.
TDS Rates and Thresholds
TDS Rates on Different Property Transactions
The TDS rate for the sale of immovable property except agricultural land has been fixed at 1% of the sale consideration since 2024. This is the same for residential and commercial properties.
In the case of a property where the seller is an NRI, the rate is 40% plus applicable cess, which means an additional tax burden because the tax incidence for non-residents is different.
Threshold Limits and Their Significance
The provisions of TDS in respect of property come into play where the sale consideration for the property is more than ₹50 lakhs. This is the threshold limit and acts as an important criterion for whether or not TDS is required to be deducted.
Suppose the sale consideration is lower than the aforesaid limit. In that case, TDS will not have to be made, though the seller may still become liable to income tax on the total income earned, including the consideration amount.
When is TDS Applicable?
Situations for TDS Deduction
TDS is applicable on the sale of property under a few specific cases, as outlined by the tax rules. Here’s looking at them in detail with regard to when the TDS should be deducted:
- Sale Consideration Exceeds Threshold: The property’s sale consideration is higher than ₹50 lakhs. The figure of ₹50 lakhs is in view to ensure that a very high state-of-value transaction applies to TDS and that the administrative burden of small transactions is not borne.
- Higher Sale Consideration or Stamp Duty Value: TDS must be calculated based on the greater amount between the sale price and the stamp duty value of the property. TDS must be calculated based on the greater amount between the sale price and the stamp duty value of the property.
Therefore, if there is a sale consideration of ₹60 lakhs, but the stamp duty value is, say, ₹65 lakhs, TDS shall have to be deducted on ₹65 lakhs.
- Advance Payments/Instalments: TDS applies not only to the final payment but to every payment made towards the property. In case of sale through instalments, TDS has to be deducted from each instalment based on the payment made at that time.
- Non-Residents: In case of a sale by an NRI, TDS is usually deducted at 40% plus applicable cesses, which is a different rate for tax purposes for NRIs.
- TDS on Transfer of Property by Companies: More than this, even in the case of a transfer made by companies, they will be liable to deduct the TDS at the prescribed rate on the sale consideration if the same is beyond prescribed limits. The objective will be to put corporate transfer on the same footing as with others.
- Transfer of Property Between Relatives: Even in the case of transactions between family members or relatives, if the sale consideration goes beyond ₹50 lakhs, TDS has to be deducted. The relationship between buyer and seller shall not absolve the transaction from the applicability of TDS.
- Instalment Payments: In cases of property sales where the payment is to be done through multiple payments or over time, the deduction of TDS has to be on each payment. This is to ensure that the tax obligation is met according to the actual flow of funds at that point in time.
Exemptions and Special Cases
There are certain transactions that are either not subject to TDS or contain special provisions. For instance, in the case of a sale of agricultural land, generally, there is no liability to deduct TDS, as such sales of agricultural land are non-taxable assets for the purpose of capital gains, subject to certain conditions.
This specific exemption had been on the supposition that agricultural land did not fall in the description of the words ‘capital assets’ for the purposes of income tax in most states.
Also, different rules will be applicable if the property transaction is part of any government scheme or even includes particular assets which have received special tax treatments. This, therefore, calls for both buyers and sellers to know such exemptions and special cases so as to avoid such unnecessary deductions and, hence, comply.
It is always advisable to consult a tax professional or the most current guidelines to properly determine if a transaction is exempt or requires special treatment.
Calculating TDS on Property Transactions
Calculation on the Basis of Sale Consideration and Stamp Duty Value
For calculating TDS, the buyer shall consider which amount is higher between the sale consideration or the stamp duty value of the property. Now, 1% TDS is calculated on the amount. For example, if a property is sold for ₹60 lakhs and the stamp duty value of that property is ₹65 lakhs, then TDS will be calculated on ₹65 lakhs.
Examples of TDS Calculations
Example 1:
Sale Consideration: ₹75 lakhs
Stamp Duty Value: ₹80 lakhs
TDS Calculation: 1% of ₹80 lakhs = ₹80,000
Example 2:
Sale Consideration: ₹40 lakhs
Stamp Duty Value: ₹45 lakhs
TDS Calculation: 1% of ₹45 lakhs = ₹45,000; this will apply because the sale consideration is less than the threshold.
How to Deduct and Deposit TDS?
Step-by-Step Guide to Deducting TDS
Step 1: Information Gathering: Obtain PAN details of both buyer and seller, as well as property sale details such as sale consideration and stamp duty value.
Step 2: Calculate TDS Amount: Calculate the higher value between the sale consideration and the stamp duty value and compute the TDS amount at 1% for residents and 40% plus cess for non-residents.
Step 3: Deduce TDS: The TDS amount is calculated and deducted from the seller’s payment.
Step 4: Deposit TDS: Log in to the income tax e-filing portal, fill in Form 26QB with the transaction details and TDS amount, pay it online, and generate the challan.
Step 5: Issue TDS Certificate: Give Form 16B to the seller for proof of TDS deduction from his income.
Step 6: File TDS Returns: Within 30 days from the TDS deduction date, file Form 26QB and report the TDS on the sale of the property correctly.
Online Payment Process Using Form 26QB
Here is the online payment process using form 26QB:
Step 1: Log in to the Income Tax e-filing portal.
Step 2: Choose Form 26QB for payment of TDS on property transactions.
Step 3: Fill out all the required details: PAN of buyer and seller, property details, and TDS amount.
Step 4: Pay the amount of TDS through the online portal.
Step 5: Save and print the challan for payment and preserve it for future reference.
Filing TDS Returns
Process for Filing TDS Returns
- Log in to Income Tax Portal: Visit the income tax e-filing website and log in with your user ID and password.
- Go to TDS Forms: Click on the “e-File” drop-down menu and select “TDS/TCS.”
- Choose Form 26QB: Form 26QB is only for TDS deduction on property transactions.
- Enter Details: The details that must be filled out include the PAN of both buyer and seller, the details of the property, sale consideration, the value of stamp duty, and the TDS amount.
- Verify and Validate: The entered details must be validated, and errors must be corrected.
- Generate and Pay Challan: After the challan is validated, generate the TDS and pay the TDS online. The available payment methods are generally net banking or debit/credit card.
- Download Challan Receipt: This challan must be saved, printed and kept as proof of the challan, which will hold a unique Challan Identification Number (CIN).
- Form 26QB Submit: Once the payment is validated, Form 26QB will be filled out on the portal. Please be careful all the details are captured correctly.
- Form 16B to Seller: Seller should furnish Form 16B to Seller as evidence of TDS deduction. This form will be used to file the seller’s taxes, and it’s a necessary document for the seller to keep in his/her records.
- Maintain Records: It is necessary to keep photocopies of the challan, Form 26QB, and Form 16B for your records and future reference. Submission of such documents is required in case of an audit or inquiry by the department.
Read More: Form 27Q TDS Return for NRI Payments in 2024
Importance of Form 26QB and Form 16B
Form 26QB: It is used to report TDS on property sales. It is filed online and reflects the payment details.
Form 16B: Issued by the purchaser to the seller, this form is proof of TDS deduction and payment. The seller requires this form to claim credit for the TDS amount.
Claiming TDS Credit
How Sellers Can Claim TDS Credit?
The seller is eligible to claim credit for the deducted TDS on his property sale when filing his income tax returns. The TDS credit will show up in Form 26AS, an annual statement of taxes available on the income-tax portal.
Though the guide mainly deals with TDS on property sales, understanding this concept of TDS on property purchases would also be important since it impacts buyers and sellers in real estate. Click here to learn about Rustomjee’s real estate business today, and buy your dream property today!
Documentation Required for Claiming Credit
Form 16B: Proof of TDS deduction.
Form 26AS: Annual statement of taxes deducted at source.
Sale Deed: This is a document evidencing the property sale.
Understanding TDS on sale of property transactions is imperative to ensure compliance and avoid penalties. The updates in 2024 have much catching up to do on the part of buyers and sellers with rates, threshold limits, and filing procedures. Proper compliance with these regulations will be very instrumental in smoother transactions and the correct reporting of taxes.
Read More: TDS on Sale of Property by NRI in 2024
FAQs About TDS on the Sale of a Property
1. How much TDS is deducted on the sale of property?
1% of the sale consideration or stamp duty value, whichever is higher. For non-residents, the rate would be 40%, plus the applicable cesses.
2. Who will pay 1% TDS on the sale of property?
The buyer will deduct and pay 1% TDS on the sale consideration or the stamp duty value.
3. Who is required to file 26QB?
The buyer is required to file Form 26QB mentioning the TDS deduction done on the sale of a property.
4. Can TDS on the property be claimed back?
Yes, a TDS on property can be claimed if no capital gains were derived from the sale. It will be refunded after the income tax return is filed.
5. What if TDS is not deducted on the sale of property?
If the TDS is not deducted, the buyer will have to pay interest at the rate of 1% per month under Section 201. If the TDS is deducted but not paid to the government, then the interest rate is 1.5% per month.
6. Who is to pay TDS in case of the sale of property?
The buyer will have to deduct and deposit TDS on the sale of property. The amount of sale is received by the seller after the buyer deducts TDS.
