TDS or tax deducted at source refers to the process of collecting income tax at source by the government of India. It is a kind of spot deduction of tax from the original source of income. TDS is deducted as per the Indian Income Tax Act, 1961. TDS is controlled by the Central Board for Direct Taxes and it is a part of the Indian Revenue Service Department.
TDS is an indirect way of collecting income tax. It is imposed on incomes received from several financial products and business transactions. For examples, interest income received from fixed deposits, incentives and commissions, dividends, payment received for various services, sale, rent and purchase of immovable property and awards earned as money – these are some of the sources of income where TDS is applicable. The deduction of TDS may vary from 1% to 30% based on your source of earnings.
TDS on Sale of Immovable Property:
There is a provision for TDS on sale of immovable property in the Income Tax Act under section 194-IA. As per the tax rules included in this section, TDS will be deducted on sale of immovable property at 1%. However, the rate may go up to 20%, if a transferor does not to provide his/her valid PAN number. A transferee is responsible for deducting tax at source on the amount paid to a seller or transferor for transferring immovable property to the buyer/transferee. The term immovable property in the aforesaid section includes building, land (excluding agricultural land) and any part of a building.
TDS on Rent of Immovable Property:
As per the provisions included in the Indian Income Tax ACT, 1961, any person who is not a member of HUF and pays any income to a resident seller by way of rent is accountable for deducting tax at source. TDS is applicable provided the rent paid to a particular person in a single a financial year goes beyond Rs. 1,80,000. Rent here refers to any payment made under lease, sublease or any other contract for using a building, land, furniture, fittings, machinery etc.
TDS on Purchase of Immovable Property:
Any transferee shall be liable to pay a resident transferor or buyer a particular amount for transferring any immovable property, excluding agricultural land. The transferee would be able to make the payment in cash or via a cheque or draft or any other modes of payment. The transferee shall have the right to deduct tax at source and the amount deducted as TDS will be 1% of the total sum.
TDS on Transfer of Immovable Property:
The section 194IA also includes the provision of deducting tax at source for transferring certain immovable property, except for agricultural land. As per this new provision, any buyer or transferee would be liable for paying any amount to a resident transferor for transferring immovable property. The payment of the amount can be made via cash, cheque or a draft by the transferee. An amount of 1% shall be deducted as TDS by the transferee.
TDS on Immovable Property for NRI:
The Indian Income Tax Act, 1961, also includes provision for TDS on immovable property for NRIs under section 195. As per this provision, any transferee or buyer making payment to a non-resident Indian shall be responsible for deducting tax at source at the rates in force. Capital gains received from selling an immovable property in India by a non-resident Indian is subject to income tax in India.
TDS on Immovable Property Circular:
There is a circular on TDS on purchase of immovable properties. As per this circular, tax will be deducted at source for transferring immovable properties worth Rs. 50 lakh. Any buyer of immovable property, except for agricultural land, will have to deduct tax at the rate of 1% from the amount payable to a resident transferor. This new circular came into effect from 1st June, 2013.
TDS on Immovable Property Under-Construction:
When it comes to under construction properties, TDS will be deducted on installments paid on or after 1st June, 2013. For that, the total purchase consideration should be more Rs. 50 lakhs. There will be no tax deducted at source for installments paid before 1st June, 2013.
Interest on Late Payment of TDS on Immovable Property:
There are specific dates within which you need to pay the tax deducted at source so as to avoid paying interest on late payment. Tax deducted by the payer needs to be paid on the following dates:
- TDS deducted in the month of March should be paid to the government on or before 30th of April.
- If TDS is deducted in the month of April to February, the payment should reach the government before 7 days on the 7th day from the end of the month in which the deduction was done.
- 1% will be charged as interest payment for every month or part of a month for delayed deduction.
- 1.5% will be charged for every month or part of a month for making delayed payment after tax deduction.
In case, you fail to make TDS payment on the above-stated dates, you shall have to pay interest on the amount. You will be charged:
Documents Required for making TDS Payment on Immovable Property:
A property buyer has to furnish the following documents with the TDS form.
- PAN number of both of transferee (buyer) and transferor (seller).
- Category of PAN of transferee.
- Full names of the buyer and seller.
- Category of PAN of the transferor and transferor.
- Complete address of the transferee and transferor.
- Complete and correct address of the property purchased.
- Details of amount paid or credited.
Thus, the section 194-IA of the Indian Income Tax Act allows any individual making payment to a resident transferor or seller for transferring an immovable property to deduct tax at source at 1% of the payment to be made to the transferor. As per the suggestion made in the Finance Bill 2013, this new section - 194 IA has been included in the Income Tax Act, 1961. This deduction of tax on immovable properties is applicable only if the property value is Rs. 50 lakh or more than that.
News About TDS on Immovable Property
Extended timeline for deposit of TDS on Property Sale
Property owners have been given an extended timeframe for deposit of their TDS on sale of property. The timeline has been extended by 23 days. Any buyer who buys a property worth more than Rs.50 lakhs is supposed to deduct 1% of the sale price of property and deposit it as TDS with the Income Tax Department using form 26QB.
Also, earlier any property buyer had a timeline of one week after buying the property for deposition of TDS, now the same has been extended to one month. The rule will be effective from June 2016.
06th May 2016