TDS on Purchase of Property: A Complete Guide

Summary: Property buyers and sellers frequently require clarification on TDS on Purchase of Property. Don’t be worried; you are not alone. This guide will walk you through the process with expert advice and step-by-step instructions.

TDS stands for Tax Deducted at Source, which means that tax is deducted right at the source of income. As part of the Indian Revenue Service Department, the Central Board for Direct Taxes is in charge of TDS under the Income Tax Act of 1961. It is a method of indirect tax collection imposed on revenue generated by various business transactions and financial products. TDS, for example, is levied on all interest income derived from incentives, commissions, fixed deposits, dividends, and so on. It also applies to payments received from the rental, sale, or purchase of the real estate. TDS deductions may range from 1% to 30% depending on the source of earnings.

Here is a detailed understanding of TDS on the Purchase of Property.

Properties Covered

Interestingly, the power to deduct TDS on a property purchase lies with the buyer, not the seller. According to Section 194IA of the IT Act, the buyer must deduct 1% of the sale amount for a property costing above ₹50 Lakh. 

The deduction applies to all properties, land, residential, and commercial. However, it does not include agricultural land. It is important to note that the TDS for NRIs on property purchases is different because the government deducts their TDS and capital gains.

Must Read: What is Section 24 of the Income Tax Act?

Scope of section 194-IA

Section 194-IA provides that 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 the transfer of any immovable property (other than agricultural land) shall deduct an amount equal to one percent of such sum as income-tax 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 the issue of cheque or draft or by any other mode, whichever is earlier.

When and How to Deduct the TDS

A buyer who obtains a Home Loan has two options for paying the TDS: first, when they execute the conveyance deed, and second when they pay an advance prior to executing the conveyance deed. When completing the TDS payment forms for a property purchase, the buyer must complete form 26QB. It is an online form on the TIN website that is used to provide TDS information on a property purchase. The form requests information such as the buyer’s and seller’s names, PAN, addresses, email ID, mobile numbers, and so on. It also requires the agreement date, payment date, total consideration value, and so on.

Buyers must also issue Form 16B, a TDS certificate that the property’s buyer issues regarding the deducted taxes to the seller. If there is more than one buyer or seller, separate forms will be necessary for their respective shares.

Details Required for TDS Payment

Every individual deducting TDS must obtain a TAN (Tax Deduction Account Number). However, the buyers do not need a TAN for TDS on Purchase of Property. While filling out the form, they must submit both parties’ names, addresses, and contact details, along with the property’s complete address, date of agreement and payment, and total value. After completing the Home Loan eligibility criteria, buyers can make the TDS payment physically at the finance company or online through net banking.

Must Read: How to Avail Tax Benefits on Home Loans?

When TDS Deduction is Not Necessary

TDS deduction is not necessary under the following circumstances:

If the property’s stamp duty value or sale consideration is below ₹ 50 Lakh

If the property is an agricultural land

If the seller is an NRI and Section 195 is applicable

Purchasing a property involves taxes like TDS. Understand what this could mean for your next property transaction, which properties come under it, and how to go about paying this tax. 

Equipped with the right information, apply for Home Loan at competitive Home Loan interest rates and submit the Home Loan documents required to complete the application. Remember to use a Home Loan EMI calculator to select budget-friendly EMIs that you can pay conveniently within your monthly budget.

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