Local authorities, such as municipal corporations or municipalities, impose property tax, often referred to as house tax, on real estate owners. They use the revenue collected from property tax to maintain and enhance public amenities, such as roads, parks, sewage systems, lighting, and other infrastructure services. Section 194IA of the Income Tax Act applies to various types of real estate, including commercial and residential buildings and associated land. However, it is not levied on vacant land with no structures or buildings.
Let’s delve deeper into the specifics of property taxation, Section 194IA, and TDS (Tax Deducted at Source) on the sale of property.
Section 194IA of the Income Tax Act mandates the deduction of TDS during the purchase of immovable property. Before the government introduced this section, buyers only needed to deduct TDS for sales of immovable properties by non-residents or in cases of compulsory acquisition of specific immovable properties. However, Section 194IA, introduced by the Finance Act of 2013, expanded the scope to capture property transactions involving Indian residents.
Under Section 194IA, the buyer (referred to as the “transferee”) is responsible for deducting TDS when making a payment to an Indian resident seller (the “transferor”) for the transfer of immovable property. This TDS applies only when the sale consideration exceeds Rs. 50 lakhs.
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Section 194IA of the Income Tax Act governs the deduction of TDS (Tax Deducted at Source) on the purchase of immovable property in India. You must meet specific prerequisites to comply with the requirements of this section. These are detailed below:
Key Takeaway: Buyers must ensure compliance with all prerequisites of Section 194IA to avoid penalties and complications. Proper deduction, deposit, and documentation are critical to meet the legal obligations associated with the purchase of immovable property.
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Payment of TDS under Section 194IA is an essential responsibility for buyers of immovable property when the transaction value exceeds ₹50 lakhs. Failure to comply can lead to penalties and interest. Below is a detailed explanation of the process and requirements for payment:
Here’s a step-by-step guide for depositing TDS under Section 194IA:
Go to the official NSDL portal at www.tin-nsdl.com.
Navigate to the “TDS on Sale of Property” section and choose Form 26QB.
Enter details about the buyer and seller, such as:
After completing the form, you can pay the TDS online using net banking, a debit card, or by generating a challan to pay at an authorized bank branch.
Upon successful payment, a unique acknowledgment number is generated. Retain this number for future reference.
After depositing the TDS, the buyer must issue Form 16B (TDS Certificate) to the seller.
Steps to generate and download Form 16B:
Failure to deduct or deposit TDS on time can lead to the following penalties:
TDS under Section 194IA must be deducted at the earlier of the following events:
The income tax department receives Annual Information Returns (AIR) from the registrar and sub-registrar’s offices, which include details of property transactions. If the buyer fails to deduct TDS, deposits TDS late, or deducts TDS at a reduced rate, the income tax department may impose penalties, including interest on late deductions, prosecution, or both.
Section 194IA of the Income Tax Act ensures transparency and accountability in property transactions by mandating TDS deduction on the sale of immovable property. This provision not only helps curb tax evasion but also ensures that both buyers and sellers comply with tax obligations. By following the guidelines outlined in this section, buyers can avoid penalties and ensure a smooth property transaction.
No, TDS under Section 194IA is applicable only when the property transaction exceeds Rs. 50 lakhs.
The buyer of the property is responsible for deducting TDS, not the seller.
Yes, TDS must be deducted on each installment if the property is being purchased in installments.
No, buyers do not need a TAN to deduct TDS for property transactions under Section 194IA.
If the seller does not provide their PAN, the buyer must deduct TDS at a rate of 20% instead of the usual 1%.
TDS can be paid using Form 26QB, either electronically or through authorized banks, and must be deposited within 30 days of the deduction.
Failure to deduct or deposit TDS can result in interest, penalties, and potential prosecution, depending on the nature of the default.
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