Vinayak Realtech

Buying a real estate property is always considered one of the biggest milestones of life. It offers a sense of stability and fulfilment. However, unlike the other luxurious purchases, this does not end with paying the seller, as it involves many legalities. Learning about these legal aspects helps to avoid penalties and ensure smooth ownership transfer, and one of them is the TDS on the purchase of property. Today’s article aims to simplify this for you. Read this piece to find out details about TDS in India. Whether you’re a first-time buyer or a seasoned investor, understanding TDS on Purchase of Property can help avoid unwanted hassle.

Let’s start

What is TDS on Property Purchase in India?

TDS is the acronym of Tax Deducted at Source in the Indian taxation system. In this system, a tax amount (Tax) is deducted when you receive money, and it is imposed on various business transactions or financial products. This indirect Tax is always levied right at the source of income rather than waiting until year-end. In short, a part of the money is deducted as Tax before it reaches the person who earned it. For example, TDS get levied on interest from incentives, FDs, dividends, commissions, etc. Additionally, your employer may deduct TDS from your salary and pay it to the government on your behalf.

What is the TDS in Real Estate?

TDS has a significant role in the real estate industry. Whether buying a property or renting, you must pay TDS to maintain the legalities. When buying a property, the buyer must deduct a small portion of the payment as TDS before paying the seller. Later, the dedicated amount gets submitted to the government as part of the Tax. The purchase of property TDS ensures that the government receives Tax from the property transaction and that both the buyer and seller comply with the income tax laws.

Thumb Rules of TDS

According to the Income Tax Act 1961, the TDS only get levied after the sale of an immovable property. It includes houses, flats, commercial buildings and land (except agricultural land). TDS becomes mandatory when the property value is ₹50 lakhs or more. As a buyer, you can deduct TDS from the sale price of the property and deposit it with the government on behalf of the seller.

Like many other taxes in the real estate industry, the TDS is also not universal. TDS on the purchase of land or buildings is not levied in the same way for every real estate transaction. You don’t need to pay TDS if the property is agricultural land in a rural area and the total sale price of the property is below ₹50 lakhs.

How to Calculate the TDS on Your Property?

Budgeting is one of the most crucial parts of property purchase, and for a perfect budget, you must calculate the taxes first. According to Section 194-IA of the Income Tax Act 1961, TDS on property purchase is calculated at 1% of the total sale value. Although it seems straightforward, the process can become complicated depending on the property price.

For example, if you are buying a 2 BHK flat worth rupees ₹90 lakhs, the TDS would be 1% of ₹90,00,000 = ₹90,000. Are you surprised by this breakdown? Well, the key point is that the TDS is applied to the entire price of the property, not just the portion exceeding the 50 lakh slab.

Additionally, other taxes like stamp duty, registration fees, and GST are not included in TDS. If the seller does not provide a valid PAN, TDS may be deducted at 20%, which can significantly increase your financial liability. Therefore, before making the final decision, always have a clear conversation regarding this.

Step-by-Step Process to Pay TDS on Property Purchase

As a responsible buyer, you can submit the TDS yourself. It might not sound very easy, but it’s not. Simply following some steps can help you to end the process seamlessly, and the steps are:

Deduction

According to Indian law, the buyer is responsible for deducting the TDS amount before transferring the price to the seller. However, before that, do not forget to verify the seller’s PAN to ensure the standard 1% rate applies and calculate the tax amount clearly.

Deposit

To deposit money into the government, you dont need to visit any government office. Log in to the Income Tax e-filing portal and fill in the Form 26QB. This form can be accessed through the e-pay tax section of the income tax website. Once you have filled out the form and paid the amount, do not forget to download the receipt for future use.

Issuing the TDS Certificate

Typically, after a week, the payment reflects in Form 26AS, confirming the government has received the TDS. Hence, after a week of the payment, log in to the TRACES portal using your PAN and challan details, download Form 16B for the seller and share the certificate with the seller within 15 days of filing Form 26QB.

Things You Must Remember While Calculating TDS

• If you are purchasing a property from an NRI, you might be required to pay higher TDS and might need a TAN. Consult with a professional for the necessary guidance. 
• Each instalment of an under-construction property attracts TDS if the total value exceeds ₹50 lakhs.
• TDS must be deducted in the name of the actual seller, not the PoA holder.
• In the case of a joint buyer or a joint seller, each person must submit their individual PAN through Form 26QB. Multiple forms can be filled out to simplify the process.
• If you are buying a property from a bank or at a bank auction, pay the TDS directly to the bank. If paying the bank is not possible, pay the court.
• If you are paying the property price in instalments, TDS must be deducted on every instalment.

What Happens If You pay the TDS?

Not paying the TDS on time can lead to serious legal issues, like a penalty of ₹200 per day for delayed Form 26QB filing or legal actions by the authority. It can also result in the disallowance of expenses for the seller and an interest on late deduction or deposit.

Final Thought:TDS on Purchase of Property

Paying TDS on time and receiving the details from the government keeps your property legally protected and prevents any complications. TDS applies to all residential or commercial properties and non-agricultural plots worth ₹50 lakh or above. It is calculated as 1% of the total sale value.

Seeking expert guidance regarding this? Contact us. At Vinayak Realtech, we ensure our every client remains informed and makes wise investments.

Contact us to schedule a consultation now.