When selling a property, it’s important to know about Tax Deducted at Source (TDS). TDS is a way for the government to collect tax directly from the income source. In property sales, the buyer deducts TDS from the amount paid to the seller and sends it to the government on the seller’s behalf.
For example: If you sell your property for ₹50 lakh, and the TDS rate is 1%, the buyer will deduct ₹50,000 (1% of ₹50 lakh) from the payment. They will pay you ₹49.5 lakh and send the ₹50,000 directly to the government as TDS.
TDS on property sales is important because it helps the government collect some of the tax money right away. It also helps keep track of real estate deals and ensures sellers report their income correctly.
Important: TDS on property sale is mandatory under the Income Tax Act, 1961, and non-compliance can lead to penalties for both buyers and sellers.
TDS is applicable on the sale of immovable property (excluding agricultural land) if the transaction value exceeds ₹50 lakhs. This rule applies to all types of immovable properties, including residential, commercial, and land.
Key Takeaway: If the property transaction value is ₹50 lakhs or less, TDS is not applicable.
The responsibility of deducting TDS lies with the buyer of the property. The buyer must deduct the TDS at the time of making the payment to the seller, either in full or in installments.
Important: It is the buyer’s obligation to make sure that TDS is deducted and deposited with the government. Failure to do so can result in penalties.
The current TDS rate on the sale of property is 1% of the transaction value. (According to Section 194IA of the Income Tax Act, a buyer must withhold tax at a rate of 1% from the sale price) This rate is uniform across all types of properties, including residential, commercial, and land.
Example: If you are buying a property worth ₹70 lakhs, the TDS amount will be ₹70,000 (1% of ₹70 lakhs).
Key Takeaway: The TDS rate of 1% applies to the entire transaction value, not just the amount exceeding ₹50 lakhs.
The buyer must deduct TDS at the rate of 1% from the total transaction value at the time of payment. This deduction can be made from the advance payment, the final payment, or both.
Example: If the buyer is making an advance payment of ₹20 lakhs, they must deduct ₹20,000 (1% of ₹20 lakhs) as TDS.
Before deducting TDS, the buyer must obtain the PAN (Permanent Account Number) of the seller. This PAN must be provided when filing the TDS return.
Important: If the seller does not provide their PAN, the TDS rate increases to 20% (19% mandate and 1% deduction rate), which significantly impacts the seller's proceeds from the sale.
After deducting TDS, the buyer must deposit the amount with the government. This can be done online through the TIN-NSDL portal (https://www.tin-nsdl.com/). The TDS must be deposited within 30 days from the end of the month in which the deduction is made.
Example: If TDS is deducted on 15th June, it must be deposited by 30th July.
The buyer must file a TDS return using Form 26QB within 30 days from the end of the month in which TDS is deducted. This form is available on the TIN-NSDL portal.
Buyer’s and Seller’s PAN
Property details
Transaction amount
TDS amount
After filing the TDS return, the buyer must provide the seller with a TDS certificate (Form 16B). This certificate serves as proof that TDS has been deducted and deposited with the government.
Example: If the TDS return is filed in July, the TDS certificate should be provided to the seller by August.
If the seller is a Non-Resident Indian (NRI), the TDS rate is higher. The applicable TDS rate for NRIs can range from 20%-40%. depending on the nature of the capital gains (short-term or long-term).
Important: For NRIs, the buyer must also obtain a Tax Deduction and Collection Account Number (TAN) and deduct TDS accordingly.
Agricultural land is exempt from TDS if it is located in a rural area. However, if the agricultural land is within municipal limits, TDS may be applicable.
In certain cases, the seller can apply for a lower or nil TDS certificate from the Income Tax Department under Section 197. This is applicable if the seller believes that their total income is below the taxable limit or that TDS at the standard rate is higher than their tax liability.
Example: A senior citizen with low annual income can apply for a lower TDS deduction on the sale of property.
Capital gains are the profits earned from the sale of a property. The TDS deducted by the buyer is not the final tax liability. The seller must calculate their actual capital gains and pay the applicable tax.
Short-Term Capital Gains (STCG): If the property is sold within 2 years of purchase, the gains are considered short-term and taxed as per the seller’s income tax slab.
Long-Term Capital Gains (LTCG): If the property is sold after 2 years, the gains are long-term and taxed.
The TDS deducted by the buyer is adjusted against the seller’s final capital gains tax liability. If the TDS amount exceeds the tax liability, the seller can claim a refund.
Example:
Sale Value: ₹1 crore
Purchase Value: ₹50 lakhs
Indexed Cost of Acquisition: ₹60 lakhs
Long-Term Capital Gains: ₹40 lakhs (₹1 crore - ₹60 lakhs)
TDS Deducted: ₹1 lakh (1% of ₹1 crore)
LTCG Tax Liability: ₹8 lakhs (20% of ₹40 lakhs)
In this case, the seller needs to pay an additional ₹7 lakhs as LTCG tax after adjusting the TDS amount.
| Aspect | Details |
|---|---|
| TDS Rate on Property Sale | 1% of the transaction value for resident sellers; 20%-40% for NRI sellers. |
| Applicability Threshold | TDS is applicable if the property transaction value exceeds ₹50 lakhs. |
| Responsibility for Deduction | The buyer is responsible for deducting and depositing TDS. |
| PAN Requirement | PAN of both buyer and seller is required; failure to provide PAN increases TDS rate to 20%. |
| TDS Deposit Deadline | TDS must be deposited with the government within 30 days from the end of the month of deduction. |
| TDS Return Filing | Form 26QB must be filed within 30 days from the end of the month of deduction. |
| TDS Certificate | Buyer must provide the seller with Form 16B as a TDS certificate. |
| Special Cases (NRIs, Agricultural Land, etc.) | Higher TDS rates apply to NRIs; agricultural land in rural areas is exempt from TDS. |
| Impact on Capital Gains | TDS deducted is adjusted against the seller’s capital gains tax liability. Refunds can be claimed if TDS exceeds the tax liability. |
TDS on property sales is very important in India. Buyers must deduct and pay TDS on time to avoid fines, while sellers should check that TDS is deducted correctly and adjust it against their taxes.
Remember: It’s a good idea to consult a tax expert to handle TDS and capital gains tax, especially for high-value transactions or if you're selling property as an NRI.
If the buyer fails to deduct TDS, they may be liable to pay interest and penalties. The seller may also face issues in claiming the credit for TDS.
Yes, the seller can apply to the Income Tax Department for a lower or nil TDS certificate under Section 197.
TDS is deposited online through the TIN-NSDL portal using Form 26QB. The payment can be made through net banking or challan.
TDS is not applicable on the sale of agricultural land located in rural areas. However, it may be applicable if the land is within municipal limits.
The TDS amount is adjusted against the seller’s capital gains tax liability. If the TDS exceeds the tax liability, the seller can claim a refund.
No List Founds!
Your email address will not be published. Required fields are marked *
