To curb evasion of tax on property sales, the income tax department has made it mandatory for buyers of property to deduct TDS from payments made to the seller.
To curb evasion of tax on property sales, the income tax department has made it mandatory for buyers of property to deduct TDS from payments made to the seller. TDS is applicable where total sales consideration exceeds R50 lakh. TDS must be deducted on each payment, whether made in lump sum or instalments. The rate of TDS is 1%. These rules are applicable on sale of property, a building or land but do not apply to sale of an agricultural land.
If the value of the property is more than R50 lakh, TDS is deducted on the entire amount. For example, if X purchases a property of R64 lakh from Y, X shall deduct TDS @1% and Y shall receive R63,36,000 as sales consideration.
If there are more than one seller, TDS must be deducted on payment made to each one of them. PAN of the seller is mandatory, otherwise TDS is deducted @ 20%. PAN of the buyer is also mandatory. Usually all TDS deductors have to obtain a TAN number, however, for buyer of property, TAN is not required.
Procedure of depositing TDS
TDS must be deposited with the government within seven days from the end of the month in which it is deducted. So, if X deducted TDS of R64,000 on July 15, he must deposit it by August 7.
Payment can be made online via Form 26QB. If you cannot pay online, an online receipt for Form 26QB with a unique Acknowledgment Number is generated for you. You can take this to one of the authorised banks along with cheque for payment. The bank will generate your challan.
The payment is reflected on the seller’s Form 26AS under the head Part F within seven days. The buyer has to furnish a TDS certificate called Form 16B to the seller. This can be downloaded from the TRACES website. Buyer has to register on TRACES as a tax payer with PAN and challan number registered during payment.
Penalties on non-deduction of TDS
Penalties apply under the I-T Act for non-deduction of TDS or delayed deductions. Penalty for late deduction or late payment of TDS (under section 201): 1% interest is charged for delay of every month due to late deduction of TDS from the date it was deductible to the date TDS is actually deducted. 1.5% penalty is applicable for every month for late payment of TDS deducted, from the date TDS was deducted till the actual date of payment.
Penalty for non-filing or delayed filing of Form 26QB
In case of default of non-filing or late filing of Form 26QB, a penal fee is applicable under section 234E of the I-T Act. Rs 200 has to be paid for every day during which such failure continues.
Penalty for non-compliance with TDS rules
Assessing officer may levy penalty under section 271H at his discretion. This section is applicable when a statement as required by the tax laws is not submitted timely. Penalty under this section is more than Rs 10,000 and can extend to Rs 1 lakh. However, if TDS is deposited with fee & interest and statement is submitted within one year of the time prescribed, no penalty under this shall be levied. The income tax department has details of property sold and purchased, via AIR (Annual Information Return) submitted by registrar of properties. So you may receive an income tax notice if you did not deduct TDS or if it wasn’t deposited timely.
The writer is chief editor at www.cleartax.in and a chartered accountant