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Section 194IA of Income Tax Act: TDS on Purchase of Immovable Property

Updated on: 30 Mar, 2022 03:50 PM

From 1st June 2013 through section 194IA of Income Tax Act a provision was rolled out by Mr. P Chidambaram to deduct 1% TDS on sale of the property to a resident Indian. The property here includes every immovable property like : House Property  |   Commercial Property  |   Plot or unconstructed land And all such other properties except agricultural land. To the relief of citizens, TDS needs to be done only on the transactions where sale proceeds are of Rs. 50,00,000 (Fifty Lakhs) or more.

What is section 194IA?

Section 194 of the Income Tax Act includes various clauses related the Tax Deducted at Source (TDS) payments. Finance Act, 2013 inserted a new section 194-IA to introduce TDS on consideration on transfer of immovable properties by a resident transferor. If the property is worth more than Rs 50 lakhs, a buyer is required to deduct and pay 1% of the transaction cost as TDS under Section 194-IA of the Income-Tax Act.


When to deduct TDS under section 194IA?

Any person (Buyer or Transferee) who enters into an agreement with a resident for transfer of immovable property (land or building or both but not agricultural land) is required to deduct TDS under this section.


When and how much shall be the TDS on the sale of the property?

The rate of the tax deduction is 1%. And the time of deducting tax is earlier of

  • The credit of income to the account of the payee (receiver) or
  • Actual payment (in cash, cheque, draft or other modes)

Which means,in these cases the seller shall be entitled to receive only the net amount.
Let us consider an example, say the property is sold by Mr A to Mr B for Rs. 60,00,000. Now, Section 194IA shall apply as under

Particulars Amount
Sale Value of Property Rs. 60,00,000
Less: Tax Deducted at Source by B u/s 194IA (@ 1% of Rs. 60,00,000) Rs. 60,000
Net Amount Payable to Mr A Rs. 59,40,000

Things to Remember when claiming TDS under section 194IA

  • On property worth over Rs 50 lakhs, buyers must deduct and pay TDS to the government.
  • The purchasers, not the sellers, are responsible for deducting and submitting TDS.
  • In the event of any misappropriation, the buyer will be held accountable to the authorities. To credit the TDS, buyers must complete Form 26QB.
  • If the transaction involves numerous buyers or sellers, separate forms must be completed for each participant.

Non-Payment of TDS under section 194IA

The amount of Rs. 60,000 (Sixty Thousand) deducted as TDS by Mr.B shall be deposited to the government within 7days of next month in challan Form 26QB (TDS on Property).


What is Form 26QB and how deducted tax shall be deposited with the government?

The amount of Rs. 60,000 (Sixty Thousand) deducted as TDS by Mr.B shall be deposited to the government within 7days of next month in challan Form 26QB (TDS on Property).


What is the process to make payment of TDS or generate Form 26QB online?

To generate Form 26QB or make an online payment follow this process

  • Click on https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp to access e payment of income tax. A screen as shown under will open up figures
  • Scroll down and select last left the most option of TDS on Property (Form 26QB) figures
  • A Screen as an image below will appear. You would be required to fill in the details relating to
    Taxpayer Info
    Address
    Property Details
    Payment Info
    figures
  • Some of the details on home page i.e. taxpayer info will be auto-populated like
    Financial Year
    Assessment Year
    Name & Status of Transferee
    Name & Status of Transferor

Where is TDS deducted on property seen by the seller?

TDS so deducted will reflect in Form 26AS Part F, as shown in the image below

figures

What are the prerequisites for deducting TDS u/s 194IA?

Before making provision of TDS u/s 194IA the following pointers shall be duly looked into
No TDS shall be deducted if the total amount of consideration is less than Rs.50 Lakhs.
TAN is not mandatory to deduct TDS under section 194IA
If Section 194LA (i.e TDS on Payment of Compensation on Acquisition of Certain Immovable Property) is applicable then provisions of Section 194IA will not be applicable.


On which amount TDS shall be deducted for sale of the property covered u/s 194IA?

TDS under Section 194IA needs to be deducted on transaction value and not on value inclusive of applicable taxes. Say, the property is sold at Rs. 60,00,000 and GST applicable on it is Rs. 6,00,000. In this case the TDS u/s 194IA would be deducted on Rs. 60,00,000 and not on Rs. 66,00,000.
TDS rule was brought to effect so as to keep a track of transactions of sale and purchase in real estate. As it is a highly speculative market where transactions are done a party in cash and partly through baking channels.
To know more about TDS on sale of the property to NRI and all FAQ’s on TDS on sale of property read our series of blogs.


What is TDS form 16B?

The Buyer Mr. B in our case shall also give Certificate of TDS so Deducted in Form 16B to the seller Mr. A. To generate Form 16B certificate follow these steps

  • Login to TRACES website https://www.tdscpc.gov.in/app/login.xhtml.
  • Next got to the Downloads section
  • From the list select Form 16B
  • Enter details as required and click on “Go”

Frequently Asked Questions

Q- How to pay TDS under section 194IA?

This payment should be made through Form 26QC. Now there are two important things to remember:

  1. Can be made online or offline via an authorized bank.
  2. It is important to collect Form 16C and submit it to the landlord

Q- What is the Rate of TDS on the sale of a property?

1%. As per Sec 194 IA of the Income Tax Act, 1961, all transactions with effect from June 1, 2013, should be taxed @ 1%.


Q- How do I claim TDS under Section 194IA?

In form 16B, the buyer must present the TDS challan to the seller. On the TRACES website, the TDS certificate is available for download. The credit of the TDS can be claimed by the seller if the property transaction is not used for capital gains. Forms 16B and 26AS include the TDS amount.


Q- What is the time limit to pay TDS on a property?

The time limit to pay TDS on a property is 30 days. TDS on immovable property transfers must be paid within 30 days after the end of the month in which the deduction is made.


Q- Do I need to obtain a TAN to deduct TDS under section 194IA?

Having a TAN is not mandatory for deducting TDS under section 194IA


Q- How to download form 16B?

  1. Register & login on TRACES portal ( www.tdscpc.gov.in) as taxpayer using your PAN.
  2. Select Form 16B (For Buyer) under Downloads menu.
  3. Enter the details pertaining to the property transaction for which Form 16B is to be requested. Enter the Assessment Year, Acknowledgment Number, PAN of Seller and click on Proceed.
  4. On the confirmation screen click on Submit Request to proceed.
  5. A success message on submission of download request will appear on the screen. Note down the request number to search for the download request later.
  6. Click on Requested Downloads to download the requested files.
  7. Search for the request with request number. Select the request row and click on HTTP download button

Q- Can I pay 1% TDS under section 194IA for purchasing a property from an NRI?

No, the transferor should be resident for TDS deduction under this section.


Q- As stated in Section 194IA of the Income Tax Act, if one buys 2 properties from the same seller in a two-month gap, and each property value is 32 lakhs, should the buyer still pay the TDS?

No, as there are two different properties and each has a value below 50 lakhs.


Q- What is the meaning of consideration under Section 194 IA of the Income Tax Act?

Actual Consideration not stamp Duty Value.


Q- Does paying 1% TDS on property as per Sec 194 IA of the Income Tax Act 1961 include only basic cost of the property?

No, This Section Clearly points out that if the sale consideration exceeds 50 lakhs, buyer has to deduct 1% TDS and the seller need not to worry about deducting TDS and from the point of view of buyer GST can be considered as an additional tax and it does not form part of sale consideration.


Q- Is Section 194-IA applicable to the JDA agreement?

Yes, there is no difference in a JDA Agreement. So 194-IA will apply on JDA agreement as well.


Q- Can we take a refund of the TDS paid under Section 194IA and later deal cancelled? If so, which form should be filed to take a refund? Is it online or manual?

Yes, we can take TDS refund on cancellation of deal There is an online procedure for Refund.


Q- Can a salaried person claim TDS Section 194-IA while filing a return?

YES, there will be a sale of Immovable Property, Salaried person will also have a Capital gain in this case.


Q- Can we take the benefit of section 194-IA when the property is purchased by a different four person in one registry for the amount of Rs. 60 lakhs?

Yes, as the sale consideration is more than 50 lakhs 194-IA is applicable.


CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.

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