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

What is Section 194IA?

Section 194 of the Income Tax Act includes various clauses related to the Tax Deducted at Source (TDS) payments. Finance Act, 2013 inserted a new section 194-IA that mandates the deduction of TDS when purchasing an immovable property, residential or commercial.

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. It is mandatory for the buyer to deposit the TDS with the government using Form 26QB within 30 days from the end of the month in which the deduction is made. Failure to do so can result in penalties and further consequences.

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When to deduct TDS under section 194IA?

Section 194IA TDS on Property must be deducted at the earlier of the following two events:

• At the time of credit of the sum to the account of the payee (seller).
• At the time of actual payment, whether in cash, cheque, draft, or any other mode.

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Threshold Limit u/s 194IA

TDS is deductible where the consideration paid or payable of an immovable property is more than Rs. 50,000. The rate of the tax deduction is 1%.

• No surcharge and Health & Education Cess shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.
• The rate of TDS will be 20% in all cases, if PAN is not quoted.

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

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Payment of TDS Under Section 194IA

Any money deducted in accordance with Section 194IA must be deposited with the central government. The deadline is 30 days after the month's end when the deduction occurs. The statement-cum-challan in the 26QB form ought to be included. The deposit can be made to any other authorized banking institution via electronic remittance.

Documents required for filing TDS in immovable property sale-Section 194IA

1. Buyer’s Documents

• PAN Card – Mandatory for TDS filing
• Aadhar Card – For identity verification (if needed)
• Address Proof – Utility bill, passport, or Aadhaar
• Bank Details – For making payment

2. Seller’s Documents

• PAN Card – Mandatory for TDS deduction
• Aadhar Card – For verification (if required)
• Address Proof – For official records
• Bank Account Details – For verification and fund transfer

3. Property Details

• Sale Agreement/Deed – To verify transaction details
• Property Address – Complete details of the immovable property
• Total Sale Consideration – The amount agreed upon for sale
• Date of Agreement & Payment – To determine TDS deduction timeline

4. Payment & TDS Details

• TDS Payment Challan (Form 26QB) – Required for online payment
• Amount of TDS Deducted – 1% of the sale consideration (if more than ₹50 lakh)
• Acknowledgment Receipt – After TDS payment through Form 26QB

5. Other Required Details

• Buyer & Seller Contact Information – Mobile number & email ID
• Mode of Payment – Cash, Cheque, Bank Transfer, or Loan

Once the TDS is paid, the buyer needs to:

• File Form 26QB online through the TRACES portal
• Issue Form 16B (TDS Certificate) to the seller

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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.
• If the sale payment is made in installments, the TDS would have to be deducted on every installment that is paid.
• The buyer needs to furnish the TDS certificate in Form 16B to the seller after the deposit of the TDS to the government. It is available around 10 to 15 days after the deposit of the TDS.

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What can happen to a taxpayer (transferee) who fails to deduct TDS in a property buy transaction?

Under Section 194-IA, the tax amount deducted during a property transaction must be paid to the government within 30 days from the end of the month in which the TDS was deducted. Non-payment of TDS under Section 194IA TDS on property can lead to several consequences, including penalties and interest charges.

Implication for Buyers

• If TDS is not deducted or not deposited on time, interest is charged at the rate of 1.5% per month or part of a month from the date on which TDS was deductible to the date on which TDS is actually paid.
• The penalty for non-deduction of TDS is equal to the amount of TDS that should have been deducted.
• The penalty for non-deposit of TDS is equal to 1.5% of the TDS amount for each month or part thereof that the TDS remains unpaid.
• A late fee of Rs. 200 per day is also levied for default in furnishing the statement of TDS (Form 26QB) within the prescribed time under Section 234E.
• Other than this, under Section 271H, on non-filing of TDS statement or for incorrect details in the statement, the Assessing Officer may also impose a penalty which can range from Rs. 10,000 to Rs. 1,00,000.
• In severe cases, non-payment of TDS can lead to prosecution, which may result in imprisonment for a term ranging from three months to seven years.

Implication for Sellers

The seller may not receive the tax credit for the TDS.

Incorrect filing can lead in delay of property sale proceedings and affect tax filings.

The case may further go for scrutiny.

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What is Form 26QB?

Form 26QB is a TDS (Tax Deducted at Source) return cum challan used for reporting the tax deducted on the sale of immovable property. This form is mandatory for buyers of property valued at more than ₹50 lakh. Read more here.

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How to make TDS Payment online?

Here is how you can make TDS payment online:

Step 1: Visit the official Income Tax website and log in with your credentials.

Step 2: Go to the 'E-file' section, select 'e-pay Tax,' and click on the 'Proceed' button under '26QB (TDS on Sale of Property)' in the 'New Payment' section.

Step 3: You will need to fill in the required information across three pages:

• Buyer’s Basic Details
• Seller’s Basic Details
• Property Details
• Tax Deposit Details
• Amount Credited or Paid
• Address Details
• Contact Information

Step 4: On the next page, select your preferred payment mode. You can opt for:

• 'Pay Later' or
• 'Pay Now'

Choose as per your convenience.

Step 5: If you select 'Pay Now,' proceed to pay the required TDS amount. Read and Select the terms and conditions and click Submit to Bank. Once done, a Form 26QB Acknowledgement will be generated. Ensure you download this for your records.

Step 6: Once Form 26QB has been processed, log in as a taxpayer on the TRACES Portal to generate your TDS Certificate.

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How to download Form 26QB

To pay your tax using Form 26QB, follow these simple steps:

• Step 1: Visit the official Income Tax website and log in using your credentials.
• Step 2: From the drop-down menu at the top of the page, select the ‘e-Pay Tax’ option.
• Step 3: Click on the 'Payment History' option to view previously filed details.
• Step 4: If Form 26QB has already been filed, you can download the receipt and statement for Form 26QB.

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Where is TDS deducted on property seen by the seller?

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

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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 the GST applicable on it is Rs. 6,00,000. In this case, the TDS u/s 194IA would be deducted from Rs. 60,00,000 and not on from Rs. 66,00,000.

TDS rule was brought into effect so as to keep track of transactions of sale and purchase in real estate. It is a highly speculative market where transactions are done a party in cash and partly through baking channels.

To learn more about TDS on the sale of the property to NRI and all FAQs on TDS on the sale of property, read our series of blogs.

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What is TDS form 16B?

Form 16B is a TDS (Tax Deducted at Source) certificate issued by the buyer to the seller of an immovable property. This certificate confirms that the TDS deducted on the property sale has been deposited with the Income Tax Department.

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