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 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.

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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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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)

This 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

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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.

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Non-Payment of TDS under section 194IA

Non-payment of TDS under Section 194IA TDS on property can lead to several consequences, including penalties and interest charges.

• 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.
• 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.
• A late fee may also be levied for default in furnishing the statement of TDS (Form 26QB) within the prescribed time.

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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.

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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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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.

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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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