Section 194IA

Section 1941A of the Income Tax Act 1961, is important for property deals especially regarding Tax Deducted at Source or TDS on selling immovable property in India. This article explains what Section 1941A involves, what you need to do, how to handle TDS filing and gives an example to make it easier to understand.

What is Section 194IA?

Section 194IA of the Income Tax Act, introduced by the Finance Act of 2013 requires Indian residents purchasing immovable property from other Indian residents to deduct TDS. When the value of the property being sold exceeds Rs. 50 lakhs, buyer known as the transferee must deduct TDS from the payment made to the seller or transferor. This provision aims to ensure that taxes are collected at the time of the property transaction helping in efficient tax administration and compliance. Essentially, it simplifies the process of tax collection by integrating it with property transactions making it mandatory for buyers to withhold a portion of the payment and remit it as TDS to the government when purchasing high value properties from Indian residents.

Prerequisites of Section 194IA TDS

1. When you buy property you as the buyer are responsible for deducting TDS not the seller.

2. If the property transaction is below Rs. 50 lakhs you don't need to deduct any TDS under Section 194IA.

3. TDS rate is 1% of the total sale amount which you as the buyer need to deduct.

4. If you're paying for the property in installments you must deduct TDS from each installment payment.

5. TDS covers all charges related to the property purchase like club membership fees parking fees, water and electricity charges and maintenance fees.

6. As the property buyer you don't need a TAN or Tax Deduction and Collection Account Number.

7. You must get the seller's PAN for TDS payment. If the seller doesn't provide PAN TDS is deducted at a higher rate of 20%. You also need a PAN as the buyer.

8. Deduct TDS either when you make the payment or when you credit the seller whichever happens earlier.

9. Use Form 26QB to pay the TDS within 30 days from the end of the month in which you deducted the TDS.

10. After paying TDS to the government, provide the seller with Form 16B which acts as a TDS certificate. This certificate is available around 10 to 15 days after you deposit the TDS.
 

How to file TDS on the sale of property under Section 194IA

To file TDS under section 194IA, follow below steps.

1. Go to the NSDL website and find Form 26QB.

2. Enter the necessary details like PAN numbers of both buyer and seller, property information and TDS amount.

3. Pay the TDS online using net banking.

4. Once the payment is done you'll get a challan with a unique acknowledgment number. Keep this safe for later reference.
 

Example of Section 194IA

When you buy a property for Rs. 80 lakh you need to follow a tax rule of Section 194IA. According to this rule you have to deduct 1% of the sale price as TDS or Tax Deducted at Source before paying the seller. So, in this case you need to deduct Rs. 80,000 or 1% of Rs. 80 lakh from the payment to the seller. After deducting this amount, you must deposit it with the government.

Understanding Section 194IA is important for property buyers because it ensures they follow tax laws correctly. By deducting and depositing TDS, buyers help maintain transparency and legality in property transactions. If you're unsure about anything or need more details, it's a good idea to talk to a tax expert or check the official guidelines provided by the Income Tax Department.
 

Payment of TDS under Section 194IA

1. Applicability

Section 1941A applies when a person is responsible for paying any sum to a resident seller for the transfer of any immovable property excluding agricultural land.

2. Threshold Limit

TDS under Section 1941A kicks in when the consideration for the property transfer exceeds Rs. 50 lakh. If it's Rs. 50 lakh or less TDS deduction isn't necessary.

3. Rate of TDS

TDS rate applicable under Section 1941A is 1% of the consideration amount. Buyer deducts this amount when making the payment to the seller.

4. Time of Deduction

Under Section 194IA, TDS is deducted either when the payment is made to the seller or when the amount is credited to their account, whichever occurs first.

5. Deposit of TDS

It's the buyer's responsibility to deduct TDS and deposit it with the government. The deposit can be made through the Income Tax Department's online portal.

6. TAN Requirement

Buyer doesn't need a Tax Deduction and Collection Account Number or TAN to deduct TDS under Section 1941A. Buyer can use their PAN for this purpose.

7. Form 26QB

After deducting TDS buyer is required to file Form 26QB, providing details of the property transaction and TDS deduction. This form must be submitted online.

8. Issuance of TDS Certificate

Buyer must furnish a TDS certificate or Form 16B to the seller within 15 days from the due date for filing the statement.

9. Non Applicability to Agricultural Land

It's important to note that TDS under Section 1941A doesn't apply to the transfer of agricultural land.

Penalty of the TDS non payment

Registrar and sub registrar office report the details of property transactions to the income tax department through the Annual Information Return or AIR. This includes information about buying and selling property along with its value.

Now, if someone buys a property and doesn't deduct the required tax or TDS or they deduct it but don't deposit it or they deduct it at a lower rate than they should the income tax department takes note of it. They'll notify the buyer about this.

Depending on the situation, there could be consequences like interest for not deducting TDS, penalties, interest for not paying and even legal action.
 

Conclusion

Section 194IA of the Income Tax Act requires buyer of immovable property to deduct TDS at the time of payment to the seller. If the buyer fails to do so or deducts TDS at a reduced rate, the income tax department will take action, potentially imposing penalties, interest or prosecution. Property buyers need to comply with these regulations to avoid any legal consequences.