Section 194IA: TDS on sale of Property

Author
By Hiral Vakil on March 9, 2019

As per section 194IA, any transaction on or after 1st June 2013, where any buyer buys an immovable property (other than agricultural land) costing Rs. 50 lakhs or more, he needs to deduct tax at a rate 1% on the purchase price.

  • The buyer as well as the seller shall be Resident of India for the purpose of the section 194IA.
  • The tax shall be deducted on the entire purchase consideration and not only on the amount exceeding Rs 50 lakhs.
  • For example: Mr A has bought a land for Rs 60 lakhs from Mr B. Mr A must deduct TDS on the entire amount ( 60 lakhs) and not on 10 lakhs.
  • The tax shall be deducted on the payment of the consideration to the seller. The date of payment shall be earlier of:
    • Credit of purchase amount to the seller’s account or
    • At the time of actual payment by cash, cheque, draft or by any other mode.

It shall also be noted that if the payment of consideration is via instalments the TDS shall be deducted on payment of each instalment. The same applies to the payment of advance in case of purchase of immovable property ( other than agricultural land). The amount to the seller shall be paid net of TDS

Example of TDS on sale of Property u/s 194IA

Mr Parth purchases an immovable property from Mr Suraj for Rs 70 lakhs and the payment of consideration is made in the following manner:

Date of payment Nature of Payment TDS Rate
1/1/2017 Advance 10 Lacs
1/2/2017 First Installment 30 Lacs
1/3/2017 Second Installment 30 Lacs

In the current scenario the TDS u/s 194IA shall be deducted at 1% in each case of payment whether it is by way of advance or an instalment.

For an instance the amount paid as advance on 1/1/2017, the tax of Rs 10,000 shall be deducted and net payment of Rs 9,90,000 shall be made to the seller.

How to deduct TDS on sale of Property u/s 194IA?

  • In case of sale of immovable property ( other than agricultural land) the buyer need not obtain a TAN number in order to deduct the TDS.
  • Once the TDS is deducted it shall be deposited with the government within 7 days from the end of the month in which TDS is deducted. Buyer of needs to file Form 26QB.
  • After filing Form 26QB, buyer needs to issue the TDS certificate to the seller.
  • The PAN of both buyer and the seller is mandatorily to be provided. In case of the seller not providing the PAN the TDS shall be deducted at 20%.

How to deduct TDS u/s 194IA, in case of more than one buyer or seller?

In case of More than one buyer:

In a transaction of sale of immovable property if there are more than 1 buyer and the individual amount of consideration is less than 50 lakhs for each buyer but the aggregate amount of consideration exceeds 50 lakhs the transaction shall fall within the ambit of 194IA and each buyer needs to deduct the tax on the amount paid.

Example:

Mr A and Mr B buy a land in partnership each contributing an amount of Rs 45 lakhs.

In the current case though the individual amount paid by both the buyers Mr A and Mr B is less than Rs 50 lakhs, but as the aggregate consideration paid for the land exceeds Rs 50 lakhs ( i.e. 90 lakhs). The transaction shall be considered as sale of immovable property u/s 194IA, and tax shall be deducted by both the buyers individually.

In case of More than one seller:

Similarly in case of sale of immovable property, where a transaction with more than one seller and the aggregate value of transaction of sellers exceeds 50 lakhs the transaction shall be included within the ambit of section 194IA and the buyer needs to deduct the tax.

Example:

Mr X and Mr Y decide to sell the land co-owned by both of them for a consideration of Rs 60 lakhs to Mr C. It was decided that the consideration shall be divided on an equal basis between both the sellers.

In the current scenario, though the individual consideration received by each seller (i.e Rs 30 lakhs) is less than the exemption limit of Rs 50 lakhs, as the aggregate consideration received (i.e Rs 60 lakhs) exceeds the limit; the transaction shall be included within the ambit of 194IA.

In case of more than 1 buyer and seller form 26QB needs to be filed separately in case of each buyer and seller.

FAQs:

1. On which amount TDS is deducted under section 194IA?

TDS needs to be deducted on the total amount paid to the seller of property excluding VAT and Service Tax. Hence TDS is deducted on Transaction Value of Property.

2. What is the proof of TDS deducted on sale of property?

After buyer deposits TDS, he is required to issue a certificate in Form 16B to the seller of property. Form 16B can be downloaded from CPC-TDS after 15 days from the end of the month in which the payment has been made. The seller of a property can also check his tax credit statement i.e; From 26AS for TDS deducted by buyer.