194IA TDS on Sale of Property & TDS Rate: All You Need to Know

When buying or selling a property, understanding the tax implications is essential, especially when it comes to TDS (Tax Deducted at Source) under Section 194IA. This provision ensures that tax is collected at the time of the transaction, making it an important aspect for both buyers and sellers to comprehend.

In this article, we'll break down everything you need to know about 194IA TDS on the sale of property, including TDS rates, the responsibilities of buyers and sellers, and the process of filing and paying TDS.

What is 194IA TDS?

194IA TDS refers to the tax deducted at source by the buyer when purchasing a property. According to the Income Tax Act, if the value of the property exceeds ₹50 lakh, the buyer is required to deduct 1% TDS from the total sale consideration. This provision applies to both residential and commercial properties, excluding agricultural land.

Key Points of 194IA TDS:

1. Applicability: TDS is applicable only if the property value exceeds ₹50 lakh.
2. TDS Rate: The current rate of TDS under Section 194IA is 1% of the property’s sale value.
3. Deduction by Buyer: The buyer is responsible for deducting and depositing the TDS.
4. Exemption: Agricultural land is exempted from TDS under this section.
5. Seller’s PAN Requirement: The seller’s PAN is mandatory for the transaction; otherwise, the TDS rate increases to 20%.

When Does Section 194IA Apply?

Section 194IA is applicable under the following conditions:

1. Property Value Exceeds ₹50 Lakh: The sale consideration of the property must be ₹50 lakh or above.
2. Residential or Commercial Property: The rule applies to both residential and commercial properties.
3. Non-Agricultural Land: TDS does not apply to the sale of agricultural land.

Understanding the 194IA TDS Rate

As per Section 194IA, the TDS rate is set at 1% of the sale consideration. For instance, if the property is being sold for ₹80 lakh, the buyer must deduct ₹80,000 (1% of ₹80 lakh) as TDS and pay the remaining amount to the seller.

In case the seller does not provide their PAN, the TDS rate increases to 20%.

Illustration of 194IA TDS Calculation

Let’s understand how 194IA TDS works with an example:

• Property Sale Price: ₹75 lakh
• TDS at 1%: ₹75,000

In this case, the buyer will deduct ₹75,000 as TDS and deposit it with the Income Tax Department, and the seller will receive ₹74,25,000.

Who is Responsible for Deducting and Paying TDS?

According to Section 194IA, the buyer of the property is responsible for deducting the TDS from the sale consideration. The buyer must:

1. Deduct 1% of the Total Sale Price: This amount must be deducted from the total sale consideration before making the payment to the seller.
2. Deposit the TDS with the Government: The TDS must be deposited with the government using the appropriate form.
3. Issue Form 16B: After depositing the TDS, the buyer should provide a TDS certificate (Form 16B) to the seller as proof of deduction.

Also Read: GST on Construction 2024: All You Need to Know

Steps to File and Pay 194IA TDS

Filing and paying TDS under Section 194IA is a straightforward process. Here’s how you can do it:

1. Register on the TRACES Portal

Both buyers and sellers must register on the TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal for TDS compliance.

2. Generate Challan for TDS Payment

The buyer needs to generate a challan on the TIN NSDL website (https://www.tin-nsdl.com/) and fill out Form 26QB, which is the challan-cum-TDS return form for payment of TDS.

• Enter PAN Details: The buyer and seller’s PAN numbers must be entered correctly.
• Property Details: Fill in the property details, such as the total sale consideration and TDS amount.
• Payment Method: Choose the appropriate payment method—online banking or offline via a designated bank branch.

3. Deposit TDS

After generating the challan, the buyer can pay the TDS online or take the challan to the bank for offline payment.

4. Download TDS Certificate (Form 16B)

Once the TDS is paid, the buyer can download Form 16B from the TRACES portal and issue it to the seller as proof of TDS deduction.

What Happens if TDS is Not Deducted or Deposited?

Failure to comply with the rules under 194IA TDS can lead to penalties and legal consequences for both the buyer and the seller.

1. Penalties for Non-Deduction of TDS: If the buyer fails to deduct TDS, they may face penalties equivalent to the TDS amount.
2. Interest for Delayed Payment: If the buyer deducts TDS but fails to deposit it within the stipulated time, they will have to pay interest at 1.5% per month on the outstanding amount.
3. Late Filing Fee: If Form 26QB is not filed within the due date, a late fee of ₹200 per day is applicable until the form is submitted.

TDS on Sale of Property by NRIs

If the seller is a Non-Resident Indian (NRI), TDS under Section 194IA does not apply. Instead, Section 195 comes into effect, and the TDS rate for NRIs can be much higher, typically ranging between 20% to 30%, depending on the nature of the capital gains.

Buyers should be aware of this difference and ensure that they comply with the correct TDS section when dealing with non-resident sellers.

Documents Required for 194IA TDS Compliance

Both the buyer and the seller need to keep the following documents handy to comply with 194IA TDS:

1. PAN Card: Both buyer and seller need to provide their PAN card details for the transaction.
2. Property Sale Agreement: The sale agreement or purchase agreement serves as proof of the sale price and other transaction details.
3. Form 26QB: The challan-cum-return form generated after paying TDS must be filled accurately.
4. Form 16B: After the TDS is deposited, the buyer should issue Form 16B to the seller.

Also Read: How To Save Tax On Rental Income

How 194IA TDS Affects Buyers and Sellers

Understanding how TDS under Section 194IA affects both the buyer and seller is crucial for smooth property transactions.

For Buyers:

• Buyers are responsible for deducting and depositing TDS.
• They must ensure that the seller’s PAN is provided to avoid a higher TDS rate of 20%.
• Failure to comply with TDS rules can result in penalties and interest charges.

For Sellers:

• Sellers need to provide their PAN and ensure that the buyer deposits the TDS on time.
• The TDS deducted can be claimed as a tax credit when filing income tax returns.

Refund of TDS in Case of Cancellation

If a property sale is canceled after TDS has already been deducted and deposited, the buyer can claim a refund of the TDS amount. Here’s how:

1. Apply for a Refund: The buyer must file an application with the Income Tax Department to claim a refund.
2. Provide Documents: Attach relevant documents, such as the cancellation agreement and proof of TDS payment.
3. Await Processing: The refund process can take a few weeks to complete.

Common Mistakes to Avoid While Filing 194IA TDS

• Incorrect PAN Details: Ensure that the correct PAN of both the buyer and seller is entered in Form 26QB.
• Late Payment: Deposit the TDS within the due date to avoid interest and penalties.
• Non-Issuance of Form 16B: Buyers must issue Form 16B to the seller as proof of TDS deduction.

Conclusion

The 194IA TDS provision is a critical aspect of property transactions in India. Buyers must ensure they deduct and deposit TDS on time, while sellers should ensure their PAN details are provided to avoid higher deduction rates. By understanding the process and complying with the rules, both buyers and sellers can avoid penalties and ensure a smooth property transaction.

This guide covers everything you need to know about 194IA TDS on the sale of property, including TDS rates, responsibilities, and filing procedures, ensuring that you are well-informed before making any property-related decisions.

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