Section 194IA of Income Tax Act

Section 194IA of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on the sale of immovable property in India. If a property is sold for ₹50 lakh or more, the buyer must deduct TDS at 1% of the total sale consideration. The deducted amount must be deposited with the government using Form 26QB within 30 days of deduction. The seller can claim this TDS as a tax credit while filing returns. This provision ensures tax compliance in property transactions and applies to all buyers, except in cases where the seller is a non-resident (NRIs fall under Section 195). Proper filing of TDS helps avoid penalties and legal issues.

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What is Section 194IA of Income Tax Act?

Section 194IA is a clause in the Income Tax Act that mandates the deduction of TDS when purchasing immovable property, be it residential or commercial. It applies to transactions where the sale consideration is equal to or exceeds Rs. 50 lakh. The primary goal of this provision is to ensure tax compliance and prevent property tax evasion in property transactions.

TDS on Sale of Immovable Property Under Section 194-IA of Income Tax Act

As per Section 194IA of the Income Tax Act, any buyer purchasing an immovable property (excluding agricultural land) worth ₹50 lakh or more must deduct TDS at 1% of the sale value. The buyer is responsible for depositing this TDS with the government using Form 26QB within 30 days from the end of the month in which the deduction is made. Failure to comply may result in penalties and interest.

Section 194IA - TDS on Property Sales by NRIs

As per the current Income Tax rules, when a Non-Resident Indian (NRI) sells property in India, they must pay capital gains tax. If the property was inherited, the date and cost of purchase by the original owner are used to decide if the gain is long-term or short-term.

Once decided:

• Long-term gains (if held for more than 2 years) are taxed at 20%
  and
• Short-term gains are taxed as per the NRI’s income slab

In this transaction, the buyer must deduct TDS from the sale amount and deposit it with the Income Tax Department. The buyer must also submit Form 27Q to report the TDS deduction and payment.

Section 194IA - Documents Required for Filing TDS on Immovable Property Sale

To comply with Section 194IA when filing TDS on the sale of immovable property, the buyer must gather essential documents:

• Registered sale agreement: A certified copy of the sale agreement is necessary for determining the TDS amount.
• Property details: Details such as the property's location, size, and age are required to accurately establish the applicable TDS rate.
• PAN card: The PAN numbers of both the buyer and the seller must be included in the TDS documentation.
• Aadhaar number: In accordance with recent legal requirements, the Aadhaar number of the involved parties must be provided when submitting the TDS return.

Requirements of Section 194IA

As a buyer, you play a pivotal role in adhering to Section 194IA. Here are the key requirements:

1. TDS deduction: The buyer is responsible for deducting TDS at a rate of 1% of the sale consideration amount. This TDS is to be paid to the government.
   
   
2. TDS payment: TDS should be deducted at the time of payment to the seller. The deducted TDS amount must be deposited with the government using Form 26QB, accessible online through the NSDL portal.
   
   
3. Filing details: You must provide details such as the seller's and buyer's PAN (Permanent Account Number) and specific property information when filing Form 26QB.

Filing Form 26QB

When a property is sold, the buyer must deduct TDS at 1% of the sale value and deposit it with the Income Tax Department using Form 26QB. This is mandatory under Section 194-IA of the Income Tax Act.

Additionally, the buyer must generate Form 16B and provide it to the seller as proof of TDS deduction. Below are some steps to file Form 26QB and generate Form 16B

Step 1: Log in to the Income Tax Portal

Go to the Income Tax e-filing portal and log in. Under the ‘e-File’ menu, select ‘e-Pay Tax’.

Step 2: Start a new payment

Click on ‘+ New Payment’ to begin the process.

Step 3: Select payment type

Choose ‘26QB – TDS on Property’ as the payment type.

Step 4: Fill in buyer details

Enter the buyer’s:

• PAN
• Contact details
• Address

The system may auto-fill these fields if already available.

Step 5: Fill in seller details

Enter the seller’s:

• PAN
• Contact details
• Address

Step 6: Enter property and sale details

• Input the following details:
  • Property address
  • Type of property
  • Date of sale agreement
  • Sale amount

Once these details are entered, the system will auto-calculate the TDS amount.

Step 7: Make the payment

Choose your preferred payment method (net banking or other options). Once paid, you will receive a Challan 280 as proof of payment.

Step 8: Register on TRACES

Go to TRACES portal and register as a taxpayer using your PAN and challan details. This is needed to download Form 16B.

Step 9: Check Form 26AS

After about 7 days, verify that the TDS details appear correctly in Form 26AS under Part F (TDS on Sale of Property). It will show the seller’s:

• PAN
• Transaction date
• Amount
• Challan details

Step 10: Download Form 16B

Log in to TRACES and go to the ‘Download’ tab. Here, select ‘Form 16B’ (for Buyer). Next, enter the seller’s:

• PAN
  and
• Acknowledgement number from Form 26QB

Now, submit the request. Once available, download the zip file and open it using the buyer’s date of birth (format DDMMYYYY). This form should be handed over to the seller as proof of TDS deduction.

Once you understand the TDS filing process, you can focus on securing the right financing for your dream home. Ready to take the next step in your property journey? now. You may already be eligible, find out by entering your mobile number and OTP.

Example of Section 194IA

Imagine you are buying a property for Rs. 80 lakh. According to Section 194IA, you must deduct 1% TDS on the sale consideration:

TDS Amount = Rs. 80,00,000 × 1% = Rs. 80,000

This Rs. 80,000 should be deducted at the time of payment to the seller and subsequently deposited with the government. Additionally, understanding the Income Tax Slab applicable to you can help you better plan your overall tax liability while ensuring compliance with Section 194IA. With property purchases involving substantial investments, securing the right financing is crucial for your financial planning. Explore Bajaj Finance Home Loan options with interest rates starting from 8.25% p.a. You may already be eligible, check your loan offers by entering your mobile number and OTP.

In conclusion, understanding Section 194IA is essential when engaging in property transactions. Adhering to the requirements of this provision ensures compliance with tax regulations and helps prevent tax evasion. As a buyer, you play a pivotal role in deducting and remitting TDS, making the property transaction process transparent and legally sound. If you have any doubts or require further information, consider consulting a tax expert or referring to official guidelines provided by the Income Tax Department. Additionally, you can calculate the tax payable using the income tax calculator.

Payment of TDS under Section 194IA

Section 194IA of the Income Tax Act in India pertains to the deduction of Tax Deducted at Source (TDS) on the sale of immovable property, specifically on the consideration paid for the transfer of a property.

Here is an explanation of the payment of TDS under Section 194IA:

1. Applicability:

• Section 194IA is applicable when a person is responsible for paying any sum to a resident seller for the transfer of any immovable property, other than agricultural land.

2. Threshold limit:

• TDS under Section 194IA is applicable when the consideration for the property transfer exceeds Rs. 50 lakh. If the consideration is Rs. 50 lakh or less, TDS is not required to be deducted.

3. Rate of TDS:

• The TDS rate under Section 194IA is 1% of the consideration amount. This amount is deducted by the buyer at the time of making the payment to the seller.

4. Time of deduction:

• TDS under Section 194IA is deducted at the time of credit of the sum to the account of the seller or at the time of payment, whichever is earlier.

5. Deposit of TDS:

• The buyer is responsible for deducting TDS and depositing it with the government. The deposited TDS can be done through the online portal of the Income Tax Department.

6. TAN requirement:

• The buyer is not required to have a Tax Deduction and Collection Account Number (TAN) to deduct TDS under Section 194IA. TDS can be deducted using the PAN of the buyer.

7. Form 26QB:

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

8. Issuance of TDS certificate:

• The buyer is required to furnish a TDS certificate (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 194IA is not applicable to the transfer of agricultural land.

Prerequisites of Section 194 IA TDS

Section 194IA of the Income Tax Act, 1961, pertains to the deduction of TDS (Tax Deducted at Source) on the sale of immovable property. Here are the key prerequisites and details associated with Section 194IA TDS:

1. Applicability: Section 194IA applies to transactions involving the transfer of immovable property, where the consideration for the transfer exceeds fifty lakh rupees.
2. Transaction scope: The section covers various types of transactions, including the sale of land, building, apartment, house, or any other immovable property.
3. Consideration limit: TDS under Section 194IA is applicable when the consideration for the transfer of the property exceeds fifty lakh rupees in a single transaction.
4. Time of deduction: TDS is required to be deducted at the time of credit or payment, whichever is earlier. This means that the diductor needs to deduct TDS when making the payment to the transferor or when the amount is credited, whichever happens first.
5. TDS rate: As of my last knowledge update in January 2022, the applicable TDS rate under Section 194IA is 1% of the consideration amount. However, it's advisable to check for any updates or amendments to the tax rates.
6. PAN of transferee and transferor: Both the transferee (buyer) and transferor (seller) must have a PAN (Permanent Account Number). PAN details of both parties need to be furnished during the TDS deduction process.
7. TDS payment and reporting: The diductor is required to deposit the TDS amount with the government within the stipulated time frame. Additionally, a TDS return (Form 26QB) needs to be filed online, providing details of the transaction and TDS deduction.
8. Exemption for agricultural land: Transactions involving agricultural land are generally exempt from TDS under Section 194IA. However, the exact criteria for land to be considered agricultural may vary.

Penalties for non-filing of TDS on sale of property

As per Section 194-IA, when a property is sold:

• The buyer is required to deduct TDS
  and
• Deposit it with the government

This TDS must be paid within seven days from the end of the month in which it is deducted. If the buyer fails to comply, there are financial consequences for both the buyer and the seller. Let’s understand them in detail:

Consequences for buyers

• Late filing fee (Section 234E)
  • If Form 26QB is not submitted on time, a fee of Rs. 200 per day is charged.
  • This continues until the fee amount equals the TDS that was supposed to be deducted.
• Interest on late deduction and payment
  • 1% per month is charged if TDS was not deducted on time.
  • 1.5% per month is charged if TDS was deducted but not deposited on time.
  • The interest is calculated from the date TDS was due until the date it is actually paid.

Consequences for sellers

• Cannot claim TDS credit
  • If the buyer fails to file Form 26QB or delays filing, the seller cannot claim the TDS credit in their tax return.
  • If this happens, it might result in a higher tax burden
• The TDS must be deposited
  • The seller should make sure the buyer has deposited the TDS using an authorised bank or through online tax payment.
  • This ensures the seller can claim the TDS credit without problems.

Some key considerations

• Cap on late filing fees
  • The late fee cannot be more than the TDS amount that should have been deducted.
• Filing is required even if no TDS is deducted
  • Even when no TDS is applicable due to a lower transaction value or exemption, Form 26QB must still be filed to report the transaction.
• Combined penalties possible
  • If there is both a delay in deducting TDS and in depositing it, both types of interest (1% and 1.5%) will apply.
  • This increases the total amount the buyer has to pay.

Notice for non-compliance with form 26QB filing requirements

When a property is bought or sold for more than Rs. 50 lakh, the registrar’s office sends a report called the Annual Information Return (AIR) to the Income Tax Department. This report includes the details of such property transactions.

Based on this information, the tax department checks whether the buyer has followed the rules under Section 194-IA.

The buyer is required to:

• Deduct 1% TDS from the sale price
  and
• Deposit it using Form 26QB within the deadline

If the buyer fails to deduct the tax or does not file Form 26QB on time, the Income Tax Department may send a notice to the buyer. This notice informs the buyer that they have not followed the legal requirement related to TDS on the property purchase.

Other topics you might find interesting
Income Tax Notice Section 142 1​	Section 80ccd 2 of Income Tax Act	Section 194h of Income Tax Act	Section 80ccd 1 of Income Tax Act
Section 148 of Income Tax Act	Section 80ggc of Income Tax Act	Section 80dd of Income Tax Act	Section 80e of Income Tax Act
Home Loan Interest Deduction	Section 80ccd 1b of Income Tax Act	Section 80ddb of Income Tax Act	Section 80g of Income Tax Act

 

 

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