TDS on Purchase of Property: A Complete Guide for New Buyers

Purchasing property is a significant milestone, but it comes with several responsibilities, including tax compliance. One crucial obligation for buyers is understanding and adhering to the rules for TDS on property. Whether you’re buying your first home or investing in real estate, knowing how TDS for property purchase works can save you from penalties and ensure a smooth transaction.

This guide provides a comprehensive overview of TDS on property, its calculation, filing process, and common mistakes to avoid.

What is TDS on Property Purchase?

TDS (Tax Deducted at Source) on property purchase is a tax requirement under Section 194-IA of the Income Tax Act, 1961. It mandates buyers to deduct a percentage of the property’s sale value as tax and deposit it with the government. This applies to residential and commercial properties, as well as plots, except agricultural land.

When is TDS Applicable on Property Purchase?

1. Transaction Value Threshold

TDS is applicable only if the property’s sale consideration is ₹50 lakh or more. If the transaction value is below this threshold, TDS does not apply.

2. Type of Properties Covered

• Residential properties
• Commercial properties
• Land (excluding agricultural land)

3. Rate of TDS

The rate of TDS for property purchase is 1% of the total sale consideration. However, if the seller fails to provide their PAN, the rate increases to 20%.

4. Payment Timing

TDS must be deducted at the time of making the payment to the seller, whether it is a lump sum or installment payment.

How to Calculate TDS on Property Purchase

Calculating TDS for property purchase is straightforward:

1. Identify the Sale Consideration

Determine the total sale price of the property as stated in the sale agreement. If the value exceeds ₹50 lakh, TDS is applicable.

2. Calculate the TDS Amount

Formula:

Example:

• Sale Price: ₹80 lakh
• TDS = ₹80,00,000 × 1% = ₹80,000

3. For Installment Payments

If the buyer pays in installments, TDS must be deducted from each installment. For example:

• Sale Price: ₹60 lakh
• Installments: ₹15 lakh each
• TDS per installment = ₹15,00,000 × 1% = ₹15,000

How to Deposit TDS for Property Purchase

Step 1: Fill Form 26QB

File Form 26QB online within 30 days of deducting TDS. This form requires details like:

• Buyer and seller PAN
• Property details
• TDS amount
• Payment date

Step 2: Deposit TDS Online

Pay the TDS amount through net banking or by visiting authorized banks. Ensure the payment is completed on time to avoid penalties.

Step 3: Generate Form 16B

After depositing the TDS, download Form 16B from the TRACES portal and issue it to the seller as proof of tax deduction.

Compliance Tips for TDS on Property Purchase

1. Verify Seller’s PAN: Always ensure the seller provides a valid PAN to avoid higher TDS rates (20%).
2. File on Time: Form 26QB must be filed within 30 days of TDS deduction to avoid late fees and penalties.
3. Keep Records: Maintain copies of Form 26QB, payment receipts, and Form 16B for future reference.
4. Deduct TDS on All Payments: For installment-based payments, ensure TDS is deducted on every transaction.

Common Mistakes to Avoid

1. Delaying Form 26QB Filing Late filing attracts a penalty of ₹200 per day, up to the TDS amount.
2. Incorrect PAN Details Entering wrong PAN details for the buyer or seller can lead to rejections and complications.
3. Failing to Deduct TDS on Installments TDS must be deducted on each installment, not just the initial or final payment.
4. Ignoring Higher TDS Rate If the seller does not provide a PAN, the TDS rate increases to 20%. Ensure PAN verification before making payments.

Penalties for Non-Compliance

1. Late Filing Fees A penalty of ₹200 per day under Section 234E is levied for delayed filing of Form 26QB.
2. Interest on Delayed Deduction/Payment

• 1% per month for failing to deduct TDS on time.
• 1.5% per month for failing to deposit deducted TDS on time.

1. Penalty Under Section 271H For severe non-compliance, a penalty ranging from ₹10,000 to ₹1,00,000 may be imposed.

Exemptions from TDS on Property Purchase

TDS does not apply to:

• Properties valued below ₹50 lakh.
• Agricultural land.
• Transactions involving government bodies or public sector undertakings.

Benefits of Complying with TDS on Property

1. Avoid Legal Hassles Timely deduction and deposit of TDS ensure smooth property transactions without legal disputes or penalties.
2. Proof of Tax Deduction Form 16B serves as proof of compliance, protecting buyers during audits or disputes.
3. Contributing to Transparency Adhering to TDS rules promotes accountability and transparency in real estate transactions.

Case Study: TDS Compliance in Action

Scenario: A buyer in Bengaluru purchased a flat worth ₹70 lakh and paid in three installments of ₹23.33 lakh each. The buyer:

• Deducted TDS of ₹23,330 on each installment.
• Filed Form 26QB within the stipulated 30 days.
• Issued Form 16B to the seller promptly.

Outcome: The buyer avoided penalties, completed the transaction smoothly, and ensured full compliance with TDS rules.

Conclusion

Understanding and complying with TDS on property is crucial for buyers. By deducting, filing, and depositing TDS accurately, buyers can avoid penalties and ensure seamless property transactions.

Whether you’re a first-time buyer or a seasoned investor, being proactive about TDS for property purchase safeguards your investment and promotes transparency in the real estate market. Stay informed, stay compliant, and make your property purchase journey hassle-free.