About 8 per cent people in India paid more than 50 per cent of the money in cash for buying a residential property, according to a survey by the Delhi-based social research company, Localcircles.
The government has, incidentally, in order to track all these property transactions, introduced the provision of tax deduction at source (TDS) while buying property valued above Rs 50 lakh, which is amended from time to time, with the most recent one occurring in the 2022 Budget.
There are certain tax compliances, including certain forms, which both the buyer and the seller of the property needs to fill.
In Budget 2022, there was an amendment to the TDS provisions on buying a house property.
Archit Gupta, founder and CEO, Clear (formerly Cleartax), says that there are certain TDS related compliances which a buyer and seller has to keep in mind unless the seller is a non-resident Indian (NRI). Then, certain additional compliances fall on the parties.
“Normally a person who is deducting tax under section 194IA and filing form 26QB is not supposed to get TAN,” adds Gupta.
The buyer of any property (costing more than Rs 50 lakh) will deduct 1 per cent amount as TDS. This 1 per cent TDS amount will be higher of the transaction value or stamp duty value. This transaction value will include all incidental charges and payments, such as gym membership fee, car parking fee, maintenance fee, and others which the buyer is paying to the seller.
This tax deducted at source (TDS) is supposed to be paid via an integrated form 26QB, which is both a challan and statement of TDS.
This tax, which the buyer is supposed to deduct at the time of making the payment to the seller of the property, must be deposited within a period of 30 days from the end of the month in which the deduction (TDS) happened.
The buyer must give the TDS certificate generated by him after submitting Form 26QB within 15 days from the due date of filing Form 26QB.
Quoting the PAN of both the buyer and seller of such property along with other necessarily mandated details are to be compulsorily submitted in such a transaction.
Amit Kumar Agarwal, CEO, and co-founder, NoBroker.com, a online property website, said that if the seller is an Individual he will not be paying TDS for any sale commission to any offline or online broker. However, if the seller is other than Individual then he/she needs to pay TDS on the commission amount paid.
Some Essential Things To Know
Here are some other details that one should keep in mind while buying or selling a house.
Rs 50 Lakh Limit Is Checked Individually, Not Jointly: Gaurav Makhijani, senior tax advisor, Roedl and Partner, a legal and tax consultancy firm, says that joint buyers also need to deduct TDS on their share of payment, and are also required to undertake their separate compliances.
“There are tax rulings which provide that the threshold provided under the Income-tax Act, 1961 is for each purchaser, and, therefore, the threshold for Rs 50 lakh limit is to be seen for each buyer. However, this view is often challenged by the tax authorities,” adds Makhijani.
Certain State Specific Laws Also Needs To Be Checked: Agarwal explained that in case the seller and buyer of the property resides in different states then MODTD (Memorandum of Deposit of Title Deeds), which is a state government law needs to be followed. Now depending upon the particular detail of where the deed is registered and in which state the stamp duty is paid, that state's MODTD will apply.
"Say buyer is in Maharastra and the seller is in Gujarat but he is selling his property in Bangalore to him. Now since the property is in Bangalore so the MODTD regulations of Karnataka will be applied," added Agarwal.
Higher TDS In Absence Of PAN Details: If the seller has no PAN or fails to submit his/her tax return or other in specified cases, then a higher TDS is to be deducted.
According to Ankit Jain, partner, Ved Jain and Associates, a New-Delhi based taxation and legal firm, the buyer will need to deduct TDS at a higher rate in cases where the seller of the property has not furnished his/her tax return for the preceding financial year, and the due date for filing has passed, or say, the seller has not given his/her PAN to the buyer, or, the seller does not have a valid PAN.
“However, these rates will not apply where no TDS is required to be deducted. For instance, if the respective property is an agricultural land or the value of such property is below Rs 50 lakh, and in other specified cases,” adds Jain.
TDS, TAN Required If Buying Property From NRI: The house property limits will not be checked and a buyer will have to deduct and pay TDS on behalf of the seller, if the latter is an NRI. The buyer of such a property will also need to have a valid Tax Collection Account Number (TAN) card.
“TDS has to be deducted on buying property from an NRI even if the transaction value of the property is up to Rs 50 lakh. The buyer will need a TAN if he/she is buying a house from an NRI,” says Pallav Pradyumn Narang, partner, CNK, a Mumbai-based tax and legal firm.
One can get a TAN online by visiting here and then by filling and submitting form 49B.
"The NRI seller can also apply for a lower tax slab through TRACES website, otherwise about 20 to 30 per cent of the consideration will be deducted as TDS by the buyer of such property," added Agarwal of NoBroker.com.
How Will This TDS Be Adjusted?
TDS is required to be deducted at the time of payment or credit of such sum, whichever is earlier.
Accordingly, tax should be deducted in the form of TDS for any advance payments being made to the seller, adds Makhijani.