Buying a home or investing in property in India requires navigating the complex tax system. The Income Tax Act mandates buyers to deduct Tax Deducted at Source (TDS) at the time of payment and deposit it with the central government. Here is a comprehensive guide to deducting TDS on property purchases.
When TDS Applies
When purchasing property worth more than Rs 50 lakhs, the buyer must deduct 1% TDS under Section 194-IA of the Income Tax Act. From April 1, 2025, the deduction must be calculated on the higher of the transaction price or the circle rate (also known as the stamp duty value). The buyer must fill Form 26QB within a specified period from the transaction date after deducting the amount.
Consequences of Non-Compliance
If the buyer fails to provide their PAN card or does not link it with Aadhaar, a 20% TDS rate may be levied. The deducted amount must be deposited with the government using Form 26QB within 30 days from the transaction date. Additionally, the buyer must furnish the TDS certificate in Form No. 16B to the seller within 15 days from the due date for submitting Form 26QB.
Special Rules for NRIs
When purchasing property from a Non-Resident Indian (NRI), the transaction falls under Section 195 of the Income Tax Act. If the seller has held the property for over two years (long-term capital asset), the applicable TDS rate is 20% of the total sale value. However, for transactions finalized on or after July 23, 2024, the base rate significantly drops to 12.5%. In both cases, buyers must remember to calculate and add the applicable surcharge and the mandatory 4% health and education cess to the final tax amount.
Steps for NRI Transactions
The resident buyer must obtain a Tax Deduction Account Number (TAN) to deduct and deposit TDS. The TDS is deducted at the time of payment and deposited via e-challan by the 7th of the following month. Subsequently, Form 27Q must be submitted to file the TDS return.
Penalties for Non-Compliance
Non-compliance with TDS rules can attract a penalty of 1% per month on the unpaid tax amount under Section 201 until the amount is paid. Additionally, the defaulter may be liable for a penalty under Section 271C, which is equal to the amount of taxes that were required to be withheld under Section 195.
