Introduction

The Income Tax Act provides the provisions for deduction of tax on the sale of house property. The provision for deduction of tax is introduced to bring to tax the transaction of sale of house property. The buyer of the property needs to deduct the tax. The seller usually does not offer to tax the transaction in the Income Tax Return but due to deduction of tax the seller is mandated to file the Income Tax Return after showing the capital gains or losses. The seller cannot escape his liability as Form 26AS shows the tax deducted by the buyer. Failure to show the above transaction in the income tax return may attract penalties and prosecution.

TDS Compliances

Basic Provisions

The provisions are covered in section 194IA which states that any person being the buyer of the property responsible for paying any sum to the resident seller is liable to deduct tax at source. The amount must be payable for immovable property other than Agricultural Land. 

Agricultural Land

Agricultural land means agricultural lands in India, not being a land situated in any area referred to in section 2(14)(iii)(a)/(b) of the Income Tax Act.

Non-Resident Sellers

If the buyer has bought the house property from the non-resident seller, then TDS under this section is not applicable. In this case, the provisions of section 195 will apply which states the TDS provisions related to Non-Residents.

Time to deduct Tax

The buyer is required to deduct tax under both section 194IA and 195, earlier of the following events:

• At the time of credit to the account of the seller or
• At the time of payment*

* Payment includes payment by cash, cheque, demand draft, e-transfer, etc.

Threshold Limit for Tax Deduction

No tax is required to be deducted u/s 194IA if the amount payable to the seller is lesser than Rs. 50 Lakhs.

Rate of Tax

TDS Rate if PAN not provided

If the seller does not provide the PAN card, then the highest of the following rates will apply:

•    The rate mentioned in the act;
•    The rate mentioned in the Finance Act;
•    20%

Time to Deposit Tax

The tax deducted under section 194-IA needs to be paid to the government’s treasury within thirty days from the end of the month in which the deduction is made and the payment is made in Form No. 26QB.

The tax deducted under section 195 shall be paid to the credit of the Central Government within 7 days following the month in which tax is deducted. The return is filed in Form 27Q.

Certificate for TDS

Every person responsible for deduction of tax under section 194-IA shall furnish the TDS Certificate in Form No. 16B to the payee within fifteen days from the due date for furnishing the Challan-cum-statement in Form No. 26QB.

The Certificate for tax deducted under section 195 needs to be provided to the seller within 15 days from the due date of the TDS return of the respective quarter.

TAN Application

For deduction of tax under section 194IA, No TAN is required to be obtained. For deduction of tax under section 195, TAN is required to be applied and all the compliance related to TAN needs to be made by the buyer.

Multiple Buyer and Sellers

If the transaction involves multiple buyers and sellers then the legal provisions will apply as follows:

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