Section 194IA of the Income Tax Act: TDS on Property Purchase

Section 194IA of the Income Tax Act, 1961, deals with the TDS on the purchase of an immovable property at the time of transaction. Property tax is applicable to owners of the property by the appropriate authorities like a municipality or municipal corporation.

It is calculated based on the value of the land and the property. The tax amount is then used for the maintenance and running of local and public amenities.

How Is Property Tax Calculated

The formula that is used for property tax calculation is:

Property tax = Base value x Area built x Type of construction x age factor x category of use x carpet area of the floor

Here are the definitions of these terms:

Base Value: It is the price of a property
Area Built: It is the total area of a property
Type of Construction: It describes the material with which a property is constructed
Age Factor: It determines the construction time for a property

Category of Use: It means the purpose for which the property is being utilised
Carpet Area of the Floor: It refers to the usable floor area of a property

When is TDS Deducted Under Section 194IA

The transferee or the purchaser has to deduct TDS on the following instance, whichever comes first

When the amount is credited to the seller’s account
When the payment is made by cash, cheque/draft, or any other way

Rate of TDS on the Purchase of Immovable Property

The Section 194IA TDS rate applicable on the purchase of property is:

ATDS rate of 1% is levied on the entire transaction amount
Deductor must apply TDS at the base rate, excluding health and education cess and surcharge
In case the seller or transferor does not mention the PAN details, then a TDS rate of 20% will be applicable

Perquisites for Deduction of TDS under Section 194IA

Before you make a TDS payment, the following points have to be kept in mind:

TDS will be deducted if the property value exceeds ₹50 Lakhs
In case Section 194LA is applicable then the provisions of TDS under Section 194IA are not applicable
TAN is not compulsory for TDS deduction under this section
TDS has to be deducted on each instalment, if payment is made via instalments
TDS has to be paid through Form 26QB within 30 days from the TDS deduction
After depositing TDS, the buyer needs to provide the TDS certificate in Form 16B to the seller

Who can claim TDS u/s 194IA?

Any person who gets into an agreement with a resident to transfer the immovable property must deduct TDS u/s 194IA of the Income Tax Act, 1961.

Who is responsible for paying TDS, the seller or the buyer?

The TDS has to be deducted by the buyer and not the seller.

What happens if a buyer doesn’t pay TDS?

If a buyer does not pay TDS on immovable property, he will be charged a penalty of up to ₹1 Lakh.

Can the seller pay TDS on the property on behalf of the buyer?

The buyer must only deduct the TDS as it is his/her sole responsibility, even if a home loan finances the payment or the property is purchased from the builder.

Who should deduct TDS under Section 194IA?

The transferee is the one who is responsible for TDS deduction. The transferee, here, is the one who purchases the property. Besides, a transferee can be a non-resident as well as a resident.

Although, the seller or the transferor has to be a resident. In case the transferor is a non-resident, then TDS u/s 194IA is not levied. In such an instance, TDS has to be deducted u/s 195.

Where is the TDS deducted?

TDS under this section has to be deducted on the value of the transaction, and not on the amount inclusive of applicable taxes.

For example, if a property is sold at ₹50 Lakhs. The TDS u/s 194IA would be deducted on ₹55 Lakhs, including GST. The rule was ensured to keep a note of the purchase and sale of real estate.