194IA
Understanding Section 194IA: TDS Rules on Property Purchase
Buying a property comes with a few tax rules that many buyers usually miss. One of the most important among them is TDS under Section 194IA. In this post, we will discuss what this section means, when TDS must be deducted, the due dates, which form to use, and what happens if you miss the deadline.
What is Section 194A?
When you buy a property, you must deduct TDS before making the payment to the seller. This rule makes the buyer responsible for cutting 1% TDS on the total sale value and then paying the remaining amount to the seller. TDS is not calculated on capital gains. It is always deducted from the full selling price of the property.
If the stamp duty value of the property is less than Rs 50 lakhs, then no TDS is required.
Key points to remember:
• TDS at 1% has to be deducted by the buyer, not the seller.
• This rule applies only when the sale value is more than Rs 50 lakhs.
• It applies to all properties except agricultural land.
• No extra cess or surcharge is charged on the 1% TDS.
• After deducting TDS, the buyer must deposit it within 30 days from the end of that month.
• Form 26QB has to be submitted along with the TDS. This form includes PAN details of both buyer and seller.
• If the seller’s PAN is not available, the TDS rate becomes 20 percent.
• The buyer should keep the challan receipt safely as proof of payment. It contains the transaction details and CIN number.
• The buyer must issue Form 16B as a TDS certificate to the seller. It can be downloaded from the TRACES portal.
< • If the seller has no capital gains, they can claim a refund while filing their income tax return.
What is the rate of tax ?
If you are buying a property worth ₹50 lakh or more, you have to deduct TDS at 1 percent of the sale value or stamp duty value, whichever is higher.
This applies only when
• The seller is a resident
• The seller has a valid PAN
If the seller does not provide a PAN, the TDS rate becomes 20 percent as per Section 206AA.
Important:
TDS has to be deducted either when making the payment or when the amount is credited, whichever happens first.
When is the due date?
When you deduct TDS on a property sale, you must pay it within 30 days from the end of the month in which the deduction was made. So if the TDS was deducted in a particular month, make sure it is paid within the next 30 days.
What form to use?
Form 26QB is used to provide information regarding TDS on property.
What is the penalty for not paying and filing?
Under Section 194-IA, when a property is sold, the buyer has to deduct TDS and deposit it with the government.
This must be done within seven days from the end of the month in which the deduction is made.
If the buyer doesn’t follow these steps, both the buyer and seller can face issues. Here is what happens:
For Buyers
- Late filing fee – Section 234E
If Form 26QB is not filed on time, a fee of Rs 200 per day is charged.
This continues till the fee reaches the total TDS amount that should have been deducted.
- Interest on delay
- 1 percent per month if TDS was not deducted on time
- 1.5 percent per month if TDS was deducted but not deposited
The calculation is done from the due date till the actual date of payment.
- Penalty – Section 271H
If TDS statements are not filed on time, a penalty between Rs 10,000 and Rs 1 lakh may be charged depending on the delay and non-compliance.
For Sellers
- If the buyer does not file Form 26QB or files it late, the seller cannot claim TDS credit.
- This may increase the seller’s tax liability.
- The seller should always check that the buyer has deposited the TDS through an authorised bank or online payment so the TDS credit can be claimed smoothly.
Important Points
- The late fee cannot exceed the TDS amount that was supposed to be deducted.
- Even when no TDS is applicable due to a lower transaction value, Form 26QB must still be filed to report the transaction.
- If there is a delay in both deduction and deposit, then both types of interest will apply, leading to a higher amount payable.
- Any non-compliance can appear in the buyer’s Form 26AS and may affect future refunds or assessments.
And with that, we have reached the end of this post on Section 194IA. If you have any questions about this, leave them in the comments below. We are happy to help!
