TDS (TAX DEDUCTED AT SOURCE) ON THE SALE OF IMMOVABLE PROPERTY

Income-tax Act, 1961 and the rules made thereunder contain provisions relating to the deduction of tax at source in the event of a transfer of immovable property, other than rural agricultural land, by any person, being a transferee/buyer, responsible for paying any sum by way of consideration to the transferor/seller. The detailed provisions can be understood as follows:

(A) Where a seller is a person resident in India during the previous year (or financial year) when such transfer took place:

1. Buyer shall deduct 1% of the consideration (or stamp duty value, if higher) as TDS, provided such consideration (or stamp duty value) is INR 50 lakhs or more. This is contained in section 194-IA of the Income-tax Act, 1961.
2. Where there is more than one buyer or seller, then the consideration shall be an aggregate of amounts paid or payable by all buyers or to all sellers for the transfer of such immovable property.
3. Buyer shall deduct TDS at the time of credit of such sum to the seller’s account in the buyer’s books of account or at the time of payment of such sum in cash or by any other mode, whichever is earlier.
4. Due date for the payment of TDS is 30 days from the end of the month in which such deduction of tax at source is made.
5. Buyer shall not be required to apply for TAN (Tax Deduction Account Number) in order to deposit the amount of TDS with the government treasury. Instead, the PAN (Permanent Account Number) of the buyer and the seller are required.
6. Buyer shall be required to report information relating to immovable property and deposit TDS electronically through Form 26QB, a challan-cum-statement of deduction of tax. In case of more than one buyer, each buyer shall be required to file such form individually, disclosing information in respect of his individual share.
7. Once TDS is deposited, the TDS Certificate in Form 16B shall be available to be issued by the buyer to the seller. The seller can also verify the amount of TDS deposited under his PAN in Form 26AS by logging into his Income-tax profile.

(B) Where Seller is a person not resident in India during the previous year (or financial year) when such transfer took place:

1. Buyer shall deduct 12.5% (plus surcharge and cess) of the consideration (or stamp duty value, if higher) as TDS on transfer of immovable property in case such property is transferred after two years of its purchase. Otherwise, the rate of TDS shall be 30% (plus surcharge and cess). This is covered under section 195 of the Income-tax Act, 1961.
2. Where there is more than one buyer or seller, then the consideration shall be an aggregate of amounts paid or payable by all buyers or to all sellers for the transfer of such immovable property.
3. Buyer shall deduct TDS at the time of credit of such sum to the seller’s account in the buyer’s books of account or at the time of payment of such sum in cash or by any other mode, whichever is earlier.
4. Due date for the payment of TDS is the 7th day of the following month in which such deduction of tax at source is made, except for March where the due date is the 30th day of the following month.
5. Buyer shall be required to apply for TAN (Tax Deduction Account Number) in order to deposit the amount of TDS with the government treasury. He can simply make the payment of TDS via IT Challan No. 281 prescribed for the TDS/TCS payments.
6. Buyer shall be required to report such information relating to the transfer of the immovable property and the TDS deposited thereon through Form 27Q, a quarterly statement of deduction of tax prescribed under section 200(3) of the Act, online or offline as per the convenience of the Buyer himself. In case of more than one buyer, each buyer shall be required to file such form individually, disclosing information in respect of his individual share.
7. Once the above statement is processed by ITD, the TDS Certificate in Form 16A shall be available on the portal to be issued by the buyer to the seller. Non-resident sellers, having a PAN, can also verify the amount of TDS deposited under their PAN in Form 26AS by logging into their Income-tax profile.

General considerations in both scenarios above:

1. Delay in deduction of tax shall attract interest at the rate of 1% per month or part thereof, of the amount from the date on which tax should have been deducted to the date on which it is actually deducted.
2. Delay in payment of tax deducted shall attract interest at the rate of 1.5% per month or part thereof, of the tax deducted from the date on which tax is actually deducted to the date on which it is actually paid to the treasury.
3. Delay in filing of the TDS forms, whether Form 26QB or 27Q, shall attract a late fee of INR 200/- per day, maximum to the amount of tax deducted, under section 234E of the Act.
4. Rate of Health & Education Cess (or cess, simply) is 4% on the income tax including surcharge.
5. In case of long-term immovable property being held for two years by the seller, the rates of surcharge shall be as follows:

• 10% if the consideration value exceeds 50 lakhs upto 1 crore;
• 15% if the consideration value exceeds 1 crore.
• Otherwise, the rates of surcharge shall be as follows:
• 10% if the consideration value exceeds 50 lakhs upto 1 crore;
• 15% if the consideration value exceeds 1 crore upto 2 crores;
• 25% if the consideration value exceeds 2 crores.

Provided that if the seller opts out of the Default Tax Regime, then the rates of surcharge, in second para above, shall be as follows:

• 10% if the consideration value exceeds 50 lakhs upto 1 crore;
• 15% if the consideration value exceeds 1 crore upto 2 crores;
• 25% if the consideration value exceeds 2 crores upto 5 crores;
• 37% if the consideration value exceeds 5 crores.

Rates and other provisions provided in the article are as amended by the Finance Act, 2024 (No. 2). Consequently, the taxpayer shall have the option to either choose rate of tax as 20% with indexation or otherwise choose 12.5% without indexation for transfer of long-term immovable property before July 23, 2024, during the previous year 2024-25.