Purchasing a new property is a dream come true for most of us. The experience of owning a house you can call your own is unparalleled. Got your eyes on a property you would love to buy? Already applied for an affordable home loan? While most buyers are aware of the tax liabilities associated with selling a property, very few of them know about the tax on property purchases. Since investing in property is a big decision, you must understand these obligations beforehand for a seamless experience.
Here are a few points to remember when you are looking to buy a new property.
When do you need to deduct TDS?
According to section 194IA of the Income Tax Act, if a property is priced above Rs. 50 lakhs, the buyer has to deduct 1% TDS on purchase of property (Tax Deducted at Source). These properties include commercial property, residential property, and land. You need to deduct the TDS either when you are executing the conveyance deed or at the time of paying any required advance before the execution of the deed.
Further, you have to pay the TDS to the central government within 30 days of the end of the month when tax is deducted.
How to pay TDS online?
You need to obtain a Tax deduction account number (TAN) to deduct TDS. However, in the case of immovable property, you do not require a TAN. For TDS payment, you need to fill the form-cum-challan no. 26QB. Following are the steps to pay TDS online-
- Visit the TIN NSDL website.
- Click on the option “TDS on sale of property.”
- Next, click on “Online form for furnishing TDS on property.”
- Choose the applicable form, “TDS on sale of property.”
- Fill in the required details of both the buyer and seller, including property details, Pan card, personal details, and tax deposit details.
- Confirm your submission and save the number displayed for future reference.
- Make the required payment via net banking.
Fill in the details carefully to avoid mistakes, as the website doesn’t allow you to rectify errors once you’ve submitted the form.
TDS on purchase of immovable property
Suppose you are paying Rs. 50 lakhs or more for immovable property (apart from rural agricultural land). Here, you must deduct 1% tax from the amount paid to the seller. The Finance Act of 2013 established this new provision under Section 194IA of the Income Tax Act.
Immovable property refers to land. Hence, this is the TDS on land purchase.
TDS on purchase of property from NRI
When you purchase a property from NRI, you must deduct TDS at a rate of 20%. A TDS of 30% will be applied if the property is sold within two years of acquisition.
TDS on rented property
Individuals or HUFs who pay rent are required to deduct tax at the source. Individuals and HUFs who are subject to a tax audit are in the same boat.
Key points to remember
Consider these important points with regards to TDS on sale of property –
- The tax is calculated on the overall price of the property and not just on the amount above Rs. 50 lakhs.
- You need the seller’s PAN card details for all transactions.
- The tax rate for an NRI seller will differ, which is calculated under Section 195 of the IT Act.
- If you pay for the property in instalments, each instalment will carry taxes.
- You have to file the tax deduction with the government within 7 days of filing the Form 26QB.
In general, anyone who deducts TDS must obtain a TAN (tax deduction account number). In the case of TDS on land, however, the buyer is not required to get a TAN. In Form 26QB, you must enter information such as the seller’s and buyer’s names, addresses, PANs, phone numbers, and email addresses. You must also include the property’s complete address, as well as the agreement date, the total worth of consideration, the payment date, and so on.
The buyer should double-check if the seller’s PAN is correct. Otherwise, the seller will be unable to receive credit for the tax deducted by the buyer, as the credit would be granted based on the buyer’s PAN card information as provided in Form 26QB.
Preparing to buy your home?
Now that you have a thorough understanding of the TDS rate on property purchase, you can proceed to purchase your dream home.
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