How to Calculate TDS on the Sale of Property in India

• Posted by AMpuesto India January 10, 2025 Filed in Business #TDS  #tds on sale of property  16 views
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  Real estate transactions often come with significant financial and legal implications, one of which is the deduction of TDS (Tax Deducted at Source). In India, the TDS on sale of property is a mandatory requirement under the Income Tax Act, 1961. Ensuring compliance with these regulations not only avoids penalties but also contributes to a transparent real estate ecosystem.

  This blog will guide you through the process of calculating TDS on the sale of property, its rules, and other compliance essentials.

   

  Understanding TDS on Sale of Property

  What is TDS on Sale of Property?

  TDS on the sale of property is a tax that the buyer deducts from the payment made to the seller. The buyer is responsible for deducting and depositing this tax with the government. The rule applies to the sale of immovable property (excluding agricultural land) worth ₹50 lakh or more.

  Purpose of TDS

  The primary purpose of TDS is to track high-value transactions and ensure that sellers report the capital gains arising from the sale in their income tax returns.

   

  Key Rules for TDS on Sale of Property

  1. Applicability:

  • TDS is applicable if the sale consideration is ₹50 lakh or more.

  • It applies to residential, commercial properties, and plots (excluding agricultural land).

  2. Rate of TDS:

  • The TDS rate is 1% of the sale consideration if the seller provides their PAN.

  • If the seller does not provide their PAN, the TDS rate increases to 20%.

  3. Time of Deduction:

  • TDS must be deducted at the time of making the payment, whether it’s in full or in installments.

  4. TDS Filing Deadline:

  • Buyers must file Form 26QB and deposit the deducted TDS within 30 days of the deduction.

   

  How to Calculate TDS on Sale of Property

  1. Determine the Sale Consideration

  Identify the total sale value of the property as mentioned in the sale agreement. If the value exceeds ₹50 lakh, TDS is applicable.

  2. Calculate the TDS Amount

  • If the sale value is ₹75 lakh, the TDS calculation is:
    TDS = Sale Value × 1%
    TDS = ₹75,00,000 × 1% = ₹75,000

  • If the seller fails to provide their PAN, and the sale value remains ₹75 lakh:
    TDS = Sale Value × 20%
    TDS = ₹75,00,000 × 20% = ₹15,00,000

  3. Deduct TDS for Each Installment (If Applicable)

  If the buyer pays the seller in installments, TDS must be deducted from each payment. For instance, if ₹75 lakh is paid in 5 installments of ₹15 lakh each, the TDS per installment is:

  TDS per installment = ₹15,00,000 × 1% = ₹15,000

  How to Deposit TDS

  Step 1: Fill Form 26QB

  Visit the TIN-NSDL website and complete Form 26QB. Provide details of the buyer, seller, property, and the TDS amount.

  Step 2: Pay the TDS Online

  The deducted TDS can be deposited online via net banking or by visiting authorized banks.

  Step 3: Generate Form 16B

  Download Form 16B (TDS certificate) from the TRACES portal and issue it to the seller as proof of tax deduction.

  Compliance Guidelines for TDS on Sale of Property

  1. PAN Verification:

  • Verify the PAN details of both the buyer and seller to ensure accuracy in Form 26QB.

  2. Timely Filing:

  • File Form 26QB within 30 days of deducting TDS to avoid penalties.

  3. Maintain Records:

  • Keep copies of Form 26QB, Form 16B, and payment receipts for future reference.

  Penalties for Non-Compliance

  1. Late Filing Fees:

  • Under Section 234E, a late fee of ₹200 per day is applicable for delays in filing Form 26QB.

  2. Interest on Late Deduction or Payment:

  • 1% per month for failure to deduct TDS.

  • 1.5% per month for failure to deposit TDS after deduction.

  3. Penalty Under Section 271H:

  • A penalty ranging from ₹10,000 to ₹1,00,000 may be imposed for non-compliance.

  Exemptions from TDS on Sale of Property

  While TDS on sale of property is widely applicable, certain exemptions exist:

  • Sale value below ₹50 lakh.

  • Transactions involving agricultural land.

  • Properties purchased from government bodies.

  Common Mistakes to Avoid

  1. Incorrect PAN Details:

  • Entering incorrect PAN details can lead to rejected filings or penalties.

  2. Not Deducting TDS on Installments:

  • Ensure TDS is deducted for every installment payment.

  3. Delayed Filing of Form 26QB:

  • File Form 26QB within the stipulated timeline to avoid penalties.

  Real-Life Scenario: Simplifying TDS on Sale of Property

  Case Study: A buyer purchased a flat worth ₹80 lakh and paid the seller in 4 installments of ₹20 lakh each. The buyer:

  • Deducted TDS (₹20,000 per installment).

  • Filed Form 26QB within 30 days of each deduction.

  • Issued Form 16B to the seller promptly.

  Outcome: The buyer avoided penalties, and the transaction was completed seamlessly.

  Conclusion

  Calculating TDS on sale of property and complying with the associated rules is essential for both buyers and sellers. By understanding the applicability, calculation methods, and compliance guidelines, you can ensure smooth real estate transactions while avoiding unnecessary penalties.

  With timely deductions, accurate filings, and proper documentation, managing TDS on sale of property becomes a hassle-free process. Stay informed, stay compliant, and make your property transactions seamless and transparent.