July10
Understanding Tax Deducted at Source (TDS) while Buying a Flat in India
Buying a flat is a significant milestone for many individuals, and it's essential to be aware of the various financial aspects involved. One crucial factor to consider is Tax Deducted at Source (TDS). In India, TDS is a mechanism implemented by the Income Tax Department to collect taxes at the source of income. This blog aims to provide a comprehensive understanding of TDS in relation to purchasing a flat, along with the rules and regulations governing it.
What is Tax Deducted at Source (TDS)?
Tax Deducted at Source, commonly known as TDS, is a means of collecting tax from individuals by deducting it at the time of making certain payments, such as salary, rent, or payments for goods or services. In the context of buying a flat, TDS applies when making specific payments related to the property transaction.
TDS on Purchase of Property:
According to the provisions of the Income Tax Act, of 1961, TDS on the purchase of property applies to both residential and commercial properties. The buyer is required to deduct TDS and deposit it with the government on specific payments to the seller. Let's understand the fundamental rules and regulations associated with TDS on the purchase of property:
1. Applicability:
TDS is applicable when the consideration (sale value) of the property exceeds Rs. 50 lakhs for urban properties and Rs. 20 lakhs for rural properties. This threshold applies to both residential and commercial properties.
2. TDS Rates:
The applicable TDS rate is generally 1% of the consideration value. However, in certain cases where the seller does not provide a Permanent Account Number (PAN), the TDS rate increases to 20%. It is crucial to ensure the seller's PAN details are provided to avoid a higher TDS rate.
3. Time of TDS Deduction:
The buyer is required to deduct TDS at the time of making the payment to the seller. If the payment is made in instalments, TDS must be deducted at each instalment payment.
4. TAN (Tax Deduction and Collection Account Number):
To deduct TDS, the buyer must obtain a TAN from the Income Tax Department. It is mandatory to quote the TAN on all TDS-related documents and while filing TDS returns.
5. Depositing TDS
The buyer is responsible for depositing the deducted TDS with the government within a specific timeframe. The deposited TDS must be accompanied by a return known as Form 26QB. The TDS amount must be paid using the online portal of the National Securities Depository Limited (NSDL) or the authorised banks.
6. Filing TDS Returns:
The buyer is required to file a TDS return using Form 26QB within a specific period. This return provides details of the TDS deducted and deposited. It is crucial to comply with the filing deadlines to avoid any penalties or consequences.
7. TDS Certificate:
Upon depositing the TDS, the buyer must provide a TDS certificate, known as Form 16B, to the seller. This certificate serves as proof of TDS deduction and can be obtained from the TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal.
TDS applies to property purchases of ₹50 lakhs or more. In such cases, the buyer is responsible for deducting one percent of the property value as tax and depositing it to the government account within 30 days of the following month. This can be done through authorised bank branches or the NSDL tax payment option. To make the payment, the buyer needs to provide necessary details such as buyer and seller information, property address, value, and the amount of TDS on the HSN website's TDS on Sale of Property section.
Once the payment is submitted, an alphanumeric acknowledgement number is generated. The buyer must then log in to their net banking account and complete the payment details for confirmation. After seven days, the TDS payment is reflected in the buyer's 26AS statement. To access Form 16B, which serves as proof of TDS payment, the buyer needs to register on the TRACES system, submit a request, and download the form. This form can