Section 194IA – 1% TDS on Property Purchase [Home Loan]

While buying property of Rs. 50 lakh or more, a buyer needs to deduct tax [TDS] at the rate of 1% [Section 194IA]

In this article, we will cover various aspect of section 194IA relating to the Tax deduction on purchase of immovable property.

Few details may seem repetitive. Bear with me 😕

Applicability Date

This TDS provision was inserted in Budget 2013 and is applicable from 1^st June 2013.

The then finance minister P Chidambaram in his speech for Budget 2013 said that transactions in immovable properties were usually undervalued and underreported and 1/2 of the transactions do not carry the PAN of the parties concerned.

TDS under section 194IA was introduced to improve the reporting of sales of immovable property and their taxation in respect of capital gains. 

Person Responsible for Deducting TDS 

A Buyer* should deduct TDS at the rate of 1 percent while paying a resident seller** of an immovable property (other than agricultural land) valuing Rs.50 lakh or more.

The 50 lakh threshold is available to each co-buyer of a property.

If a property of Rs.1.5 crore is purchased by 4 individual then TDS deduction is not required because the value of the property for each of co-buyer is only Rs.37.50 Lakh.

TDS should be deducted on every payment made to the seller.

Deduction also need to be made on considerations which are incidental to the purchase of property. Example: Club membership fee, Car parking fee, Electricity or Water facility fee, Maintenance fee, Advance fee or any other charges.   [From 1st September 2019]

After deducting TDS the buyer needs to generate form 16B [TDS Certificate] for the seller.

I will walk you through the Whole Process later in this article!

Example:  Mr. Shashank bought a new flat for Rs.60 lakh and Car Parking fees for Rs.4 Lakhs. He paid the builder in 4 yearly installment i.e Rs 16 lakh every year.

In this case, Mr. Shashank needs to deduct TDS of Rs.16,000/- [1% of 16 lakh]on every yearly payment.

*Transferee, **Resident Transferor

TDS Deduction in Case of a Home Loan 

In case of a Home loan, initially the bank pays the whole purchase value directly to the seller of the property and in turn, the buyer pays the bank in monthly installment. [EMI]

As per the income tax law, the liability to deduct TDS is on the buyer and not on the bank. The liability to deduct TDS arises when the banks make payment to the seller.

When the bank finances the whole purchase consideration, the buyer should ask his bank to pay the seller an amount after deducting TDS value.

Example:

Mrs. Arpita buys an under construction flat for Rs.52 lakh (Excluding GST) through a bank loan.

In this case, bank will pay directly to the seller Rs. 60,84,000/- (6136000 less TDS of Rs.52000) on 4^th June 2018.

Mrs. Arpita should deposit the TDS of Rs.52000 (52 lakh x 1%) by 7^th July 2018. [Due date for TDS]

She will pay EMI based on the principal amount of Rs.60,84,000/-.

Recommended to Read: Save Tax on Home Loan

How To Deposit TDS [under section 194IA] 

Step 1:

Deposit TDS using either online or offline challan 26QB within the 7^th day from the end of the month in which tax is deducted into any branch of the Reserve Bank of India or the state bank of India or any authorised bank.

Step 2:

Generate form 16B within 15 days after the deposit of TDS [step 1] from the official page of TRACES. Follow the below procedure-

Register as a new user (if new)

Fill the required details (chose one of the options from 1 & 2)

Check your 26AS from your income tax portal after 7 days of payment in Part F under “Details of Tax Deducted at Source on Sale of Immoveable Property u/s 194(IA) [For Buyer of Property]”.

Step 3:

After your payment in Form 26AS has been reflected, login to TRACES.

Go to the Download tab at the tab and click on Application for Request of Form 16B. For Form 26QB click on Application for Request of Form 26QB.

To finish this process, fill in your 9-digit acknowledgment number and the details in Part F of your Form 26AS. This will generate an application request number and give you an application.

After a few hours, your request will be processed.

Click on the Downloads tab and select Requested Downloads from the drop-down menu. If the status shows “Available”  then download the zip file and use enter your date of birth (deductor) in the format DDMMYYYY (no special character in between day, month or year).

If the status is submitted, then wait for a couple of hours.

Step 4:

Issue the form 16B certificate to the transferor (seller) within 15 days from the due date as provided in step 1. 

Note:

1. Time of deduction:

The tax shall be deducted at the time of payment of money in cash or by an issue of a cheque or draft or by any other mode, whichever is earlier.

2. Buyer not required to obtain TAN:

Provision of section 203A (pertaining to TAN) shall not apply in respect of tax deducted under section 194-IA.

3. Immovable property means:

Any land or any building or part of the building and include both residential and commercial.

Such property may be situated in India or outside India.

4. TDS is not applicable while buying an agricultural land

A land shall not be treated as Agriculture Land, if:

1. It is situated within the jurisdiction of Municipality or Cantonment Board which has a population of 10,000 or more; or
2. It is situated in any area within below given distance measured aerially.

Source: Bare Act of Section 194IA