194 IA TDS On Property Sale: Tax Returns, Credits, Filing, Penalty

If you have been filing your IT returns, you should be well aware of the TDS payment. TDS stands for Tax Deducted at Source. Whenever you are selling a property, you will end up paying a TDS.

It is section 194 of the Income Tax Act that deals with the department of TDS payment. Here, we are going to familiarize you with the key details regarding tax payments, what TDS stands for, how to pay it, and a lot of other important information.

There are a lot of different clauses associated with the income tax payment and you must be paying heed to these specifics. The inability to do so can render it hard to assimilate the details.

This is why we will list the specifics of the 194 IA TDS. There is section 194 IA and IB which are two sub-sections of the Act. Section 194 IA states that anyone who chooses to buy an immovable property that is valued at more than Rs. 50 lakhs will need to deduct TDS before making the payment.

Any purchase of property, be it land or a building will involve the amount of property tax, as well as TDS. You can avail the right type of tax benefits when you are repaying the loan. So, the knowledge of the TDS will help you implement the right kind of tax benefits.

Here, in this article, we are going to help you learn these dynamics.

What Is Property Tax?

Now we are first going to talk about property tax and explain the specifics to you. The property tax is also known as the house tax as it is levied on those who own real estate. The tax is charged by the concerned authority which may be a municipal corporation or even a municipality. The taxes are always calculated on the value of the property owners along with the value of the land too.

The money collected from the tax in turn is used for the running as well as maintenance of the different public amenities like the parks, lighting services, roads, sewage systems, and more.

Most of the buildings including but not limited to commercial, residential buildings, and real estate properties are subject to taxes. The tax cannot be applied to any of the vacant plots or lands that don’t seem to have any adjoining buildings.

The Property Division

Here is the key division of the property. Make sure to note it.

Land: This is the most secure form of property. It is valuable even if there is no upgradation or construction done. Of course, making a huge complex, building, or society will make the value multiply manifold.
Personal property: These include handmade things like cranes, buses, vehicles and more
Any improvements done on a piece of land: You can choose to make godown, warehouses, buildings, and several other things on a piece of land.
Intangible property

So, these are some of the different types of properties and the basic categorization that exists. Now let us move over to the details of how property tax is calculated.

How To Calculate Property Tax?

The right formula to calculate property tax is as follows

Property tax = base value* built-up area* age factor * type of construction * category of use * floor factor

Now let us see what each of the terms denotes.

Base value: Base value stands for the property market value. You need to know the circle rate of the property. The market value is calculated only after knowing the circle rate and it can be higher than the circle rate
Built-up area: This is the total property area that is considered while calculating the property price
Age factor: If you have an old property, the tax collected will be lower in comparison to a new property
Category of use: The property tax is going to vary based on the type of property. For instance, the tax is different for residential, commercial, and even industrial units.
Type of construction: The overall structure is also going to decide the net tax. Multi-storeyed buildings will have more tax as compared to single-floor structures.
The floor factor: You need to know the floor space index and the carpet area of the property

What Do You Mean By The Section 194 IA TDS Of Income Tax?

Section 194 IA of the IT Act covers the following details

TDS on any property: A tax will be deducted at the source of an income that is guaranteed and is received by someone who owns the property
The TDS paid when a property is sold is deducted from the account of the remitter of income and it is then deposited in favour of the income tax department
As per sections 194 IA and 194 IB, the TDS on property sale is deducted by the one who pays the rent and the one who buys the property
You have the provision to claim TDS on the sale of property when you are filing the ITR
As per section 194 IA of the income tax act, if you buy an immovable property that costs more than Rs. 50 lakhs, you will need to deduct a TDS on the property. The TDS deducted is 1% of the net amount.

The Requirements Under Section 194 IA

As per this section, the following has been listed.

The TDS paid on the property is always going to be deducted by the buyer. It will never be deducted by the seller
The TDS paid on any property should be paid on the full amount of the sale and not on the sum that is above Rs.50 lakhs. Let us take an example to clear things out. If you buy a property that is valued at Rs. 70 lakhs, you will need to pay a TDS on the whole 70 lakhs and not just the additional Rs. 20 lakhs.
If the transaction is not valued at more than Rs. 50 lakhs, no TDS will be applicable on it.
If you are making the payment in instalments, then the TDS needs to be deducted in every instalment.
The PAN cards for both buyers and sellers will be needed for the TDS on property deduction
If the buyer cannot fetch the PAN details of the seller, the TDS on the sale of the property will rise to 20%
Ever since September 2019, charges like maintenance fees, club membership, car parking, and more will also be considered under the immovable property. This means that such charges will also be a part of the cumulative taxable amount.
If you buy the property, you will need to obtain the form 16B and issue it to the seller
The TDS on an immovable property needs to be paid using Form 26QB in 30 days from the end of the month when the TDS was deducted

The 194 IA TDS Charged On Purchase Of Property

The law to deduct tax at the source whenever a property is purchased was put into action mainly to cut down the black money laundering that used to happen massively during the purchase of the property.

As per section 194 IA of the Income Tax Act, a buyer will deduct TDS on property sales and the rate charged is 1% of the sales. This will however only be applicable if the value of the property sold or bought exceeds Rs. 50 lakhs.

No matter whether you are buying a residential property or commercial or even a plot of land, the above section will apply to such charges. It is important to note that any agricultural land bought or sold will not be covered under this provision.

How Do You File TDS On Sale Of Property?

Here are the steps you must follow for the sake of filing the TDS.

Head to the official website and hover over the option Property Sale
Click on the option that reads ‘Online form for furnishing TDS on property (Form 26 QB)
Now select the option TDS on property sale
You will then need to fill in several details including PAN no. of both buyer and seller, the details of the property, the contact details of both the parties involved, the tax deposited, and the credited amount
Once you fill in the information, you will then receive the confirmation. Make sure to take a print and preserve it for future acknowledgement
If you want to make an online payment, choose the option to submit to the bank and proceed with the on-screen instructions
Upon successful payment, the TDS challan will be generated. Make sure to save the receipt

How To Claim 194 IA TDS On Sale Of Property?

The seller needs to do the following when claiming the TDS

taxes — Source: Nataliya Vaitkevich / Pexels

Offer the PAN number to the buyer who will fill out the online form and then make the submission to the department of income tax for TDS
The next step is that the seller needs to verify that the property buyer has deposited the taxes from the sale consideration and it should be duly reflected in the annual tax statement of 26 AS
You then need to get form 16B for TDS payment

These are the simple steps to be followed.

The 194 IA TDS On Property Rent

The rent that you receive on the property is applicable for TDS as it is an additional income made by individuals. This is as per section 194 IB of the Income Tax Act.

The Key Tips To Remember

Here are some of the salient points you need to keep in mind when you are paying TDS

The 194 IA TDS needs to be deducted for every instalment
For every deduction, a separate form 26 QB needs to be filed
This form has to be filed for one buyer- one seller combination
If there are multiple sellers for a property, multiple forms will need to be filed
Only the PAN number will be needed for a tax deduction. There is no necessity to take any TAN
The TDS should always be deducted at the time the sale or the purchase is being made
You should deposit the TDS amount by April 7th
This amount is payable to the government
The TDS gets deducted in March

FAQ

As a buyer, what do I need to do if I don’t have access to the PAN of my seller?

If you do not have the PAN, the TDS amount will rise to 20%. At the same time, it is mandatory to have a PAN. So, you need to talk to your seller and try to make sure that you can arrange the PAN

If there are several sellers and buyers involved, how many forms 26 QB will have to be filed?

One form is applicable for one buyer and one seller combination. So, if there are 2 sellers and 2 buyers involved, there will be 4 forms that you will have to file.

Is the 194 IA TDS refundable?

You can choose to claim the TDS credits. There is a definite system in place to claim the TDS refunds and you can choose to do so as well. Make sure you are checking the details meticulously.

What is the penalty if the TDS is not paid during the purchase of the property?

If you fail to pay the TDS, you will need to pay an interest of 1% a month. This happens if the tax wasn’t deducted at all. If the tax was deducted but was not paid to the government, you will have to pay an interest of 1.5% every month. Along with this, you will also have to fill a late filing fee as well.

Can you pay the TDS in advance?

The buyer of the property needs to deduct the TDS either when the conveyance deed is being executed to when the advance is being paid. Whichever among the two is done earlier, the TDS will be paid with that.

How is the TDS calculated when buying or selling a property?

The TDS should be deducted by the buyer itself on the net amount that is paid. However, a very important criteria is that it is only valid when the net amount exceeds 50 lakhs. None of the clauses is valid for transaction amount that doesn’t touch the 50 lakhs mark.