If you are thinking about purchasing a real estate property shortly then make sure that you are well informed about the tax that you will be expected to pay. Let me tell you an interesting point about TDS, it is only applicable on the sale of a property that costs more than 50 lakhs or somewhat more than that.
During the process of buying a property, you are obligated to subtract a certain percentage of Tax at Source while giving the money to the seller.
Types of TDS of sale and Purchase of Property
TDS on Sale of Property
When you are planning to buy a property, it can be a building a flat, or even an apartment that has a value of more than 50 lakhs, then you are in a good spot. You are obligated to deduct a certain percentage while paying the money to the seller. This can be defined as the TDS on the sale of a property.
If you go through Union Budget 2021, then you will see two new sections 206AB and 206CCA in it. As per these sections, in case a taxpayer has a TDS of more than 50,000 in the period of the last two years without paying any income tax, then the rate of TDS will be multiplied by the current rate.
TDS on Sale of Immovable Property
What do you understand by immovable property? It can be described as a building, a part of the building, or any piece of land other than agricultural land. If the value of the property is less than 50 lakhs, then there will no elimination from the payment of sale of the property. The sale deed is the key basis for TDS and not capital gains.
TDS on Sale of Property by NRI
As per the law, if an Indian resident gets a piece of land from a Non-Resident Indian (NRI), then he/she should be able to give the balance amount after the deduction of tax to the seller. According to Section 195, the TDS rate for long term assets (assets held for more than 3 years) stands high at 20%, on the other hand, the rate for short term assets (assets that are held for a period less than 3 years) varies from property to property.
TDS on Sale of Property in case of joint sellers
In the case of joint sellers, the TDS has to be compensated in proportion to considered sale value or capital gains. Every seller is supposed to pay TDS as per the details stated in the documents of the property.
TDS on Purchase of Immovable Property
To acquire a better understanding of TDS on the purchase of immovable property, you can refer to section 194 of the Income Tax Act. If a person purchases an immovable property then he/she should be well-versed with the process.
TDS on Purchase of property from NRI
What they say is pretty much true, exceptions are always there my friend. The tax obligations will be different in the case of an NRI. The government deducts the capital gains from the NRI in addition to TDS. There is a high level of TDS on the purchase of property by NRIs.
How to deduct TDS on purchase of property
As a seller, you can only deduct the TDS on the purchase of property under two conditions. They are as follows:
1. During the procedure of execution of the conveyance deed
2. When you are paying the advance payment, then it is mandatory to pay a specific advance before the execution of the conveyance deed.
The buyer needs to submit the amount of TDS to the central government of India. This step should be completed within 30 days from the end of the month when the tax has been deducted.
To complete the full procedure you must fill in Form-cum-challan No 26QB. And let’s say for instance if the property has more than one buyer, then you will have to fill the form 20QB for each group of sellers and buyers. This is because the TDS liability is different in the scenario of the purchase of property in the joint name.
How to pay TDS on purchase of property
You can kick start the process of paying the TDS by visiting the official website of the income tax department. You will be guided at every step of the procedure. Then go to form 26QB and if you are a company then click on the option of Corporation Tax, and if that’s not the case then you can select income tax.
Further down the road, you will be asked for details like the type of payment and the status of the buyer, seller, or transferor. Click on the resident and if the seller is an NRI then you will have to fill the form 27Q. After fulfilling these steps, you will have to insert the details of PAN and the address of the seller or the buyer. Then, enter the amount that has been paid to the seller. If you have paid the amount in the form of instalments, then write the amount of instalment in the form.
By default, the TDS rate of 1% will automatically be present in the form based on the PAN number Put the amount of the TDS and any interest or fee paid through the challan in the form.
Choose the option to pay immediately if you are making the payment via the means of internet banking or through debit cards. You can also pick the e-tax payment on a specific date as per the authorized branch of the bank. From that step forward, you will get a confirmation code and you will have to enter the code and click on Proceed.
Before submitting the form, make it a point to go through the form once and for all so that you can ensure that there are no mistakes in the form. Verifying information is very important as it can affect the procedure and create more complications for you in the long run. When you feel that every detail in the form is correct as per your knowledge then you proceed and click on the option of confirm.
If you have chosen the option of e-tax, then you will be taken back to the official banking site and if not then a challan will be generated. You will have to pay the authorized challan to the respective branch of the bank.
Selling and buying a real estate property is a big decision. It can be a very hectic task for the buyer to set their heart on one property and then take the road of actually obtaining that property. Simultaneously, selling a property is a huge decision for the owner of the property as well.