TDS on sale of property
The buyer of an immovable property (land, flat, apartment, shop or a bungalow) which is valued at Rs 50 lakh or more is required to pay a withholding tax to the government.
The prevailing withholding tax is deducted at source, and is 1% of the consideration payable to the seller. It is the responsibility of the buyer to deduct the tax and deposit the same in the government treasury
This TDS must be deducted @1 per cent by the buyer at the time of making the payment. Do note that no surcharge or cess is applicable on this 1 per cent TDS deducted. TDS must be deposited within 7 days of TDS deduction. A Form 26QB is required to be submitted by the buyer to the income tax department where PAN of both the buyer and seller must be compulsorily specified
The buyer of the property is not required to procure a TAN (TDS Account Number) for the payment of TDS on sale of property.
The acknowledgement number issued for e-payment needs to be retained by the buyer/tax payer and presented to the authorised bank for further payments.
Joint parties
If the property transaction has more than one party as a buyer or seller, Form 26QB needs to be filled in by each buyer for unique buyer-seller combination for the respective share. For example, in case of two buyers and two sellers, four forms must be filled for respective shares.
Payment of tax
The buyer has the option to pay the tax online through the e-tax payment option immediately or at a subsequent date. Alternatively, he can make the payment by visiting any authorised bank branch.
TDS on sale of property by a non-resident
Things are a little complex when a property is sold by an NRI. TDS rate as mentioned above is not applicable to NRIs. In the case of non-residents, reference has to be made to Section 195 of the income tax act. As per this section TDS must be deducted when making payments to a non-resident as per applicable rates. Usually when a property is sold in India, it results in capital gains. These gains can be long term gains when property was held for more than 3 years and short term when property was held for less than 3 years. If the property is inherited the seller must include the time it was held by the original owner for calculating the 3 year period. Long term gains are taxed at 20 per cent. Therefore, when the sale of a property results in a long term gain for the non-resident, TDS must be deducted @20 per cent. If the sale results in a short term gain for a non-resident, tax is payable as per the slab rate of income tax applicable.
Section 90:
Now as per section 90 of the Income Tax Act’1961, the rates of taxation on taxable income of a non-resident will be as prescribed under the Income Tax Act’1961 or under the DTAA of India with the country of which the non-resident is a resident, whichever is more beneficial to the tax payer.
Therefore, if the rates prescribed for taxation of capital gains in the DTAA are less than the 20% rate or the slab rate, then tax will be deducted at that rate.
However, for availing the benefit of lower rate of deduction of tax under the DTAA, the non-resident transferor will have to furnish a Tax Residency Certificate to the payer indicating the tax residency of which he is a resident.
TDS on sale of property
The buyer of an immovable property (land, flat, apartment, shop or a bungalow) which is valued at Rs 50 lakh or more is required to pay a withholding tax to the government. The prevailing withholding tax is deducted at source, and is 1% of the consideration payable to the seller. It is the responsibility of the buyer to deduct the tax and deposit the same in the government treasury
This TDS must be deducted @1 per cent by the buyer at the time of making the payment. Do note that no surcharge or cess is applicable on this 1 per cent TDS deducted. TDS must be deposited within 7 days of TDS deduction. A Form 26QB is required to be submitted by the buyer to the income tax department where PAN of both the buyer and seller must be compulsorily specified
The buyer of the property is not required to procure a TAN (TDS Account Number) for the payment of TDS on sale of property.
The acknowledgement number issued for e-payment needs to be retained by the buyer/tax payer and presented to the authorised bank for further payments.
Joint parties
If the property transaction has more than one party as a buyer or seller, Form 26QB needs to be filled in by each buyer for unique buyer-seller combination for the respective share. For example, in case of two buyers and two sellers, four forms must be filled for respective shares.
Payment of tax
The buyer has the option to pay the tax online through the e-tax payment option immediately or at a subsequent date. Alternatively, he can make the payment by visiting any authorised bank branch.
TDS on sale of property by a non-resident
Things are a little complex when a property is sold by an NRI. TDS rate as mentioned above is not applicable to NRIs. In the case of non-residents, reference has to be made to Section 195 of the income tax act. As per this section TDS must be deducted when making payments to a non-resident as per applicable rates. Usually when a property is sold in India, it results in capital gains. These gains can be long term gains when property was held for more than 3 years and short term when property was held for less than 3 years. If the property is inherited the seller must include the time it was held by the original owner for calculating the 3 year period. Long term gains are taxed at 20 per cent. Therefore, when the sale of a property results in a long term gain for the non-resident, TDS must be deducted @ 20 per cent. If the sale results in a short term gain for a non-resident, tax is payable as per the slab rate of income tax applicable.
Section 90:
Now as per section 90 of the Income Tax Act’1961, the rates of taxation on taxable income of a non-resident will be as prescribed under the Income Tax Act’1961 or under the DTAA of India with the country of which the non-resident is a resident, whichever is more beneficial to the tax payer.
Therefore, if the rates prescribed for taxation of capital gains in the DTAA are less than the 20% rate or the slab rate, then tax will be deducted at that rate.
However, for availing the benefit of lower rate of deduction of tax under the DTAA, the non-resident transferor will have to furnish a Tax Residency Certificate to the payer indicating the tax residency of which he is a resident.
The author can also be reached at sonuandfirm@gmail.com
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