TDS on Property Purchase from Resident Sellers: Section 194-IA

The TDS provisions for Buying Property from a Resident seller are covered under Section 194-IA of the Income Tax Act, which requires the buyer of an immovable property (other than agricultural land) to deduct TDS on the total sale amount paid to the seller of the property. The TDS is deducted at a 1% rate of the sale consideration of the stamp duty value, whichever is higher. The TDS applies only if the property consideration is equal to or more than Rs 50,00,000. Here, the buyer must verify the seller’s residency status through their passport; the PAN or Aadhaar are not always sufficient to confirm the residential status.

TDS for Property Purchase from NRI: Section 195

On the other hand, the TDS provisions for Buying Property from an NRI seller are covered under Section 195 of the Income Tax Act. Here, the TDS rate increased to 12.5%, along with the surcharge and the cess, applicable on the full consideration amount. For transactions on or after 13th July 2024, the indexation benefits are no longer available. It is important to note that the buyer is 100% responsible for the correct tax deduction of TDS. Any mistake in this calculation or non-compliance can lead to heavy penalties.

TDS Compliance Checklist

• Obtain a TAN: TAN (Tax Deduction and Collection Account Number) is a mandatory 10-digit alphanumeric identifier issued by the Income Tax Department to the persons or entities responsible for deducting TDS/TCS. Make Sure you obtain this TAN as your PAN is not enough documentation for this purpose.
• Deposit TDS and File Quarterly Return: Make sure you deposit the TDS with the government. Use Challan ITNS-281 and file quarterly returns using Form 27Q to report the tax deducted.
• Deduct TDS on Each Payment: It is important to note that TDS must be deducted on every payment you make to the seller, including any advance or token payments made before the final registration.
• Maintain all Records for Fund Repatriation: As a seller, you will need documents like Form 16A, along with Forms 15CA/15CB, to send the sale proceeds abroad.
• Issue TDS Certificate to the Seller: Once the TDS is deducted and deposited, you need to provide the seller with a TDS Certificate (Form 16A).