What is property tax?
Property tax is also referred to as the House Tax. This tax is being levied on the owners of real estate by the concerned authorities like a municipal corporation or municipality. This is being used for the running and maintenance of the local and public amenities like the roads, parks, sewage system, infrastructure and lighting services.
The property tax (TDS on Sale of Property)is usually levied on the various real estate properties like the commercial and residential buildings, attached land, and several improvements are being made to the property, but this is not applicable on vacant plots of lands that have no adjoining buildings.
These taxes are calculated on the property’s value owned as well as the land.
The various divisions of the property include:
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Land – This is indeed the most secure form without any upgrading or construction.
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Improvements that are made on a piece of land – This includes certain immovable creations like the buildings as well as godowns.
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Personal property - Personal properties include certain man-made objects like cars, cranes or buses.
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Property that is intangible
How is Property Tax Calculated?
Formula used to calculate property tax is as follows:-
Property tax = base value × built-up area × Age factor × type of construction× category of use × floor factor.
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Base value: Base value is a synonym for market value of property. Market value of property is calculated after knowing the circle rate of the property. Market value can be higher than circle rate
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Built up area: Total area of the property is considered while estimating the property price.
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Age factor: An old property will attract lower property tax when compared to a new property.
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Category of use: Property tax varies for all types of properties like residential property, commercial property or industrial property.
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Type of construction: Property tax also varies on the basis of multi-storied/ single floor/ pukka or kutcha structures.
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Floor factor: Floor space index and carpet area of the property.
What is Section 194IA of Income Tax Act (TDS on Sale of Property)?
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TDS on any property – As per the name, a tax is being deducted at the source on the guaranteed income that is received by the owner of a property.
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TDS on Sale of Property is usually deductible from the account of the income’s remitter and is eventually deposited in favour of the Income Tax Department.
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In Section 194IA and Section 194IB, TDS on Sale of Property is being deducted by the property buyer and the rent payer, respectively.
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There is a provision to claim TDS on Sale of Property at the time of filing the ITR.
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The Income Tax Act’s Section 194IA prescribes that a buyer of an immovable property that costs more than Rs. 50 lakhs is required to deduct a TDS on the property while the buyer pays the seller. The TDS on Sale of Property for this particular deduction is 1% of the total amount.
Requirements under Section 194IA of Income Tax or TDS on Sale of Property
The Section 194 IA of the income tax stipulates that-
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TDS on the property is always being deducted by the buyer and never by the seller.
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There are no applicable TDS under section 194IA (194ia tds) in case the transaction is worth less than Rs. 50 lakhs.
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TDS on any property must always be paid in the full amount of the sale and not the sum which is above Rs. 50 lakhs. For instance, if you purchase a property that is of a value of Rs. 70 lakhs, TDS would be calculated on Rs. 70 lakhs and not on the extra Rs. 20 lakhs.
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The payments are made in instalments; TDS on Sale of Property (194ia tds) would be deducted on every instalment.
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Since September 2019, the payments like the club membership, advance fees, car parking, electricity fees, maintenance fees have also been compromised under consideration for immovable property. This implies that such charges which are attached to a property will also be added to the cumulative taxable total.
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PAN cards of both buyer and seller are mandatory for the TDS on the property deduction that is under Section 194IA.
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In case a buyer is unable to obtain a seller’s PAN details, then, in that case, the TDS on Sale of Property fairly rises to 20%.
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The TDS on an immovable property must be paid using Form 26QB in 30 days from the month-end when the TDS was deducted.
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The buyer of the property is required to obtain Form 16B and issue the form to a seller.
TDS charged on purchasing a property
With the initiative of the Government to keep a check on the extensive usage of black money in numerous immovable property transactions, the government of India has also introduced a law that any purchaser of the property would have to deduct tax at source, i.e. TDS on the property at the time of paying the seller for the concerned property.
Under Section 194IA of the Income Tax Act, a buyer is necessarily required to deduct a TDS on Sale of Property at a rate of 1% of the sales. This is indeed applicable in case the value of the payment is either Rs. 50 lakh or exceeding Rs. 50 lakhs.
The Section covers commercial property, residential property and land as well. You must note that the transactions that relate to the buying of agricultural land are not covered under this particular provision.
Now, one query that arises is when to deduct the TDS on the purchasing of the property? The buyer is supposed to deduct the TDS on Sale of Property at the time of crediting the agreed amount to the seller’s account or the time of payment, which one appears to be earlier.
What is the procedure of claiming TDS on sale of property?
From 1st June 2013, when a buyer purchases an immovable property (i.e. a part of any building or any land except for agricultural land) costing above Rs. 50 lakhs, he must deduct tax at source (TDS) when he pays to the seller. This has been laid out in Section 194IA of the Income Tax Act (194ia tds). The purchaser obtains Form 16B and issues the form to the property seller.
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Provide PAN to the buyer, who in turn will fill up the online form and submit it to the Department of Income Tax for TDS.
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Then verify that the buyer of the property to deposit the taxes that are deducted from the sale consideration and should be reflected in the Form Annual Tax Statement of 26AS.
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Get Form 16B for the payment of the TDS.
How do you file TDS on Sale of Property (Form 26QB)?
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Permanent Account Number (PAN) of both the seller and buyer
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The property’s details
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The contact coordinates of both seller and buyer
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Tax deposited as well as the credited amount
Step 7: Once you have made the payment of TDS on Sale of Property, the TDS challan will be displayed and demonstrate CIN, the bank’s name of which the net banking/online payment is made with all the details of the payment.
Penalties for Non-payment of TDS on Sale of Property
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The amount of tax that is deducted must be paid to the government within seven days of the transaction being made.
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If you do not pay TDS on Sale of Property, then the penalty for the same may go up to Rs. 1 lakh as per Section 271H.
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To avoid any kind of penalty for non-payment of TDS, you should pay the TDS on Sale of Property along with any interest amount and late fee as and when you receive a tax notice.
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Under Section 201, you will be required to pay an interest of 1% per month in case the tax was not deducted previously.
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1.5% of interest would be paid in case the tax was deducted but not finally deposited with the government.
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In case of any default like non or late filing of 26QB, a certain fee would be levied as per u/s 234E of this Act.
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The late filing fee that is applicable under Section 234E is Rs. 200 every day, depending on the maximum due amount.
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In case the property seller has already paid the capital gains tax, the late filing fee can be considerably reduced.
Steps to Pay TDS through Challan 26QB and Obtain Form 16B
Understanding the steps to be performed in paying TDS on property transactions and getting Form 16B is important as per Indian tax laws. Here is how you can pay TDS through Challan 26QB:
Log in to the Income Tax e-filing portal - https://eportal.incometax.gov.in/iec/foservices/#/login
Income Tax e-filing portal
Go to the "e-File" menu and select the option "e-Pay Tax" from the drop-down menu
Click the '+ New Payment' button
Select the '26QB- TDS on Property' option and click the "Proceed" button
You will have to fill in particulars related to the buyer, seller, property, and payment. Your details automatically pop up from your login credentials. If needed, edit these. Click 'Continue' thereafter
Enter the PAN of the seller and address precisely
Fill in all the details related to the property, such as type, address, date of agreement, and the value of the sale. The TDS amount will be automatically calculated. After filling these, click 'Continue'
Select your mode of payment-Net Banking, Debit Card, etc.-and make the payment. A challan will be generated on successful payment
Notice for Non-Filing of Form 26QB
The Income Tax Department regularly gets Annual Information Return, AIR on transactions related to property matters from the registrar offices. When the transaction exceeds Rs. 50 lakh and Form 26QB has not been filed, a notice is sent to the buyer. The notice generally contains the details of the transaction and states that the buyer has to file Form 26QB and issue Form 16B.
TDS on Property Rent
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Section 194IB of the Income Tax Act is associated with the TDS on the property rent. This Section is primarily set for the people who are earning from leasing or renting a property.
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The rent that is receivable on a property is subject to a TDS on the property as this is an additional income earned by individuals like businessmen or salaried people.
Timing for TDS Payment and Submitting Form 26QB
TDS on Property Purchase from an NRI
If a person purchases a property from an NRI, he/she needs to deduct taxes under the Section 195 of the Income Tax Act, 1961. The buyer must deduct tax whenever you are paying any amount to the NRI. This rule is also applicable on the payment of any advance paid to the property seller.
TDS must be deducted from the sale value and the remaining amount must be paid to the NRI.
In fact, the capital gains are also calculated on the basis of the period of holding of the property concerned. If the NRI seller is selling the property after two years of holding the property, it attracts Long Term Capital Gains Tax (LTCG). If the property is sold before two years, Short Term Capital Gains Tax will be applicable.
TDS On Rental Property Owned by NRI
As per the updated guidelines of Budget 2017, tenants who are living in non-residents owned properties need to deduct 31.2 percent of the rental amount as tax at source. Tenants need to submit this amount to tax authorities.
Once they have paid the TDS on rent, they need to fill in Form 15CA and submit it to the Income tax Department. They can fill this form both online and offline. It can be found on the official website of the Income Tax Department of India.
As per the rules, TDS is mandatory if the property is owned by a non-resident Indian, irrespective of the amount that tenants are paying as rent.
TDS on rent can be exempted in some cases, such as if the NRI has a Certificate of Exemption under Section 197 or if they fall under the DTAA Agreement (Double Tax Avoidance Agreement). Some countries, including Canada, UK, USA, Australia, and more have this agreement signed with India.
Other Key Points
Summing Up: 194IA TDS on Sale of Property & TDS Rate
Now that we are aware about 194IA TDS on sale of property and TDS rate, make sure to deduct the TDS at the time of buying or selling the property. You must deposit the TDS amount to the government by April 7th. The TDS is deducted in the month of March. Remember if multiple buyers and sellers are involved in the deal then separate forms are filled by each party.
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