Property Sale TDS under Section 194IA: Reporting in Buyer and Seller ITRs

Section 194IA of the Income Tax Act deals with the deduction of Tax Deducted at Source (TDS) on the sale of property. This provision mandates that the buyer of property is responsible for deducting tax at the time of payment or credit, whichever is earlier, to the seller. The buyer must then deposit the TDS with the government. It is crucial for both buyers and sellers to understand their responsibilities in order to ensure compliance with the law and avoid penalties. Let us explore the key aspects of Section 194IA, the procedure for TDS deduction and payment, the reporting requirements for both buyers and sellers in their Income Tax Returns (ITR), and potential consequences of non-compliance.

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Table of Contents:

• Understanding TDS under Section 194IA: Buyer’s Responsibility

• Procedure for TDS Deduction and Payment

• Reporting in Buyer’s ITR: Key Compliance Points

• Seller’s ITR Reporting: How to Claim TDS Credit

• Penalties and Consequences of Non-Compliance

• Is TDS Deducted on Sale Below Rs 50 Lakh?

• How Does TDS Affect Property Sale Transactions?

• Common Issues in Reporting TDS in ITRs

• How to Ensure TDS Is Reflected in Form 26AS

• Conclusion

• FAQs

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Understanding TDS under Section 194IA: Buyer’s Responsibility

Under Section 194IA, any person who is purchasing property (excluding agricultural land) worth ₹50 lakh or more is required to deduct TDS at 1% of the total sale consideration. The buyer is responsible for ensuring that the TDS is deducted and paid to the government before making the payment to the seller. This applies to both individual and corporate buyers. The responsibility lies with the buyer, not the seller, making it crucial for buyers to be aware of their obligations under this section. Buyers must also ensure that they provide the seller with a TDS certificate (Form 16B), which confirms the deduction.

Procedure for TDS Deduction and Payment

The process for deducting and paying TDS under Section 194IA is straightforward but requires careful attention to detail. Here are the steps involved:

• Deduction of TDS: The buyer is required to deduct 1% of the total sale consideration at the time of making payment to the seller. For example, if the property is sold for ₹60 lakh, the TDS deduction will be ₹60,000 (1% of ₹60 lakh).
  

• Payment of TDS: The deducted TDS must be deposited with the government using Form 26QB, which is specifically designed for TDS payments on property transactions under Section 194IA. The payment should be made within 30 days from the end of the month in which the TDS was deducted.
  

• Filing Form 26QB: The buyer needs to file Form 26QB online through the Income Tax Department’s e-filing portal. After submission, the buyer will receive a challan receipt, confirming the payment of TDS.
  

• Issuing TDS Certificate: After the payment is made, the buyer must issue a TDS certificate (Form 16B) to the seller. This certificate serves as proof of the tax deducted and paid to the government.

Reporting in Buyer’s ITR: Key Compliance Points

Buyers must report the TDS deduction in their Income Tax Return (ITR). The following points should be kept in mind:

• Ensure TDS Is Reflected in Form 26AS: Before filing the ITR, the buyer should verify that the TDS deducted is reflected in their Form 26AS, which is a summary of all taxes deducted or collected on behalf of the taxpayer. This can be checked on the Income Tax Department's portal.
  

• Include the TDS Details in ITR: When filing the ITR, the buyer needs to provide details of the TDS deducted under Section 194IA in the section related to TDS. This is usually done in the "Tax Details" section, where the TDS amount is entered along with the Form 16B certificate.
  

• Claiming Credit for TDS: Buyers can claim a credit for the TDS paid during the year, reducing their overall tax liability. The TDS amount shown in Form 26AS will automatically be reflected in the buyer’s ITR.

Seller’s ITR Reporting: How to Claim TDS Credit

While the buyer is responsible for deducting and depositing TDS, the seller can claim the TDS credit in their own ITR. Here’s how:

• Verify TDS in Form 26AS: Sellers should first ensure that the TDS deducted by the buyer is reflected in their Form 26AS. If there are discrepancies, the seller should reach out to the buyer for clarification.
  

• Claim TDS Credit in ITR: The seller can claim the TDS credit while filing their ITR by mentioning the TDS amount in the "Tax Details" section. This reduces the seller's taxable income, thereby lowering the overall tax liability.
  

• Form 16B: The TDS certificate issued by the buyer (Form 16B) must be submitted along with the seller’s ITR to claim the credit. This certificate serves as proof of the tax deducted and paid on behalf of the seller.

Penalties and Consequences of Non-Compliance

Non-compliance with Section 194IA can result in severe penalties and legal consequences. Here are the potential penalties:

• Penalty for Non-Deduction or Short Deduction of TDS: If the buyer fails to deduct TDS or deducts an amount lower than required, they can be penalized under Section 271C of the Income Tax Act. The penalty can be up to the amount of TDS that should have been deducted.
  

• Interest on Late Payment: If the TDS is not paid on time, the buyer will be liable to pay interest under Section 234E. The interest rate is 1.5% per month or part of the month on the TDS amount from the due date of payment until the actual date of payment.
  

• Disallowance of Expense: If the buyer fails to deduct TDS, the payment made to the seller may not be allowed as a business expense under Section 40(a)(ia) of the Income Tax Act. This can significantly impact the buyer’s tax liability.
  

• Seller’s Non-Compliance: Sellers who fail to report the TDS deducted by the buyer in their ITR may not receive the credit for the TDS, resulting in an increased tax liability. Additionally, incorrect reporting or failure to include Form 16B can lead to delays in processing the return and potential penalties.
  

Is TDS Deducted on Sale Below Rs 50 Lakh?

No, TDS is only applicable under Section 194IA when the total consideration for the property sale exceeds ₹50 lakh. If the property is sold for less than ₹50 lakh, the buyer is not required to deduct TDS. This exemption applies regardless of the type of property being sold.

How Does TDS Affect Property Sale Transactions?

TDS under Section 194IA impacts the overall cost of the transaction for both the buyer and the seller. For the buyer, the 1% TDS reduces the amount they need to pay to the seller, as the buyer must deposit the TDS directly with the government. For the seller, the deduction reduces the immediate amount received from the sale, but it provides a tax credit that can be claimed when filing their ITR. TDS is a mechanism to ensure that tax is paid at the point of the transaction, thereby reducing the risk of tax evasion.

Common Issues in Reporting TDS in ITRs

• Mismatch of TDS Details: One of the common issues faced by both buyers and sellers is a mismatch between the TDS shown in Form 26AS and the TDS reported by the buyer in Form 16B. It’s essential to check the details and ensure that everything matches before filing the ITR.
  

• Failure to File Form 26QB: If the buyer fails to file Form 26QB or the TDS payment is not made on time, it can delay the entire process and create issues for both parties when filing their ITRs.
  

• Incorrect Reporting in ITR: Incorrectly entering TDS details in the ITR can lead to discrepancies and affect the refund process. Both the buyer and seller should be careful while reporting TDS in their respective ITRs.

How to Ensure TDS Is Reflected in Form 26AS

To ensure that TDS is correctly reflected in Form 26AS, both the buyer and seller should:

• Verify TDS Payments on Time: The buyer must make the TDS payment on time and file Form 26QB. Sellers should regularly check their Form 26AS to ensure the TDS amount is properly reflected.
  

• Track TDS Certificate (Form 16B): The buyer must issue Form 16B, which serves as proof of the TDS deduction. Sellers should keep a copy of this form for reference when filing their ITR.
  

• Consult Tax Professionals: In case of discrepancies or confusion regarding the TDS deduction, both parties should consult with tax professionals who can assist in resolving issues and ensure accurate reporting.

Conclusion

TDS under Section 194IA plays a crucial role in property sale transactions, making it essential for both buyers and sellers to understand their responsibilities. By following the correct procedures, filing timely returns, and ensuring TDS is reflected in Form 26AS, both parties can ensure smooth transactions and avoid penalties. Proper reporting of TDS in the ITR is vital to claim credits and reduce tax liabilities. Compliance with TDS regulations not only ensures the proper collection of taxes but also contributes to transparent and fair property transactions.

For anyone looking for assistance with filing your TDS and ITR seamlessly, it is highly recommended to download theTaxBuddy mobile appfor a simplified, secure, and hassle-free experience.

FAQs

Q1: Is TDS deducted on property transactions below ₹50 lakh?

No, TDS under Section 194IA is applicable only when the sale consideration of the property exceeds ₹50 lakh. If the property is sold for less than ₹50 lakh, TDS is not required to be deducted. This threshold applies to both residential and commercial property transactions, and if the sale consideration is above this amount, the buyer is responsible for deducting 1% TDS and remitting it to the government.

Q2: What happens if the buyer fails to deduct TDS?

If the buyer fails to deduct the applicable TDS at the time of property transaction, the buyer may be held liable for the TDS amount, along with interest and penalties under the Income Tax Act. The buyer could face a penalty under Section 271C for failure to deduct tax, and interest will also be levied on the TDS amount under Section 201 of the Income Tax Act. Additionally, the buyer might be required to pay the TDS amount themselves to the tax authorities.

Q3: How does the seller claim TDS credit?

The seller can claim TDS credit by ensuring that the TDS deducted by the buyer is reflected in their Form 26AS. The seller must report the TDS credit while filing their Income Tax Return (ITR) by including the TDS details from Form 26AS in the appropriate section. The credit will be applied against the seller’s total tax liability for the financial year, reducing the amount payable as taxes.

Q4: What is the penalty for late TDS payment?

If TDS is not paid by the due date, a penalty of up to 1.5% per month is charged on the overdue amount. The interest is calculated on the amount of TDS that was not paid within the specified time. This interest accumulates monthly until the amount is paid. Additionally, late payments may also attract penalties under Section 271C, where the penalty can be the same amount as the TDS not deducted or paid.

Q5: Is TDS deducted on the sale of agricultural land?

No, TDS under Section 194IA is not applicable to the sale of agricultural land, irrespective of the sale amount. Section 194IA applies only to the sale of immovable property that is not agricultural land. The buyer of agricultural land is not required to deduct TDS in such transactions, regardless of the value of the property.

Q6: How can I check if my TDS is reflected in Form 26AS?

You can check if your TDS is reflected in Form 26AS by logging into the Income Tax Department's e-filing portal and accessing your Form 26AS. You will need to enter your PAN and the relevant assessment year. Alternatively, you can view your Form 26AS using net banking services provided by your bank, where it is also available. This will show you all TDS credits that have been applied to your PAN.

Q7: What is Form 26B?

Form 26B is the TDS certificate issued by the buyer to the seller, confirming the amount of TDS deducted on the property sale. This certificate serves as proof of TDS deduction and should be provided by the buyer to the seller. The seller can use Form 26B to claim the TDS credit in their ITR filing.

Q8: Can I file my ITR if TDS is missing in Form 26AS?

No, you should not file your ITR if the TDS is missing in Form 26AS. TDS that is deducted and deposited by the buyer must be reflected in your Form 26AS before you file your ITR. If the TDS is missing, it could lead to discrepancies and potential penalties. Ensure that the TDS is correctly reflected in your Form 26AS before proceeding with your filing.

Q9: Can the seller claim TDS if the buyer fails to deduct it?

If the buyer fails to deduct the required TDS, the seller cannot claim the TDS credit for the transaction. The seller will have to make arrangements for paying the tax themselves, as TDS cannot be claimed if it has not been deducted at source. The seller may also consider discussing the issue with the buyer or consulting a tax professional for guidance.

Q10: Can TDS be deducted in installments?

No, TDS must be deducted in a lump sum at the time of payment or credit, whichever occurs first. The entire TDS amount must be deducted at once; partial deductions or installments are not allowed under the law. If TDS is not deducted when the payment is made or credited, it can result in penalties and interest.

Q11: How long do I have to pay TDS?

TDS must be paid within 30 days from the end of the month in which the TDS was deducted. For example, if TDS is deducted in May, it must be paid to the government by June 30. This deadline applies to both individuals and businesses. Late payment will incur interest and penalties.

Q12: What should I do if my TDS is not reflected in Form 26AS?

If your TDS is not reflected in Form 26AS, you should first contact the buyer to ensure they have deducted and remitted the TDS correctly. If the TDS is still not updated, you can approach the buyer for clarification or consult a tax professional to resolve the issue. In some cases, the buyer might need to re-submit the TDS payment or provide the necessary documentation. If the issue persists, you can also reach out to the Income Tax Department for assistance.