Section 194IA & Form 16B: Understanding TDS on Property (FY 2024-25 & FY 2025-26)
- Rashmita Choudhary
- May 5
- 12 min read
Updated: 1 day ago
Section 194IA & Form 16B are crucial provisions under the Income Tax Act that govern the deduction of Tax Deducted at Source (TDS) during property transactions. These provisions are designed to ensure that tax is paid at the source and that both buyers and sellers comply with their tax obligations. Section 194IA mandates the buyer of immovable property to deduct 1% TDS if the sale consideration or stamp duty value exceeds ₹50 lakh. Form 16B is a TDS certificate issued by the buyer to the seller, certifying that the TDS has been deducted and deposited with the government.
Table of Content
What is Section 194IA & Form 16B and how do they relate to TDS on property transactions?
Section 194IA & Form 16B are key components of the Income Tax Act that govern the deduction of Tax Deducted at Source (TDS) on property transactions. Under Section 194IA, the buyer is required to deduct 1% TDS on the purchase of immovable property (residential or commercial) if the sale consideration or stamp duty value exceeds ₹50 lakh. This TDS is deposited with the government using Form 26QB, and if the seller does not provide a PAN, the TDS rate increases to 20%.
Form 16B plays a critical role by certifying the amount of TDS deducted and deposited by the buyer. This certificate is issued to the seller as proof of TDS deduction, enabling the seller to claim the TDS as a tax credit while filing their income tax returns. For both Section 194IA & Form 16B, it is essential for the buyer to comply with the deadlines for TDS deduction and deposit, as well as for issuing Form 16B to the seller, to avoid penalties. These provisions remain the same for FY 2024-25 and FY 2025-26, with a TDS threshold of ₹50 lakh.
What is Section 194IA?
Section 194IA of the Income Tax Act was introduced in the Finance Act of 2013 and governs TDS on the purchase of immovable property. It mandates that the buyer must deduct 1% TDS on the sale consideration or stamp duty value (whichever is higher) when the total value exceeds ₹50 lakh. The buyer is responsible for deducting and depositing the TDS with the government.
Key points under Section 194IA:
Threshold: TDS is applicable only if the sale consideration or the stamp duty value (whichever is higher) exceeds ₹50 lakh.
Property Types: The provision applies to both residential and commercial property but excludes agricultural land.
PAN Requirement: If the seller does not provide their PAN, the buyer must deduct TDS at a higher rate of 20% instead of 1%.
Buyer’s Responsibility: The buyer, not the seller, is responsible for ensuring that TDS is deducted and deposited as per the rules.
This provision ensures that the government collects taxes from property transactions upfront, reducing the possibility of tax evasion and making the process more transparent.
How to Deduct and Deposit TDS under Section 194IA
To comply with Section 194IA, the buyer must follow a systematic process for TDS deduction and deposit:
Calculation of TDS:
TDS is calculated at 1% of the higher of the sale consideration or the stamp duty value of the property.
Example: If the sale price is ₹60 lakh and the stamp duty value is ₹65 lakh, the TDS must be deducted on ₹65 lakh.
Payment of TDS:
The buyer must pay the deducted TDS using Form 26QB on the Income Tax e-filing portal.
The payment must be made within 30 days from the end of the month in which the TDS was deducted.
Issuance of Form 16B:
After the TDS is deposited, the buyer must generate Form 16B from the Income Tax e-filing portal and issue it to the seller.
This form certifies the amount of TDS deducted and deposited, and the seller can use it to claim a tax credit when filing their income tax return.
Filing TDS Returns:
The buyer must file TDS returns timely to avoid penalties and ensure proper documentation of the tax paid.
Filing returns ensures that the deducted TDS is properly recorded with the government, and the seller can claim it while filing their own return.
By following these steps, the buyer ensures compliance with Section 194IA and helps facilitate the seller’s tax filing process.
What is Form 16B?
Form 16B is a certificate of TDS issued by the buyer to the seller under Section 194IA. This form is crucial because it serves as proof that the buyer has deducted and deposited TDS on the property transaction. The seller can use Form 16B to claim credit for the TDS deducted when filing their income tax return.
Key Details About Form 16B:
Purpose: It is issued to the seller after TDS has been deposited with the government.
Content: Form 16B includes details such as the buyer's name, seller's name, PAN details, the amount of TDS deducted, and the date of deposit.
Importance for the Seller: The seller needs this form to ensure that the TDS deducted is credited to their account by the Income Tax Department, which reduces their overall tax liability.
For the seller to claim TDS credit, they must have this certificate when filing their tax returns.
How to Obtain and Use Form 16B for TDS Credit
Once the buyer has deposited the TDS using Form 26QB, they can generate Form 16B from the Income Tax e-filing portal. The buyer must then provide this form to the seller.
Here’s how the seller uses Form 16B:
The seller must retain Form 16B while filing their income tax return.
When filing the return, the seller can claim the TDS amount as a tax credit against their total tax liability. This means that the tax they would have paid on the sale proceeds is effectively reduced by the amount of TDS deducted and deposited by the buyer.
The TDS credit claimed will be adjusted against the seller's tax liability during assessment by the Income Tax Department.
Penalties for Non-Compliance with Section 194IA
Failure to comply with Section 194IA can result in significant penalties and interest under the Income Tax Act. Some of the consequences include:
Interest on Late Payment: If the buyer delays depositing the TDS, they will be liable to pay interest under Section 234E at the rate of 1% per month for the period of delay.
Penalty for Non-Deduction or Non-Deposit: If the buyer fails to deduct or deposit the TDS altogether, they may be required to pay the TDS amount along with interest. In addition, penalties may apply under Section 271C, where the buyer could face a fine equal to the amount of TDS that should have been deducted.
Disallowed Deductions for the Buyer: If the buyer fails to comply with TDS deduction, the buyer cannot claim the cost of the property as a business expense, which could impact their tax filings.
It’s essential to comply with all deadlines to avoid penalties and interest.
TDS Applicability for NRI Sellers
For Non-Resident Indian (NRI) sellers, Section 194IA does not apply. Instead, Section 195 governs TDS on income arising from the sale of property by an NRI.
Key Points for TDS on NRI Sellers:
Higher TDS Rate: TDS is deducted under Section 195 at the rate applicable to capital gains, which is typically higher than the 1% rate under Section 194IA.
TAN Requirement: The buyer must obtain a Tax Deduction and Collection Account Number (TAN) when dealing with NRI sellers and comply with the applicable TDS rates.
Capital Gains Tax: For NRIs, the TDS is based on the capital gains earned from the sale of property, and it is deducted at source on the sale price, not the entire transaction amount.
This ensures that NRI sellers comply with Indian tax regulations when selling property in India.
Section 194IA for Properties Below ₹50 Lakh
Section 194IA only applies when the sale consideration or stamp duty value exceeds ₹50 lakh. If the value of the property is below this threshold, the buyer is not required to deduct TDS under this section. This provision is designed to exempt lower-value property transactions from the TDS deduction requirement, simplifying the process for smaller property buyers and sellers.
Key Points:
No TDS for Properties Below ₹50 Lakh: If the transaction value is under ₹50 lakh, TDS under Section 194IA is not applicable.
No Impact on Other Taxes: While Section 194IA does not apply, other tax obligations may still apply to the buyer and seller, such as capital gains tax on the seller's side or stamp duty payments.
This exemption is useful for smaller transactions, reducing the administrative burden on both the buyer and seller.
Impact of PAN Non-Availability on TDS Deduction
The availability of the seller’s PAN plays a significant role in determining the rate of TDS under Section 194IA. If the seller does not provide a PAN, the buyer is required to deduct TDS at the higher rate of 20% instead of the standard 1%. This provision ensures that the government can still collect tax on property transactions, even when the seller’s identity is not fully disclosed through their PAN.
Key Points:
No PAN Provided: If the seller does not provide their PAN details, TDS is deducted at 20% of the sale consideration or the stamp duty value (whichever is higher).
Additional Burden on Buyer: The buyer must ensure that the higher TDS rate is applied in the absence of PAN, potentially leading to additional tax liability for the seller.
Seller's Obligation: Sellers are encouraged to provide their PAN to ensure that the lower TDS rate of 1% applies, reducing the tax burden on the transaction.
This provision underlines the importance of PAN availability to facilitate a smooth transaction for both parties involved in property sales.
Deadlines for TDS Deposit and Form 16B Issuance
To comply with Section 194IA, it is critical for the buyer to adhere to the deadlines for depositing TDS and issuing Form 16B. Failure to meet these deadlines may result in penalties and interest charges.
TDS Deposit Deadline:The buyer must deposit the TDS within 30 days from the end of the month in which TDS is deducted. For example, if TDS is deducted in any given month, the deposit must be made by the last day of the following month.
Form 16B Issuance Deadline:Once the TDS has been deposited, the buyer must issue Form 16B to the seller. This form should be provided promptly to the seller, ensuring they have the necessary proof to claim the TDS credit while filing their income tax return.
Consequences of Missing Deadlines:Late payment of TDS may result in interest being levied under Section 234E. Additionally, the buyer may face penalties for late filing of TDS returns, and the seller may be unable to claim the TDS credit until the correct documentation is issued.
Meeting these deadlines is essential to ensure that both parties remain compliant and avoid unnecessary fines.
Updates for FY 2024-25 & FY 2025-26
For the financial years FY 2024-25 and FY 2025-26, the rules surrounding Section 194IA and Form 16B have largely remained consistent. However, it's important to stay updated on any changes that may impact property transactions.
Key Updates:
Threshold and Rate Consistency:The threshold for TDS under Section 194IA remains ₹50 lakh, and the TDS rate continues to be 1% for most property transactions. If PAN is not provided, the rate is 20%.
Provisions for NRIs:For NRI sellers, the TDS provisions under Section 195 remain applicable, and the buyer must ensure compliance with the different rates applicable to capital gains.
Penalties and Interest:The penalties and interest rates for non-compliance with TDS deduction and deposit remain unchanged, emphasizing the need for timely payment and documentation.
Buyers and sellers should ensure they stay updated with any government notifications or changes to avoid inadvertent violations of the tax provisions.
Summary Table: Key Points on Section 194IA & Form 16B
Aspect | Details |
Applicable Property | Residential/commercial immovable property (excluding agricultural land) |
Threshold for TDS Deduction | ₹50 lakh (or stamp duty value, whichever is higher) |
TDS Rate | 1% (20% if PAN not provided) |
Deductor | Buyer |
Due Date for TDS Deposit | Within 30 days from the end of the month of deduction |
Form for TDS Payment | Form 26QB |
TDS Certificate Issued | Form 16B |
Applicability for NRIs | No, Section 195 applies |
Penalties for Non-Compliance | Interest and penalties for late deposit and filing |
Conclusion
Section 194IA & Form 16B play a vital role in property transactions, ensuring that TDS is deducted at the source and deposited with the government. Buyers must calculate the TDS, deposit it within the prescribed timelines, and issue Form 16B to the seller, who can then claim this TDS as a tax credit. Timely compliance with these rules is essential to avoid penalties, interest, and complications during tax filing. For FY 2024-25 and FY 2025-26, the provisions remain largely unchanged, and both buyers and sellers must be aware of the requirements to ensure a smooth and legally compliant transaction.
FAQs
1. What is the threshold for TDS under Section 194IA?
Under Section 194IA, TDS must be deducted when the sale consideration or stamp duty value of the immovable property exceeds ₹50 lakh. If the property’s value is below this threshold, TDS is not applicable.
2. Who is responsible for deducting TDS in property transactions?
The buyer is responsible for deducting TDS under Section 194IA. The buyer must calculate the TDS on the higher of the sale consideration or the stamp duty value and deposit it with the government using Form 26QB. The buyer is also responsible for issuing Form 16B to the seller.
3. What happens if the buyer fails to deduct or deposit TDS?
If the buyer fails to deduct or deposit TDS as required under Section 194IA, they may be liable to pay interest and penalties. The buyer may also be required to pay the TDS amount along with interest for delayed payments. Additionally, the seller may not be able to claim the TDS credit, leading to higher tax liabilities for the seller.
4. Is TDS under Section 194IA applicable to agricultural land?
No, Section 194IA does not apply to the sale of agricultural land. The provision is applicable only to residential and commercial immovable properties. Agricultural land transactions are excluded from the TDS requirements under this section.
5. What happens if the seller does not provide a PAN?
If the seller fails to provide their PAN, the buyer must deduct TDS at the higher rate of 20% instead of the standard 1%. This provision ensures that the government can still collect taxes even if the seller’s identity is not fully disclosed through their PAN.
6. How is TDS calculated if the stamp duty value is higher than the sale price?
If the stamp duty value of the property is higher than the sale consideration, TDS must be calculated on the higher value. For example, if the sale price is ₹60 lakh but the stamp duty value is ₹65 lakh, the buyer must deduct TDS on ₹65 lakh at 1%, as it is the higher amount.
7. When must TDS be deposited under Section 194IA?
TDS deducted under Section 194IA must be deposited with the government within 30 days from the end of the month in which the TDS was deducted. For example, if TDS is deducted in July, the buyer must deposit the TDS by the 30th of August.
8. How does Form 16B help the seller in claiming TDS credit?
Form 16B is issued by the buyer to the seller after the TDS is deposited. The seller can use Form 16B to claim credit for the deducted TDS while filing their income tax return. This ensures that the TDS deducted by the buyer is reflected in the seller’s tax records, helping them reduce their overall tax liability.
9. What penalties apply if TDS is not deposited on time?
If the TDS is not deposited within the prescribed deadline, the buyer will be liable to pay interest under Section 234E at the rate of 1% per month. In addition to the interest, penalties may also apply for late filing of TDS returns. It is crucial for the buyer to ensure timely deposit and filing to avoid these additional charges.
10. Is TDS under Section 194IA applicable for Non-Resident Indian (NRI) sellers?
No, Section 194IA does not apply to Non-Resident Indian (NRI) sellers. For property transactions involving NRI sellers, Section 195 applies, and TDS is deducted at rates applicable to capital gains. The buyer must ensure compliance with the applicable TDS rates under Section 195, which are usually higher than the 1% rate under Section 194IA.
11. How is TDS calculated if there are multiple buyers or sellers in a property transaction?
In case of multiple buyers or sellers, TDS is calculated on the total sale consideration or stamp duty value and not individually. Each buyer or seller must ensure that the TDS is deducted and deposited as per the proportion of their share in the property transaction. However, the TDS certificate (Form 16B) will be issued in the name of the buyer who has deducted the TDS.
12. What updates should buyers and sellers be aware of for FY 2024-25 and FY 2025-26?
For FY 2024-25 and FY 2025-26, the threshold for TDS under Section 194IA remains unchanged at ₹50 lakh, and the TDS rate remains 1% (unless PAN is not provided). However, it’s important to stay updated on any government notifications or changes in tax rates that may impact TDS provisions in the future. Buyers and sellers should continue to ensure timely compliance with TDS deduction, deposit, and Form 16B issuance to avoid penalties and interest charges.
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