India is the world’s second-largest country by population and one of the most rapidly growing economies, making it a hotbed of real estate investment activity. The Indian real estate market is estimated to be worth US$180 billion and is expected to grow to US$1 trillion by 2030. The Government of India levies taxes on real estate transactions.
Sec 194 IA of the Income Tax Act, 1961 states that for all transactions with effect from June 1, 2013, Tax Deducted at Source (TDS) on the property is applicable when the value of the property is more than Rupees 50 lakhs. The buyer is required to deduct 1% of the value of the property as TDS, which is to be deposited with the Income Tax Department. Then submit TDS online by the 30th of next month in which TDS is deducted. Buyer is not required to take a TAN. Buyers can fill the form 26QB available on www.T I N – N S D L.com and deposit the government TDS. The buyer is also required to provide the seller with a TDS certificate in Form 16B as proof of payment. It is applicable on all properties except agricultural land.
Let’s have a look at some of the points to be noted:
- TDS is calculated on the base amount excluding GST.
- If the amount is paid in installments by the buyer, deduct 1% from each installment.
- In the case of a home loan, TDS is deducted at the time payment is made to the seller, not at the time when EMI is paid to the bank.
- In case there are two buyers and the individual purchase price is less than 50 lakhs but the combined purchase price is more than 50 lakhs, then TDS will be deducted.
- This is also applicable when the buyer is a nonresident Indian.
- If the seller does not provide PAN, then TDS is to be deducted @20%.
In case of default to deduct or submit TDS
If the buyer does not submit TDS, the sub-registrar will not register your property, and you will not be able to get the property transferred to your name. TDS is a mandatory document and must be submitted to the sub-registrar. You can get a notice from the tax department as well. In some cases, officers can impose a penalty of Rs. 1 lakh as well.
If a buyer does not deduct TDS, the interest charged will be approx @1% per month.
And if a buyer deducts TDS but does not deposit it, interest can be around 1.5% per month.
Now the amount to be deducted would depend on the residential status of the seller, and the residential status of the buyer would not be considered.
TDS applicability if a Seller is an Indian resident
If the seller is an Indian resident, as discussed above, deduct TDS of 1% of the entire sale value and deposit the same with the government.
If the Seller is a Non-Resident Indian (NRI)
Here, TDS is to be deducted regardless of purchase price, it must be deducted on all properties.
This TDS will be on capital gains tax, which is the sale price minus the purchase price minus the expenses.
| Nature of Capital Gains | Description | TDS Rate on Sale of Property by NRI |
| Long-Term Capital Gains | Property held for more than 2 years | 20% |
| Short Term Capital Gains | Property held for less than 2 years | Income Tax Slab Rates of Seller |
So, if the property is sold after 2 years, TDS will be deducted by the buyer at 20%. There will be a surcharge, for health, and education of 20%, depending on the budget of the property sale price. If the property is sold in less than 2 years, the nature of the capital gains will be short-term capital gains, and the TDS will be as per the IT slab for NRIs.
The buyer will submit Form 27Q online and the TDS online. The buyer will give proof that TDS is deducted from the seller by giving Form 16A-NRI. If TDS is not deducted or deposited, the government will catch hold of the buyer, and the buyer must deposit it.