How is TDS Calculated on Property Purchase?

How is TDS Calculated on Property Purchase?

Buying a property in India is not just a financial transaction; it's a significant life event. Whether you're purchasing a home for your family or making an investment, there are various legal and financial aspects to consider. One such crucial aspect is Tax Deducted at Source (TDS). In this comprehensive guide, we will delve deeper into how to calculate and deduct TDS on property purchases in India, step by step. 

What is TDS?

Tax Deducted at Source (TDS) is a tax collection mechanism introduced by the Indian government. It requires individuals or entities to deduct a specified percentage of the total transaction value and remit this amount to the government before making the payment to the seller. TDS ensures that taxes are collected at the source, promoting tax compliance.

How to Calculate TDS on Property Purchase

TDS on property purchase is applicable in India only if the property price exceeds Rs. 50 lakhs, and is currently charged at 1% of the property’s sale price. Let’s look at how the TDS calculation on property purchase is done in the following example:

If the property value is Rs. 80 lakhs, the TDS deducted will be 1% of the amount (1% of Rs. 80 lakhs). So, the TDS deducted will be Rs. 80,000.

Keep reading to know how the TDS is deducted on property purchase.

How is TDS Deducted from Property Purchase?

In the context of property purchase, TDS is applicable when the property's sale value exceeds a certain threshold. The responsibility of deducting TDS falls on the buyer. Here's how it works:

Step 1: Determination of Sale Value 

The first step in calculating TDS on property purchase is determining the property's sale value. This value includes not just the actual price of the property but also other components such as stamp duty, registration charges, and any other incidental expenses related to the purchase.

Step 2: Checking TDS Applicability

It's crucial to verify whether TDS is applicable to your property purchase. Check the latest TDS guidelines at the official Income Tax Department website. 

Step 3: Calculating the TDS Amount 

The TDS rate for property purchase is typically 1% of the sale value. However, it's essential to check the prevailing rate at the time of your transaction, as rates may change. Calculate the TDS amount by applying the applicable rate to the sale value.

Step 4: Obtaining the Seller's PAN 

Before proceeding with TDS deduction, ensure that you have the seller's PAN (Permanent Account Number) as it is mandatory for TDS deduction.

Step 5: Filing Form 26QB 

To deposit the TDS amount with the government, you need to file Form 26QB online. This form requires various details, including the PAN of both the buyer and the seller, property details, and the calculated TDS amount.

Step 6: Depositing TDS 

After filing Form 26QB, deposit the TDS amount online through the government's designated portal within seven days from the end of the month in which you deducted TDS.

Documents Required for Plot Purchase

In addition to understanding how to calculate TDS, you'll need certain documents for a smooth property purchase. These documents play a crucial role in establishing the legality and authenticity of your property transaction:

• Sale Agreement: This is a legally binding document that outlines the terms and conditions of the sale, including the sale price, payment schedule, and possession date.

• Title Deed: The title deed is the primary document that establishes the seller's ownership rights over the property. It's essential to verify that the seller has clear and marketable title to the property.

• Encumbrance Certificate: An encumbrance certificate is a crucial document that verifies that the property is free from any legal dues or liabilities. It proves that the property can be transferred without any legal encumbrances. 

Conclusion

Calculating TDS on property purchase in India is a crucial step to ensure tax compliance during real estate transactions. By following the steps outlined in this comprehensive guide, you can accurately calculate and deduct TDS, making your property purchase a hassle-free and legally sound experience.

Additionally, if you require financial assistance to fulfil your dream of owning a property, housing finance companies like Truhome Finance can provide you with the necessary support. However, it's crucial to stay informed about the latest regulations, as they may change over time. Always consult with a tax professional or financial advisor for the most up-to-date guidance on TDS calculation and home loan application processes.

FAQs

Here are some commonly asked questions about TDS on property purchase:

1. Is TDS applicable to all property transactions? 

If the property transactions directly impact the value of the property, TDS will be applicable. Currently, the limit for TDS on property tax is Rs. 50 Lakhs. If the value of the property exceeds this amount, the buyer needs to pay a TDS deduction of 1% of the total considered amount.

2. How does the TDS process differ for under-construction properties?

For under-construction properties, TDS is calculated without GST. Completed houses will bear the full TDS charges with applicable GST.

3. Who is responsible for deducting TDS on property purchase?

According to the rules set by the government, the buyer of the property will have to deduct the TDS and deposit it in the government treasury.

4. What is the penalty for not deducting TDS on a property purchase when it's required?

Failure to deduct TDS can result in penalties and legal repercussions. The minimum penalty is Rs. 10,000 with a maximum of up to Rs. 1 lakh as specified under Section 271H.

5. When should TDS be deducted and deposited?

TDS (Tax Deducted at Source) should be deducted at the time of making payment for the purchase of the property. It should be deposited to the government within the specified time period, which is typically within 30 days from the end of the month in which the deduction is made.