Ajay and Riya are non-resident Indians. They have been in the United States for more than a decade now. Their IT careers took them to places and finally California was the place they chose to settle down. While they have a house in the US, they were also maintaining a house in Mumbai. Their Mumbai house was let out. It was the last quarter of 2013 when they thought of selling the house and repatriate the sale proceeds to the US. They were unsure of tax formalities and enquired about tax implications of selling the house and filing returns before the money can be taken back to the US. I have already written about capital gains in the past articles. I shall be devoting this article only to understanding TDS when one buys a house from a seller (including the builders).

As of June 1st, 2013 via Section 194-IA of the Act the income tax laws require the buyer of any immovable property (except of agricultural land) of value exceeding Rs.50 Lacs to withhold income tax at the rate of 1% if the seller is Resident-Indian OR at 20% if the seller is a Non-Resident Indian of the total sale consideration. The withheld amount must be deposited with the income-tax authority at the time of credit or payment of such sum (whichever was earlier) to a seller. This provision was introduced by the government to improve financial reporting in the real estate transactions and to collect income tax arising from capital gains, earlier than scheduled.

TDS RULES
• Tax-at-source has to be deducted when you make payments to the seller for property worth over Rs.50 Lacs.
• Non-deduction of tax at source when making payments to sellers (including builders) might attract penalties.
• The law casts the responsibility on the ‘transferee’ i.e. the buyer, to withhold income tax at source.
• Buyers have to withhold tax at source even when the payment is made through housing finance companies.
• One does not have to have a tax-deduction account number to file taxes; Filling the requisite challan would suffice.

The buyer should fill up the requisite challan in the Form 26QB and deposit the appropriate tax within seven days from the end of the month in which the amount was deducted. In the Form 26QB, one must include all relevant details like names, address and PAN of the buyer and seller; particulars of transaction such as date of agreement, value of property, date and amount of tax deducted. The tax so withheld could also be paid online on the website https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp selecting the Form 26QB and following the instructions.

The buyer can also check with his/her bank whether they can deposit an amount equal to the withholding tax to the Government Treasury on his/her behalf and release the instalment, net of TDS, due to the seller.

The new provision of TDS is even applicable to agreements entered prior to June 1, 2013 (where the total value of the immovable property exceeds Rs.50 Lacs including all forms of taxes paid to the seller) only for payments made on or after June 1, 2013. The provision is applicable even if the payments to be made on or after June 1, 2013 are less than Rs 50.Lac, when the overall consideration is more than Rs.50 Lacs.

The tax is required to be deducted on earlier payment or credit of such sum to the account of the seller. When payment is to be done by instalments, tax is needed to be deducted at the time of every instalment. And the tax is required to be deducted on the full sale consideration. If the seller is a builder then the tax is to be deducted on the full consideration including the indirect tax components like EDC, IDC, VAT etc paid to the builders.

Please note that the buyer (of the property) is required to issue to the seller a “certificate of tax deducted at source” in Form 16B, which can be downloaded from https://www.tdscpc.gov.in/ after allowing the system 7 to 10 days’ time since the date of payment.
Hope the article helps buyers to do the needful before they mark their real estate transaction complete.

Amit Kukreja is a fee-only financial planner (FPSB) and Investment Adviser (SEBI). He is the founder of WealthBeing Advisors, a financial planning and wealth advisory firm.