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TDS on Property Purchase: A Step-by-Step Guide

Posted on 30 Aug 2023
Author: Sayan Sircar

Tags: Tax ; House Purchase

6 mins read
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This article explains the concept and steps for calculating TDS on purchasing property from builders, on resale or from NRIs, with and without a home loan.

TDS on Property Purchase: A Step-by-Step Guide

📚 Topics covered:

What is TDS on property purchase? Who pays TDS?
When is TDS to be deposited?
What type of properties require TDS before sale?
What is the Rate at which TDS is to be calculated?
How is TDS calculated?
How is TDS calculated in case of payments via home loan?
What happens if the seller has an inoperative PAN?
How to file TDS?

What is TDS on property purchase? Who pays TDS?

To track the buying and selling of residential property, TDS must be deducted by the buyer and deposited in the Income Tax portal.

TDS is paid by the buyer of the property
The seller receives the property value minus the TDS value
The seller can adjust the TDS against other taxes to be paid in their income tax return

TDS on immovable property is covered under Section 194IA.

When is TDS to be deposited?

TDS is to be paid whenever payment is made to the seller. The buyer must deposit the TDS amount by the last date of the following month after the payment.

If, for example, the buyer makes the payment on 15th July, the TDS must be deposited by 30th August. Please deposit the TDS by this date to avoid a penalty of 1% per month if the TDS is not filed. In case of a TDS payment default, the property will not get registered.

There is no relationship between the property registration date, builder-buyer-agreement date or any date other than the payment date for TDS calculation.

The same logic of payment date is applied when payment is in installments, like in the case of an under-construction property.

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What type of properties require TDS before sale?

TDS applies to houses, flats and plots
TDS is not applicable on agricultural land -TDS applies to both residential and commercial properties -TDS applies to all sellers: individual sellers (ordinary people - either residents or NRIs), companies selling real estate (like Lodha, Sobha, etc.) or your local builders

What is the Rate at which TDS is to be calculated?

The TDS value depends on the seller’s tax residency status.

Resident Indian seller: No TDS if the property value is below ₹50 lakhs; 1% TDS for property value is above ₹50 lakhs
NRI seller: Irrespective of property value (above or below ₹50 lakhs), the TDS rate will be 20% (plus surcharge and cess) on the capital gains (sold after 2 years) or slab rate if held less than 2 years. The NRI can apply for a Lower Deduction Certificate (LDC) under Section 197 sometime before the property sale is registered. In such a case, the TDS rate will be as per the LDC. Calculating the TDS in the case of an NRI seller has a few additional nuances and will be dealt with in a future article.

How is TDS calculated?

The basic rule for a 1% TDS-eligible property deal is

Buyer pays 1% to the government, 99% to the seller

TDS is calculated on the registered agreement value (or builder-buyer-agreement amount) without GST.

For under-construction properties, TDS is calculated without GST. Here, the logic is that GST goes directly to the government, and no TDS will be deducted from the GST. For example, for a 1 crore under-construction house, approx ₹12 lakhs is the GST, and ₹88 lakhs goes to the builder. Here the TDS is calculated on the ₹88 lakhs amount.
For ready-to-move and/or resale properties, there is no GST, and TDS is calculated on the registration value

If there are multiple buyers, or sellers, or both, the TDS is still calculated as per the rules above. Each buyer has to individually calculate and deposit TDS on the amounts they have paid.

How is TDS calculated in case of payments via home loan?

TDS is paid on the whole consideration paid to the seller, irrespective of the source of funds. For a home loan-funded deal, TDS works like this:

Total sale consideration is ₹1 crore, say
TDS amount is ₹1 lakh (assumes resident seller)
₹25 lakhs comes from the buyer’s own funds, say
₹75 lakhs comes from the home loan
The bank gives ₹75 lakhs to the seller (no TDS here)
The buyer gives ₹24 lakhs to the seller
The buyer deposits ₹1 lakh as TDS

The above calculation is valid even if payment is made for an under-construction property in multiple phases, with GST, like this:

Total sale consideration is ₹1 crore, say
₹12 lakhs is the GST, ₹88 lakhs goes to the builder (we are using numbers that make calculation easier)
TDS amount is 1% of ₹88 lakhs (assumes resident seller), i.e. ₹88,000
₹25 lakhs comes from the buyer’s own funds, say
₹75 lakhs comes from the home loan
Payment is made in 3 phases: 30%, 40% and 30%

Payment made	Phase 1	Phase 2	Phase 3	Total
% Amount	30%	40%	30%	100%
Bank gives	22,50,000	30,00,000	22,50,000	75,00,000
TDS @ 1%	26,400	35,200	26,400	88,000
Buyer pays to builder	7,23,600	9,64,800	7,23,600	24,12,000
Total paid in phase	30,00,000	40,00,000	30,00,000	1,00,00,000

What happens if the seller has an inoperative PAN?

The buyer will get an income tax notice to pay the remaining TDS: What is a hidden risk about TDS what buyers must consider before property purchase?

How to file TDS?

We will cover registration for TDS, Form26QB / Form16B, PAN or TAN and other considerations in the next part of this article here: How to file TDS for Property Purchase: A Step-by-Step Guide.

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