GIVEN THAT real estate investments involve a lot of unaccounted money, the government has extended the scope of TDS to property transactions as well. If you buy a house worth more than `50 lakh, you have to deduct 1% TDS from the payment to the seller. In case the seller is an NRI, the TDS will be higher at 30%. This amount should be deposited with the government on behalf of the seller using Form 26QB. Delhi based Sahay had no idea of this rule when he bought a property in Noida last year. He now has to respond to a tax notice, and could even be slapped with a penalty of up to `1 lakh.
The rule is applicable even if you pay in instalments. In such cases, the TDS needs to be deducted from each payment and the money deposited with the government within seven days.
While TDS deduction happens automatically when you buy a new property from a builder, in case of transactions between individuals, it is often ignored. Like Sahay, most buyers are unaware of the rule. Even if they are aware, they are not sure how to calculate the tax. The TDS has to be calculated on the total sale price and not just the amount exceeding `50 lakh. Many make this calculation error. The total sale price is the amount payable and as registered in the sale agreement. It does not include stamp duty and brokerage.
Also, only the sale price has to be taken into consideration, not the circle rate of the property. If a property is valued at `60 lakh based on the circle rate, but gets sold for less than `50 lakh, the buyer need not deduct TDS.
Make it clear to the seller that you will be deducting 1% TDS from the payment.
Make sure you have his correct PAN details.
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