TDS rules on buying a house: 3 key things you must know

While purchasing a home is a major milestone for many, this undertaking comes with tax implications. Considering the current real estate market and the rising cost of owning a house, your tax liability could be quite high.

The Finance Bill of 2013 inserted Section 194-IA to the Income Tax Act, 1961. It proposed the deduction of TDS at the time of buying a house. Read on to know more about the applicable TDS rules on buying a house and how you can file your returns for it.

What are TDS Rules on Buying a House?
As per the Income Tax Act, any buyer of a house or any other immovable property (except for agricultural land) must pay taxes to the government. However, this provision is applicable only when the value of the property is worth more than ₹50 Lakh.

Tax Deducted at Source stands at the TDS full form. Hence, as its name suggests, the buyer of the house needs to pay TDS when making a payment to the seller. The applicable rate of TDS is 1% of the transaction’s value.

The definition of ‘buyers’ under the TDS rules includes:
• Individuals
• Companies/Firms
• Hindu Undivided Family (HUF)
• An association of persons or a body of individuals
• Local authorities

To streamline compliance, the government brought an amendment to Section 194-IA in Union Budget 2022. As per this amendment, the TDS is now deducted from the amount paid or the stamp duty value (SDV), whichever is higher.

How to Pay TDS on Buying a House
Within 30 days of the sale of a property, an individual must pay their tax liabilities to avoid any penalty for late filing of ITR. As per Rule 31A, you can pay TDS on the sale of property by filing Form 26QB, which is a TDS certificate-cum-challan.

On the other hand, a deductor, i.e., a buyer, needs to furnish Form 16B within 15 days of the purchase of the house. This form is a certificate that indicates the deduction of tax liabilities upon the purchase of a house.

If you have recently bought a house, here is how you can generate and download Form 16B:
• Visit the TRACES Portal and get yourself registered using your PAN or Form 26QB details
• An activation link will be sent to you on your registered email, which you need to open to complete the registration process
• Find the downloads section, under which ‘Form 16B (for Buyers)’ will be available
• Click on this option and enter details like assessment year and acknowledgement number of Form 26QB
• You can now download or print Form 16B

Penalty on Late Filing of TDS on Purchasing a Home
As per the TDS rules, much like the penalty for late filing of ITR, there is a penalty for missing the TDS payment due date. The buyer will have to pay an interest of 1% per month if they fail to pay TDS within the stipulated time limit.

In addition, an interest of 1.5% will be applicable if you do not deposit the tax after the deduction. Moreover, if you fail to file Form 26QB on time, Section 234E mandates a late fee of ₹200 per day.

Furthermore, the assessing officer/commissioner may impose a penalty amounting to the total tax liabilities under Section 271C. The reason for the same is failure to timely deduct tax and/or furnish the mandated TDS returns. In case of the latter, the AO/AC may levy a penalty between ₹10,000 and ₹1 Lakh under Section 271H.

At the discretion of the income tax and revenue authorities, a prosecution process can also be initiated against the defaulter. This could lead to imprisonment of 3 months to 7 years, along with a fine.

If you have already paid your tax dues, you can check the TDS status through Form 26AS. For that, all you need to do is download this form from the official TIN NSDL website.

While the taxation on a home purchase can be quite daunting, do not let it deter you from investing in real estate. One way to make this process a lot easier is to apply for a home loan from a leading lender. The tenure of home loans range from 5 to 30 years, which makes it easier for you to afford your dream home.

(This article is contributed by digital marketing agency Digibirds360)