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Tax Deductions in the sale and purchase of property

January 12, 2023

Tax Deductions in the sale and purchase of property

Now that 2022 is about to end and the new year 2023 is about to start, traders expect a sharp rise in Immovable property sales and purchases.

Because this market has a high percentage of tax evasion, the government has mandated that buyers deduct TDS at a rate of 1%.

Additionally, the budget for infrastructure development in 2022 focuses on capital investments.

Before diving directly into the topic, let us first understand,

What is TDS?

TDS refers to the collection of tax from the source of revenue itself. According to this idea, a person (the deductor) who is required to pay another person (the deductee) a specific type of payment is required to withhold tax at source and send it to the Central Government.

Now that we know about TDS, let us move ahead and find out:

TDs

What is TDS on purchasing the property?

The term "tax deducted at source" (TDS) describes the tax withheld from an income payment made to a recipient.

Purchases of immovable property are subject to TDS. Any buyer who receives an amount or other consideration from a resident transferor must deduct tax at source (TDS). In this post, we examine TDS that apply to real estate purchases.

You must deduct TDS, If you pay money to the seller in cash, by check, or by demand draft during the acquisition of the property, 

What is the TDS rate on the purchase of property?

The TDS rate for buying real estate is 1%. Surcharge or secondary and higher education cess (SHEC) are not necessary to add. TDS must be @20% if the property seller has no PAN or has not provided one.

What is TDS on the sale of the property?

Any property except agricultural land must have TDS deducted during the sale. According to the Income Tax Act of 1961 Section 194IA, the buyer withholds tax from the sale proceeds if the sale value exceeds Rs. Fifty lakhs. The buyer is responsible for deducting and paying the 1% TDS rate.

The buyer must deposit the TDS along with Form 26QB stating the PAN of the buyer and seller. The payment will reflect on Form 26AS (Part F) of the seller within seven days.

Proposed Budget 2022 New TDS Regulation for Real Estate Transactions

Based on the value of the stamp duty or the sale price, Finance Minister Nirmala Sitharaman has asked to increase the TDS by 1% for secured non-agricultural properties worth more than Rs. 50 lakh.

According to the most recent income tax legislation, you must pay the TDS on the consideration value of the immovable assets, not the stamp duty.

But with this change, the government will be better able to identify instances of tax evasion where the person sells the property for less than its stamp value.

Crucial points under property sale Tax deduction

Even if the sale property is through a home loan or a builder, the buyer is solely responsible for deducting TDS.

TDS must be subtracted from each installment if the person pays in installments. The buyer must give the seller a tax certificate following the deposition of TDS on the sale of the property.

Sale tax deduction

Conclusion:

The Indian government has made it mandatory for purchasers to deduct TDS at 1%.

TDS is applicable on payments made in connection with the purchase of the property.

Any real-state purchaser from a resident transferor must withhold tax at source (TDS) on the sum given as payment or other consideration.

In the planned budget for 2022, the TDS for secured non-agricultural properties worth more than Rs. 50 lakh would increase by 1%. All types of real estate, except for agricultural land, need the deduction of TDS throughout the sale process.

As per the most recent income tax legislation, you must pay the tax on the consideration value of the real estate and not on the stamp duty.

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