1% TDS rule on sale of property explained

The 1% TDS rule on sale of property was introduced in the 2013-14 Budget to put a check on underhanded property deals.

In effect since June 2013, the regulation mandates that on sale of property exceeding Rs. 50 lakhs in India, a tax of 1% has to be deducted on the total sale consideration before making the payment to the seller.

The buyer must then deposit this 1% TDS to the Government. PAN of both the buyer and seller must be compulsorily specified while filling out Form 26QB to ensure that sellers don’t avoid taxes on the capital gains they make.

This rule does not apply on sale of agricultural land.

What is the procedure to deposit TDS?

1. Calculate 1% TDS on the total sale consideration. For a property getting sold for Rs. 60 lakhs, the seller would receive Rs.59,40,000 after tax.
2. Make the payment online on Form 26QB. A challan is generated. Note that this must be done within 7 days from the end of the month in which TDS is deducted.
3. The payment is reflected on the seller’s Form 26AS under the head Part F within 7 days.
4. The buyer is then required to furnish a TDS certificate called Form 16B to the seller. This can be downloaded from the TRACES website.
   1. For this, register on the TRACES website with your PAN and challan number.
   2. Click on “Application for request of Form 16B” from the header.

How is this shown on the seller’s income tax return?

Capital gains made from the sale of property along with the TDS information present in the Form 26AS will have to reported in the seller’s income tax return.

Read about saving taxes on long-term capital gains here.

When can the seller claim a refund of the 1% TDS?

If the seller made a loss on the sale of the property, the seller can claim a refund of the 1% TDS in his income tax return.

On our next post, we’ll discuss this rule in the case of sale of property by an NRI.

1% TDS rule on sale of property explained

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