How to Save TDS on Sale of Property?

How To Save TDS On Sale Of Property?

Do you know if you buy a property that costs more than Rs 50 lakhs, you are supposed to deduct 1 percent TDS? Most buyers are unaware of this simple tax rule. According to the 2013 Finance Bill, TDS on the sale of immovable property worth or greater than Rs 50 lakhs. 194-IA Section of the Income Tax Act, 1961, notes that the purchaser of the property will deduct Tax at 1 percent for all transactions with effect from 1 June 2013 at the time of payment of the selling consideration.

What is TDS?

TDS stands for tax deducted at source. According to the Income Tax Act, any company or person making a payment is required to deduct tax at source if the amount exceeds certain threshold limits. TDS is a tax that is to be deposited with the government periodically, and it is the responsibility of the deductor. For the seller, the deducted TDS can be claimed in the form of a tax refund after they file their ITR.

Let us know the detailed procedures to save TDS on sale of property in the below points.

Considering the tendency of taxpayers to adopt tax evasion measures, Income tax provisions provide for deduction of tax at source. Tax rates for such deduction are made under Section 192, Section 194, and 195(non-residents). The person making the payment is entrusted with the responsibility of deducting the tax at specified rates either at the time of credit in the books or payment to the recipient, whichever is earlier and only pay the balance amount to the recipient. This ensures tax is collected in advance, checks tax evasion, and also helps track the income of recipients in the future.

It might lead to unnecessary difficulties to certain taxpayers who would not have any taxable income, yet tax gets deducted at source for them, which they end up claiming as a refund. No doubt, these taxpayers are eligible for interest on such a refund and unnecessarily get blocked till refund is received. Moreover, they have to go through the process of filing their return to claim it in a case where it was not otherwise mandatory for them to file it under law.

Therefore, with an objective to remove this undue hardship on such taxpayers, income tax law provides for an option to obtain a certificate from the Assessing officer confirming either a lower rate of TDS compared to the rate specified under the law or a NIL rate of TDS, depending on facts and circumstances based on the application made. Section 197 governs these provisions.

Section 197 of the Income Tax Act, 1961, allows the taxpayer the facility of NIL or Lower tax rate deduction of TDS (or TDS exemption). In order to apply for this, you need to submit Form 13 to the assessing officer. If the assessee feels that no or lower tax deductions of TDS should be there, then you need to submit Form 13 to Income tax department or Assessing Officer (AO) for exemption of NIL or Lower tax rate deduction of TDS. 

Within a frame of 30 days, Assessing Officer has to dispose off the applications. Taxpayers are advised to file complete and relevant details required for processing the application in the first instance itself. If the income tax officer is satisfied then, he will process the issuance of a certificate under section 197. This certified copy of this certificate can be attached to the invoice raised to the client to claim the exemption. This certificate is valid only until the assessing officer does not cancel it. Registration in TRACES is mandatory, and if the taxpayer is not registered in TRACES, then, one needs first to obtain registration in TRACES to get form 13 filing and generation.

Steps to Register in TRACES Portal

  • Visit website
  • Click on Login and select the option to Register as New User 
  •  From the drop-down list, select ‘Taxpayer.’
  • After the registration form will be displayed
  • Fill the appropriate information and submit, and the registration in TRACES would be completed.

Login in TRACES and under Statements or Form tab select ‘Request for Form 13. It would be displayed, and appropriate details need to be filled by the applicant. Once all the information is filled and uploading of relevant certificates, the applicant is required to submit the form 13 by using Digital Signature or EVC.

Certificate Generation

After FORM 13 successful submission through TRACES by the applicant, on the basis of the information provided in that form, the application shall be forwarded to the relevant assessing officer. After carrying out appropriate verification of details furnished in FORM 13 and on receipt of approval of the competent authority based on that, the Assessing Officer would provide the certificate. Since the certificate would be generated by the system, there would not be any requirement of the signature on it. The applicant and deductor can download the system generated certificate through their TRACES login.

Once you have obtained the certificate from the department of income tax, you have to send one copy of the certificate to the purchaser, and he will then send it to his bank. The bank will only disburse the consideration amount to your bank account after receiving such a certificate. All those who are investing in the purchase of immovable property other than rural agricultural land of the value of Rs 50 lakhs or more should carefully understand their obligations for deducting income-tax at the rate of 1% from the payment made to the seller.

TDS On Sale Of Property

Let us know some of the very important terms which have some connection with this procedure, and it is necessary to understand the legal procedure when you are about to sell the property in Hyderabad or any other states. The first thing kept in mind, is the applicability of section 194IA or 195 for deducting TDS under the income tax act, 1961. There are many cases where the buyer has deducted the wrong TDS by which the seller and buyer both have to face many problems.

Documents Needed to Apply Lower or Nil TDS Certificate

One has to attach many documents to get a lower or Nil TDS Certificate. The list of documents NRI need to apply for the lower or Nil TDS certificate is as follows:

  • NRI PAN Number (Permanent Account Number)
  • Original title document of the property.
  • No objection certificate (NOC), issued by the previous property owner.
  • Approved plan and occupation certificate copy, which would be issued by the relevant authority and Municipal Corporation of development.
  • If you have bought the property before the financial year 2000-01, then submit a certificate from the valuation administrator or from stamp duty authority, which specifies the value of the property.
  • Other required Documents.

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

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By: Shailaja K