Income Tax Notice for non payment or late payment of TDS on Buying a Property

Recently Several people have received notice from the Income Tax department about not depositing TDS on buying property or depositing TDS late. If you bought property worth more than Rs 50 lakh and did not deduct tax at source (TDS) or failed to deposit the amount with the income tax department on time then you would or might receive notice from Income Tax Department  under . This article covers the Income Tax Notice, Understanding of Notice, Penalty, Late fees and Interest on TDS for Purchase of Immovable Property, How to pay the demand notice?

Notice from Income Tax Department for TDS on Property

Why does one receive an Income Tax notice under Section 201?

The Income Tax Department has started issuing intimation under section 200A of the Income Tax Act’1961 to the deductors under section 194IA i.e the buyers of property who have paid TDS Under section 194IA late. The CPC TDS is not only charging interest under section 201, but also late fee under section 234E of the Act. The main objective for introducing this rule is to track all the high value real estate transactions, which are not being registered.

As per section 194IA of the Income Tax Act, buyers of property must deduct TDS from payment made to seller, if the sale price exceeds Rs 50 lakhs. This rule has been in effect since June 1, 2013. So, if you did not deduct TDS while making the payment then you might receive a notice. The notice is shown in image below. Excerpt from Income Tax Notice for Implications of  Non/Late filing of TDS Statements  Click on image to enlarge.

* For Buyer of Property: In case of default on account of Non / late filing of Form 26QB, a fee shall be levied u/s 234E of the Act. He shall be liable to pay, by way of fee, a sum of Rs. 200 (two hundred) for every day during which such failure continues. The buyer would also be liable for defaults of Late Deduction, Late Payment and Interest thereon. Penalty under S. 271H may also be levied on him by the Assessing Officer.

* For Seller of Property: Non/ Late filing of Form 26QB results into the TDS Credit not being available to the seller for claiming the amount of tax already deducted from the payments made.

In case of any clarification/suggestion, you may write to us on (info@tdscpc.gov.in). Please click the links for any assistance on Filing 26QB (https://www.tin-nsdl.com/tds/TDS-Introduction.php) , Downloading Form 16B (http://contents.tdscpc.gov.in/en/faq-taxpayer-functionality1.html) or call our toll-free number 1800 103 0344.

Income tax notice for tds on buying Property under Section 200A

How does the Income Tax Department know you have purchased a property?

Annual Information Return (AIR) is submitted by Registrar/Sub-registrar, denoting and specifying the details of all the buyers who have purchased a property exceeding Rs 50 lakhs.

Why is the notice being sent now?

The income tax department recently matched the TDS data with the data they received from the property registrar for property transactions over Rs 50 lakh. Wherever there was a discrepancy , either the buyers failed to deduct or deposit the TDS, a notice has been sent

Overview of TDS on buying property

What is TDS on buying a property?

Overview of TDS on buying a property is given below, Our article Payment of TDS on Buying a Property  covers the topic in detail.

• Buyer should deduct TDS at the time of payment to the seller. Note the buyer of the property needs to deduct the TDS BEFORE MAKING THE PAYMENT to the seller.
• This rule is effective from June 2013, if any property is purchased before 2013 and any payment for that particular property is made after June, 2013 TDS should be deducted.
• It comes under the  Sec 194 IA, the Income Tax Act 1961.
• If the property sale price exceeds Rs 50 Lakhs(agricultural land is exempted from deduction of TDS) then the buyer has to deduct TDS at 1% of the total sale consideration.
• If PAN of the seller is not available TDS will be deducted at 20% by the buyer.
• If the payment is made in installments, then TDS needs to be deducted at the time of making each payment and it has to be deposited with the tax department.
• No surcharge and education cess is applicable while deducting tax on sale of property. 
• TDS on Property is to be done online . The tax should be deposited through challan-cum-statement using Form No.26QB.  The deducted amount can be deposited using ITNS-280 under the minor head-800. Our article How to pay TDS on Buying a Property  explains it in detail.
• In case of multiple sellers, Form 26QB needs to be filed for each seller separately. Similarly, in case of multiple buyers, each needs to issue Form 26QB separately.

What are TDS implications if one buys property from Non Resident Indian (NRI)?

• If property is bought from Non-Resident Indian (NRI) then section 194-IA will not be applicable but section 195 will come into action.
• For NRI the limit of Rs 50 lakh is not applicable i.e even if the property value is less than 50 lakh say 20 lakh tax has to be paid.
• If property is bought from NRI, TDS is required to be deducted at the rate of 20%
• Education Cess also has to charges on the sale amount.
• Surcharge at the rate of 10% will be applicable if amount paid exceeds Rs 1 crore.

What is the due date of paying TDS deducted by buyer?

TDS is to be paid by the 7^th of the next month in which the payment is made to the seller. For example If the payment is made in April, due date for paying TDS will be May 7^th.

What about Seller of the property?

Form No 16B (TDS Certificate) will be issued by the buyer/deductor to the seller within fifteen days from the due date of depositing tax. This can be downloaded from the TRACES website.

• The payment of TDS is reflected on the seller’s Form 26AS under the head Part F within 7 days.
• Seller may not be able to take credit of TDS deducted in case of Non filing or Late filing of Form 26QB.
• Capital gains made from the sale of property along with the TDS information present in the Form 26AS have to be clearly shown in the seller’s income tax return.
• The amount deducted as TDS is allowed to be adjusted against the final tax liability.
• 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.

There may be some leniency if the seller has already paid capital gains tax or claimed capital gains exemption (on the sale of property). So, if the seller has already paid the taxes, the buyer can submit Form 26A certificate from a chartered accountant and request that penalty under Section 234E should not be levied. Though this will save you from the late filing fee, the interest under Section 201 will still apply . (If you have faced the situation please share)

Examples of How much TDS should be deducted on buying a property

Buyer of the property has to deduct TDS at 1% of the total sale consideration.

• Mr. Kharbanda has purchased a property on 24th April 2016 of Rs. 60 Lakhs . He has to deduct Rs. 60,000 as TDS on making payment to the seller i.e he will pay Rs. 5940000 to the seller .Rs. 60000 will be deposited with the tax department using Form 26QB before 7th May, 2016. If the seller doesn’t have PAN, Rs. 1200000(20%) will be deducted as TDS.
• If the amount of property you have purchased is Rs 70 Lakhs, then you don’t have to pay tax only on Rs 20 lakhs(70L – 50L) but on the entire amount of sale consideration i.e. Rs 70 lakhs. the TDS would work out to be Rs 70,000.
• Mr. Khan had purchased a property on 24th April, 2013 worth Rs. 60 Lakhs. But as it was an under-construction property and one of his installments of Rs. 10 Lakhs were to be paid in 2016. The, the amount that was paid before 1st June 2013 is free from deduction of TDS. But the balance amount of Rs.10 Lakhs payable in 2016 is eligible for TDS. Any amount paid after 2013 is eligible for TDS deduction.
• Mr.Mehta bought property worth 1.5 Cr in Oct, 2010 and his amount due on or after June 01, 2013 is just 40 lakhs i.e. less than 50 lacs. Yes, even if amount due is only 40 Lacs which is less than 50 lacs on or after June 01, 2013 but since total property value is more than 50 lacs i.e. 1.5 Cr, the buyer is liable to deduct TDS on property sale and deposit with Govt. TDS will be deducted only on 40 Lacs instead of 1.5 Cr i.e. only on the amount payable on or after June 01, 2013.
• Mrs. Verma signed sale agreement on May 4, 2013 . If the agreement is signed before June 01, 2013 but either full payment or even part payment is due or made on or after June 01, 2013 than also she need to deduct TDS on property sale & deposit with Govt. This applies to under construction property also, on the payment/amount due on or after June 01, 2013. Please note that TDS is applicable only on amount due/payable on or after June 01, 2013 but not on the amount already paid before June 01, 2013.

What happens if the TDS is not deducted by the buyer of the property or TDS is not submitted to Government?

In case of non-compliance of buyer of property not deducting the TDS or paying TDS late one has to interest under section 201, but also late fee under section 234E of the Income Tax Act.

The buyer of the property has to pay Penalty under section 201:

If tax is deducted by buyer of the property and is not deposited by the 7th of next month of the month of deduction, but is paid at a later date. Then, Interest of 1.5% for every month or part of the month from the date on which such tax was deducted till the time it was actually paid. In simple words, 1.5% of the TDS amount from the due date till the date of late payment will be charged as interest. Lets see it with an example.

Example: Rs. 80000 tax was deducted on Apr 24, 2016, which required to be deposited with the government account till May 7, 2016, but if the same is paid on June 7, 2016 then number of months of default is 3, because part of April will be counted 1, full May & part of June will be counted as 1 month each, thus making a total of 3 months of default.

So Amount of Interest: Rs. 80000×1 .5% X 3= Rs. 3600

If tax is not deducted at all by the buyer on property

If TDS or tax is not deducted by the buyer of the property at all then interest at 1% for every month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted. Note: Interest calculated will be simple interest. The fraction/part of the month is considered as full month.

Example: Mr Sharma bought property in Apr 2015 for 80 lakh. Rs. 80000 tax was deducted on Apr 24, 2015, which required to be deposited with the government account till May 7, 2015, but he did not pay it. If the same is paid on June 7, 2015 then number of months of default is 3, because part of April will be counted 1, full May & part of June will be counted as 1 month each, thus making a total of 3 months of default.

So Mr Sharma has to pay = 80,000 + 800(1% of 80,000)  *3 = 82,400

Penalty for not paying TDS on buying property under section  234E

In case of default of non-filing or late filing of Form 26QB, an additional penal fee along with the ones mentioned in Sec. 201 will applicable under section 234E of the Income Tax Act. Rs. 200 has to be paid for every day during which such failure continues. It cannot exceed the TDS which had to be paid. If Rs. 80,000 was to be paid by 7^th May 2016, nut if the same is paid on 7^th June, 2016, then late fee will be calculated as:

No. of days from 8^th May to 7^th June= 32 days.

Late fee= 32× Rs. 200= Rs. 6,400 or Rs. 55,000 (amount of tax) whichever is lower i.e. Rs. 6,400

For example, if TDS Amount is Rs 20,000 and delay is of 200 Days then the late fee is 200 X Rs 200 i.e. Rs 40,000. Lower of Rs 20,000 and Rs 40,000 is Rs 20,000 therefore max late fee penalty is Rs20,000. In Short, max late fee penalty cannot exceed TDS Amount

Penalty under section 271H

Assessing Officer may levy penalty under section 271H at his discretion. This section is applicable when a statement as required by the tax laws is not submitted timely. Penalty under this section is more than Rs 10,000 and can extend to Rs 1 lakh. However, if TDS is deposited with fee, applicable interest and ethical statement is submitted within 1 year of the time prescribed, no penalty shall be levied.

For those who missed to deduct the tax, get suddenly realise sometime and try to make the payment either from their pockets or with a mutual talk with the seller to reimburse later.

What to do if you received the notice under section 201 for non payment or late payment of TDS on property From Income Tax Department

For those who have received a notice, the immediate corrective step to avoid paying a penalty is to pay the TDS along with the applicable interest and late filing fee.The interest payable under Section 201 is 1% per month if tax wasn’t deducted and 1.5% in case this was done but not paid

How to make payment of such demand rasied by IT department

Under e-Payment option of taxes of NSDL, a link has been given as Demand Payment i.e. Demand Payment for TDS on Property which is a facility to make payment of demand raised by CPC-TDS against TDS on Sale of Property.

• Calculate payment according to the provisions specified under section 201 and under section 234E
• Go to: https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp
• Select Demand Payment. (shown marked by green in image below)
• This takes you to another window, all you need to enter details kike PAN of Transferee/Buyer, PAN of Transferor/Seller, demand Acknowledgement number. Enter these details and selection relevant assessment year and proceed for payment of demand amount.

Demand Payment of TDS for property in receiving Income Tax notice

Please provide details as present in Form for TDS on property. Please note TIN is not responsible for any mismatch in the details provided by Transferee/Buyer in the Form and the actual transaction of the Transferee/Buyer.

Demand Payment of TDS for property PAN details of buyer ,seller, Income Tax notice

Related Articles:

• Payment of TDS on Buying a Property
• How to pay TDS on Buying a Property
• Tax : Income From House Property
• Income from House Property and Income Tax Return
• Joint Home Loan and Tax

Have you received any such income tax demand notice? What did you do? or still waiting to deposit tax or haven’t even deducted tax from the payment(s) made to seller of the property.

The post Income Tax Notice for non payment or late payment of TDS on Buying a Property appeared first on Be Money Aware Blog.