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Property Buyers To Pay Hefty Fine On TDS Default

If you are buying a property, you are supposed to deduct TDS from the total sales price payable to the seller and deposit the same with the Govt. Further, you have to also file the prescribed challan-cum-statement within a specified period.

If you don't, be prepared for some very serious consequences.

In case you are not aware, in June 2013 Govt. had introduced the concept of Tax Deduction at Source (TDS) on sale or transfer of immovable property.

Briefly, the Income Tax Laws on this subject state that
- TDS @1% is to be deducted on all property transactions (except agricultural land) of value exceeding Rs.50 lakhs
- The Buyer is responsible to deduct this tax from the price s/he has agreed to pay to the Seller
- After deducting the same, s/he should deposit the said amount with the Govt.
- The Buyer is also responsible to file the prescribed form with the Govt. and give a certificate of deduction to the Seller

And, as regards the procedure,
- The Buyer has to deduct the TDS each time he makes any payment to the Seller
- Amount deducted should be deposited with the Govt. within 7 days from the end of the month in which the TDS is deducted
- Along with the same, Form 26QB should be furnished, which is the prescribed challan-cum-statement
- Within 15 days of depositing the TDS, the Buyer should give Form 16B to the seller, which is the prescribed certificate of deduction

Important: If you are making the payment in installments, then TDS has to be deducted and deposited on each and every installment.

Detailed blog post on the above Laws and Procedures can be read at 'Buying property? TDS deduction is compulsory'.

But what if you fail to comply with these obligations?

Here's the list penalties and punishments, should you default on these TDS provisions.

Default in TDS obligations, on buying a property, could land you in jail.

A. Penal Interest on non-deduction or non-deposit of the TDS amount

There could be two possibilities here:

i) If the TDS is not deducted at all: Penal interest @1% for every month (or part month) from the date on which the TDS was supposed to deducted to the date it is finally deducted.

Example: TDS of Rs.50,000 was to be deducted on Jun 10. But it was deducted and deposited on Aug 7. So, there is a total delay of 3 months. Hence, the penal interest payable works out to Rs.1500 (=1% * 3 * 50,000).

ii) If the TDS is deducted but not deposited with the Govt.: Penal interest @1.50% for every month (or part month) from the date on which the TDS was deducted to the date it is finally paid to the Govt.

Example: TDS of Rs.50,000 was deducted on Jun 10. But it was deposited on Aug 7, as against latest by July 7 as per law. So, there is a total delay of 3 months. Hence, the penal interest payable works out to Rs.2250 (=1.5% * 3 * 50,000).

B. Late Fee for non-submission of the prescribed TDS Statement

In addition to deducting the TDS and paying the same to the Govt., the buyer must also furnish the details of the TDS payment. This is the challan-cum-statement in Form 26QB. 

This has to be filed electronically with the Income Tax Department (as per the formats and procedures specified), within 7 days from the end of the month in which the deduction is made.

The penalty for delayed submission is Rs.200/- per day, subject to a maximum of the amount of TDS paid / payable.

Suppose the tax of Rs.15,000 is deducted on May 14th. Then, the Form 26QB should be furnished latest by June 7th. Instead, say the buyer submits the challan-cum-statement on July 10th. This works out to a delay of 33 days.

Consequently, the Late Fee works out to Rs.6,600 (= Rs.200 * 33), which is less than the amount of TDS of Rs.15,000 payable.

C. Imprisonment

Default in complying with the aforesaid TDS rules, is punishable with rigorous imprisonment from minimum 3 months and going up to 7 years. This is over and above the Penal Interest and Late Fee payable as discussed earlier.

Given these very serious repercussions of non-compliance with the provisions of Tax Deduction at Source on purchase of immovable property, you must strictly ensure that you don't end up on the wrong side of the law.

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