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How to rectify the excess TDS done while buying a property

The purchase and sale of immovable property in India is subject to Tax Deduction at Source (popularly known as TDS) provisions under Income Tax Act.

The buyer of the property is required to deduct tax (TDS) from the consideration payable to the seller.

How much TDS is to be done?

It depends upon the Residential status of the seller.

In case the seller is a Resident Indian – Deduct tax at the rate of 1% from the sale value, if the sale value exceeds Rs.50 lakhs. For example,

  • for a property of Rs.40,00,000 – No need to deduct tax (TDS)
  • for a property of Rs.50,00,000 – deduct at 1% i.e., Rs.50,000
  • The buyer of the property, has to pay the taxes online using Form 26QB quoting the PAN of both buyer and seller.
  • Issue a certificate in Form 16B to the seller as a proof of TDS (this form to be downloaded from the Income Tax website)

In case seller is Non Resident Indian (NRI) – Deduct tax at a higher rate. The basic exemption of Rs.50 lakhs is not applicable in case of NRI sellers. For example,

  • For a property of Rs.1,00,00,000 or less – deduct tax at 20.60%
  • For a property of Rs.1 Cr and above – deduct tax at 23.69%
  • Pay the taxes online using Challan 281 quoting the TAN of the buyer and the PAN of the seller. (Note: The buyer of the property has to obtain Tax Deduction at Source Number (TAN))
  • File quarterly eTDS return (Form 27Q) and issue Form 16A to the seller as a proof of TDS

What happens if the buyer erroneously deducts 10% (or any higher rate) instead of 1% in case of Resident sellers?

The buyer has to deduct 1% of the sale value. Suppose, on a sale value of Rs.70 Lakhs, Rs.70000 is to be deducted as tax (TDS); instead the buyer deducts and deposits Rs.90000. So, the question is how will the buyer get back this excess amount of Rs.20000? The income Tax department has worked out a mechanism to solve this problem. Though the buyer has deducted excess TDS, the credit will not go to the seller of the property. The seller of the property will get the credit for 1% and the excess amount will reflect in Part A2 of 26AS of buyer. The credit is available for claim in ITR of the buyer while filing his annual Income Tax Return.

What happens if the buyer deducts the correct amount, but uses a wrong procedure to pay the taxes in case of Non Resident sellers?

Instead of filing 27Q Form, the buyer has wrongly filed 26QB Form. In case of 26QB statement cum Challan processing, the system by default passes on the credit to the seller to the extent of 1% only. However, to obviate the difficulty of getting tax credit for NRI seller, the department will pass on the full credit of TDS to the seller by carrying out necessary changes in the System. (Note – this is done by the department as a onetime measure per assessee and the process of crediting the money will take some time; it won’t happen instantly)

In order to make this correction, the buyer has to raise a request for passing on the whole credit of the TDS to seller through sending a mail on email id “[email protected] ” with Acknowledgement number.

Therefore, the procedure of deducting and depositing TDS is different for Resident and Non Resident Sellers. One has to correctly follow the rules to avoid unnecessary delay in TDS credits.

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About CA Prasad Chartered Accountant

CA Prasad Chartered Accountant
CA Prasad is a practicing Chartered Accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]