When is TDS deducted in land sales?

In India, Tax Deducted at Source (TDS) on land sales is governed by Section 194-IA of the Income Tax Act, 1961. It mandates the deduction of tax at source when certain conditions related to the sale of immovable property are met. This provision ensures tax compliance and reporting in high-value real estate transactions.

1. Applicable Transactions

• TDS is applicable on the sale of immovable property, which includes:
  
  • Land (other than agricultural land)
    
  • Buildings (residential, commercial, or industrial)
    
  • Part of a building or land appurtenant thereto
    
• Agricultural land in rural areas is specifically excluded from this provision.
  

2. Threshold for TDS Deduction

• TDS is applicable if the sale consideration of the land or property exceeds ₹50 lakh.
  
• If multiple buyers or sellers are involved, the aggregate transaction value is considered, not the individual share.
  

3. Rate of TDS

• The buyer is required to deduct 1% TDS on the total sale consideration (not just the capital gain portion).
  
• If the seller does not provide a valid PAN, TDS must be deducted at 20% under Section 206AA.
  

4. Time of TDS Deduction

• TDS must be deducted at the time of payment (either full or part payment) or at the time of credit of the amount to the seller, whichever is earlier.
  
• This includes:
  
  • Advance payments
    
  • Installment-based transactions
    
  • Lump-sum agreements
    

5. Deposit and Filing Requirements

• The buyer must:
  
  • Deposit the TDS within 30 days from the end of the month in which deduction is made.
    
  • Submit Form 26QB (a challan-cum-statement) online through the TIN-NSDL or TRACES portal.
    
  • Issue a TDS Certificate (Form 16B) to the seller within 15 days of filing Form 26QB.
    

6. Exemptions and Special Scenarios

• TDS is not required if:
  
  • The sale consideration is ₹50 lakh or less
    
  • The property is agricultural land in rural areas
    
• TDS under other sections (e.g., Section 194LA for compulsory acquisition) may apply in different contexts such as government acquisitions.
  

7. Responsibilities and Penalties

• The buyer is legally responsible for deducting and depositing TDS.
  
• Failure to deduct or deposit TDS may lead to:
  
  • Interest on late payment
    
  • Penalty equal to the amount of TDS
    
  • Disallowance of expenses in tax assessment