Everything You Need to Know About TDS

Tax Deducted at Source (TDS) is a tax that is deducted from payments made for various purposes, including salary, rent, and professional fees. In Budget 2019, Finance Minister Nirmala Sitharaman announced significant changes to income tax regulations with some related to buying, selling, and renting of property.

These changes aimed to expand the taxpayer base and bring in more financial accountability to individuals. With this, the government also hopes to curb tax evasion, but it also means higher accounting liability for individuals. 

So, where is TDS applicable, and what are the new changes? Let’s find out.

When is TDS deducted?

Anyone making payments that fall under specific provisions of the Income Tax Act will need to deduct TDS and credit it to the government. The rates allotted range from 10% to 30% for various types of payments like salaries, interest on securities, rent etc. under the Act. It should also be noted that TDS is applicable only above a certain threshold level of payment specified by the Income Tax Department.

Purchase of property

It is mandatory for a residential or commercial property buyer to deduct 1% as TDS if the value of the transaction is more than Rs 50 lakhs, as stipulated under Section 194-IA of the Income Tax Act. The deduction needs to be done at the time of payment or advance or when executing the sale deed. The buyer has to credit the deducted amount to the government within 30 days. 

During Budget 2019, Section 194-IA was amended to include all extraneous charges like club membership fees, maintenance charges and utility fees while calculating TDS. 

Property and NRIs

The tax implications for a property are different when it comes to an NRI buyer or seller. For starters, a TDS of 20.8% is applicable even for transactions below Rs 50 lakhs. For properties valued between Rs 50 lakhs and Rs 1 crore, a TDS of 22.8% will be deducted and about 24% for properties above Rs 1 crore. The buyer has to deposit the TDS collected within seven days of the purchase, and issue Form 16A to the seller. 

TDS and rental properties

Section 194-IB of the Income Tax Act stipulates that rents amounting to more than Rs 2.40 lakhs will attract a TDS of 10%. In a move that benefits landowners, the annual rent amount was revised in the Budget 2019 to Rs 2.40 lakhs from the previous figure, which was Rs 1.80 lakhs.

The Budget also made it mandatory to deduct 5% of the annual rent paid by individuals and Hindu Undivided Families (HUFs) if the amount exceeds Rs 50,000 per month. An interest of 1% is levied per month if the tax deduction is delayed. 

If the landowner is an NRI, the TDS deducted will be 31.2% of the rent, and the tenant must submit Form 15CA online to the Income Tax Department.