Mistakes can be made by anyone but a good person learns from his own mistakes and a great person learns from other’s mistakes. In this article, we will discuss some of the most common mistakes that can be made by any person at the time of filing of TDS return. TDS Filing in India is being considered to be a very tedious task. Trust me it is not. Every year, there are a lot of changes introduced in the income tax act which includes the changes in the TDS provision and it is necessary to be updated with these provisions to avoid the penalty and interest.
For example: when section 194-IB was introduced in the finance act, 2017, from then till now, many assessee mix section 194-I with 194-Ib because both sections deal with TDS on rent. Another example is Section 194-IA, introduced w.e.f 1st June 2013, which deals with TDS on purchase of property in which it is mandatory to deduct and deposit TDS for any property transaction over Rs 50 lakh. However, there is one checkpoint i.e. deductor or seller. That means, to fall in this section, the seller must be Indian resident and if any Non-resident is selling its property in India then the buyer is required to deduct the TDS under section 195 and not under section 194-IA. Through this article, I have shared the whole process of TDS filing. Although, if you want to read more about the TDS on sale of property by NRI under section 195 or by Indian resident under section 194-IA, then you can refer our previous articles. In my previous articles on TDS filing, I have received a lot of queries in respect of error/mistake in TDS filing. One of the common reasons that people made mistakes in TDS filing is not getting proper information from banks, builders, agents, lawyers, CA’s, etc. Due to this, almost 70% of people end up wrong TDS filing. In this article, we’ll discuss 7 common mistakes that can be avoided by you at the time of TDS filing.
How to file error-free TDS return
- Filing of TDS return in Advance: As I specified above that as per section 194-IA, TDS is required to be deducted by the buyer of the property at the rate of 1% of the sale consideration when the seller is an Indian resident and the sale consideration amount exceeds Rs.50 Lakhs. Here, there is one more major point that is to be noted that normally, TDS is required to be deducted at the time of provision of service but under this section, the liability for the deposit of TDS arises at the time when the buyer makes the payment. This is one of the most common misconceptions and confusion among property buyers. This error arises because, when the consideration amount exceeds Rs.50 Lakhs than banks and Sub-Registrar offices demand TDS Payment challan at the time of registration. On the other hand, banks also demand the same challan before final disbursement. Today, one of my clients calls me and said that he is buying a property from NRI Seller. No TDS shall be applicable under section 195 is 20.66%. He has taken a home loan and his contribution to a property transaction is 20%. The bank is demanding proof for his contribution before registration. Also, the bank is not willing to deduct TDS under section 195 from Home Loan. Its a catch of 22 situations. As I clarified above, normally TDS is due when the payment is due and in this section, TDS is due only at the time of making payment (Instalment / Lump Sum) as the case may be. The full and Final Payment is due at the time of property registration and in many cases, the only agreement executed is Sale Deed. In these scenarios, TDS can be deducted only at the time of making payment. With the conversation with one of the bank executives, I told him that you are suggesting that my client pay in advance but what if the deal could be successful and terminated by either party. How will the buyer claim the refund of TDS paid in advance?
- Confusion between Sec 194IA and Sec 195: TDS shall be required to be deducted @ 1% at the time of, However, in the case where the resident is buying the property from a resident Indian then the TDS provision shall be applicable only when the consideration amount exceeds Rs.50 Lakhs. Also, for the computation of Rs.50 Lakhs, all the incidental charges shall be included.
The buyer being resident shall deduct the TDS @ 1% under section 194IA of Income-tax act, 1961, on the whole of the consideration where the amount of consideration exceeds the limit as specified above.
Hence for the deduction of TDS under section 194IA the seller of the property must be the Indian resident which is not possible in case of the non-resident. So if the NRI is selling its property in India then the buyer shall not deduct the TDS under section 194IA, instead, he shall use section 195 of Income-tax Act, 1961.
Under section 195, if the Non-resident is selling its property in India to the resident then it is mandatory for the buyer of the property to deduct the TDS @ 20.66% TDS on the sale value of the property if the capital gain is the long term capital gain and if it’s a short term capital gain the TDS shall be deducted @ 33.99% of the consideration amount. The buyer shall have to deposit the amount to the Government within 7 days in the next month.
Note: Here the TDS shall be applicable even the sale value of the property is less than Rs.50 Lakhs.
- Multiple Buyer’s / Seller’s: Where is the property is being bought by under the co-ownership then it also creates confusion on how to deduct TDS in this case. It is the most common query in the case of Husband and Wife buyers because it is generally seen that people buy the house in 2 names in which one is the main owner and second is the co-owner. Well if this happens to you then it is suggested that you should deduct the TDS in the proportion of ownership in property of both buyers and a separate challan/s are required for each transaction. For example, in the case of 2 buyers and 2 sellers, For TDS filing no of challans for each installment/lump sum payment is 4.
- Which date is being considered as the date of Payment: Another part of the confusion is regarding the Date of Payment. As per the Negotiable Instruments Act, 1881 and under the legal interpretation by the Honorable Supreme Court of India, a cheque is an instrument that is negotiated by delivery. It implies that when the cheque is tendered/deposited, there is a presumption that payment shall be realized in due course of time. Hence the date of payment shall be considered as the date of cheque deposit/tender irrespective of the fact when it is actually presented for payment. In simple words, the date of cheque deposit/tender is considered as the date of payment similar to cash payment. Here we will consider as the cheque is basically a payment instrument hence this ruling is applicable for all kinds of payment instruments like Demand Draft / Banker’s Cheque etc. In other words, the due date for TDS filing is being determined on the basis of the date of payment which shall be considered as the date on which payment instrument is handed over to the seller.
- TDS in case of Home Loan: When a person buys a property, then normally, he took the home loan from the bank and make some contribution from self. Now that question arises on which payment TDS is required to be deducted. It is seen that the bank doesn’t inform the buyer to deduct TDS and insist on him contribution proof. Banks did not deduct the TDS for disbursement from Home Loan and which will result that the buyer either forget to deduct TDS or deduct the TDS on the amount of his contribution amount only. Due to this, he becomes the assessee in default and has to face the interest under section 220 and 221. So, It’s not the right way to deduct TDS. For this, the best solution is that the buyer should give a declaration in writing to the bank and ask them to deduct TDS. The bank may transfer the number of TDS deducted from Home Loan disbursement to the buyer account. The buyer then completes formalities and pay the TDS on each installment/disbursement and submit TDS certificate to Bank and the Seller. In the case of NRI Seller, you may discuss us regarding TDS filing in advance to avoid confusion at later stages.
- Refund of TDS: This point is not specifically related to TDS on sale of property rather it can be related to any section of TDS. As per the TDS provisions of Income-tax Act, 1961 when the consideration amount exceeds a particular limit then the recipient is required to deduct the TDS on specified percentage and for such amount the seller or service provider can claim the deduction of such amount at the filing of return and the said amount shall be reduced from his tax liability. But what if, he does not have any tax liability then he can claim the refund of such a TDS amount. In simple words, although, the recipient is paying the TDS the refund can be taken by the seller or deductor. Also, in case, the deductor is already known that his year-end liability is going to be nil then he can also obtain the certificate under section 197 from this assessing officer in the Income-tax department.
- Assessee may have to pay penalty for delay in deduction and/or deposit of TDS: As we already discussed above that there are some sections in which the TDS has been deducted and in some cases, the TDS is required to be deducted at the time of provision of service and in some cases at the time of payment. However many buyers mix these sections and delay in depositing TDS due to which they have to face the penalty. Hence it is always advisable that in case, you have any confusion regarding the TDS, then you should consult a chartered accountant or any professional in this. Obviously he will charge some amount for his consulting fees but ultimately it will be a benefit for you.
Also, if you have made any mistake or error in TDS filing then it may be corrected within 90 days of TDS filing if the TDS payment was done through Bank. After 90 days, you can approach your assessing officer for any corrections.
I hope this article has resolved the queries that you had before reading this article. Still, if you have any doubt in relation to the TDS provisions then you can contact us, we will be happy to give our assistance.