TDS filing for capital gains: A comprehensive guide

Posted In | Finance | Accounting Software | India Accounting Tax

Tax Deducted at Source (TDS) is a system introduced by Income Tax Department, where the person responsible for making specified payments such as salary, commission, professional fees, interest, rent, etc. is liable to deduct a certain percentage of tax before making payment in full to the receiver. The deducted tax is then remitted to the government. Understanding how to file TDS for capital gains is crucial for investors and taxpayers.

 

What is Capital Gain?

Capital Gain refers to the profit that an investor realizes when he/she sells a capital asset for a price that is higher than the purchase price. Capital assets can be anything ranging from property to stocks. The gain from the sale of these assets is considered as income and hence, is taxable.

 

How is TDS calculated on Capital Gains?

The rate of TDS on capital gains depends on the nature of the asset sold and the residential status of the seller. As a general rule, TDS on the sale of property is deducted at the rate of 1% if the sale consideration exceeds ₹50 lakhs. For non-residents, TDS is deducted at the rate of 20% for long-term capital gains and at the rate of 30% for short-term capital gains.

 

Filing TDS on Capital Gains

Filing TDS on capital gains involves a few steps. First, the buyer must obtain the Tax Deduction Account Number (TAN). Next, the buyer has to deduct the tax at source and pay the tax deducted to the credit of the Central Government within the stipulated time. Finally, the buyer should file the TDS return and issue the TDS certificate to the seller.

 

Important Points to Remember
 

• The buyer is responsible for deducting TDS, not the seller.
   

• If the buyer fails to deduct TDS, then the buyer will be liable to pay the tax along with interest and penalty.
   

• TDS should be paid to the government within 30 days from the end of the month in which TDS was deducted.
   

• TDS return should be filed on a quarterly basis.

 

Understanding TDS and its implications on capital gains can seem complex, but with a bit of study and guidance, it can be easily understood. The key is to be updated with the current tax laws and to adhere to the due dates for payment and filing of returns.