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Section 194IA: TDS on transfer of immovable properties

Section 194IA has been introduced in the Income Tax Act, 1961 (ITA) w.e.f. 01.06.2013 which prescribes rules regarding TDS on transfer of immovable properties ( other than agricultural land).

  1. A) Widening of Tax Base and Anti-Tax Avoidance Rules

Background

There is a statutory requirement under section 139 A of the Income Tax Act to quote the Permanent Account Number (PAN) in documents pertaining to purchase or sale of Immovable Properties for value of Rs. 5 Lakhs or more. However, during the financial year 2011-12, the information furnished by the Registrars and sub-registrars under the Annual Information Report for purchase or sale of immovable properties exceeding Rs. 30 Lakhs or more, did not quote or quotes invalid PAN in the documents relating to transfer of property.

Under the existing provisions of the Income Tax Act, tax is required to be deducted at source on certain specified payments made to residents by way of salary, interest, commission, brokerage, professional services, etc. Further, on transfer of immovable property by the non-residents, the tax is required to be deducted at source by the transferee. However, there is no such provision on the transfer of immovable property by the resident except in the case of compulsory acquisition of certain immovable property transactions.

Purpose of Introduction of Tax

To implement the proper reporting mechanism of transactions in the real estate sector and for the collection of taxes at the earliest point of time, it has been proposed to insert a new section 194-IA to provide that every transferee, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident transferor, shall deduct tax, at the rate of 1 Percent of such sum.

Further, in order to reduce the compliance and tax burden on small tax payers, w.e.f from 01.06.2013, it has been further proposed that no deduction of tax under this provision shall be made where the total amount of consideration for the transfer of an immovable property is less than Rs. 50 Lakhs.

 

  1. B) Original Text and Analysis

Original Extract of Section 194IA- tds on transfer of immovable properties 

 

‘section 194IA (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one percent of such sum as income-tax thereon.

 

(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.

 

(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

 

Explanation.–– For the purposes of this section,–– (a) “agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2; (b) “immovable property” means any land (other than agricultural land) or any building or part of a building.’.

 

Detailed Analysis with 13 Key Points

ParticularsDescription (Analysis)
1. Objective– To have reporting mechanism in Real Estate Sector- To collect Tax at the earliest point of time
2. Obligation to Deduct TaxOn Purchaser of Immovable Property or in case of Join Ownership, each co-owner.
3. Who may be the Purchaser?Individual, HUF, AOP, BOI, LLP, Company, Co-operative SocietyNote: Not Applicable where government is a Purchaser
4. Residential StatusPurchaser: ImmaterialSeller: Must be Resident or Resident But Not Ordinarily Resident (Further, if the seller is Non-Resident than provisions of Section 195 will apply)
5. Not ApplicableThe purchaser / transferee referred to in section 194 LA
6. Meaning of Immovable PropertyIt could be any land (other than agricultural land), any building, or part of a building.Note: Agricultural Land situated outside India is not covered in the exception, and therefore, agricultural land situated outside India is not a Agricultural Land.
7. Triggering Event for Deduction of TaxTax is required to be deducted at the time of Payment or the credit of such sum to the account of the transferor whichever is earlier.
8. Quantum of Limit up-to which no deduction of TDS shall be madeIf the consideration for the transfer of immovable property is less than Rs. 50 Lakhs than deduction is not required.
9. Higher Rate of Deduction of Tax at 20%If the seller / transferor does not provide the PAN the tax rate could be 20%.
10. Whom to pay the TaxThe tax shall be paid to the credit of the Central Government in accordance with the provisions within 7 days of deduction of Tax.
11. Requirement of TANThe transferee is not required to obtain the TAN
12. Payment of TDSTDS payment shall be accomplished by a Challan-cum-statement in form 26QB
13. Issue of CertificatePayer is required to issue the certificate in Form 16B, to be generated online from the web portal within 15 Days from the date furnishing Challan-cum-certificate under Form 26QB.

 

Conclusion

The above provisions of section 194IA are need to be kept in mind by the seller and purchaser of the property where the value of the property exceed Rs. 50 Lakhs and the property comes in the definition of immovable property. If the provision are not complied with the person, than interest and penalty can also be levied by the central government.You can download TDS rate chart from this post.- TDS rate chart for fy 2015-16

One Response

  1. By GAURAV NEHRA

    sir if the value of land is Rupees 80 lakhs and we purchase the land in two segments……i.e we made two registry …..and make payment 40 lakhs each in both registry…..time period between two registry is 2 months……then TDS is required to be deducted.?

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