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TDS on sale of Immovable Property (Sec 194IA) – Detailed Overview



Insertion of Section:-download

Vide BUDGET 2013, read with Notification No.39/2013 dated 31st May, 2013, a new Section 194-IA was inserted to Income Tax Act, 1961 to avoid tax evasion and collection of Capital Gain tax in the case of transfer of immovable property (situated in India or abroad/commercial or residential). The Section has become applicable w.e.f. 1st June 2013. This section has been introduced by the Finance Minister to mitigate undervaluation and non-disclosure of transfers of immovable property. 

Provisions of TDS on sale of Immovable Property (Sec 194IA) – as stated:-

The provisions of this section states that TDS on sale of Immovable Property should be deducted at source from payment on transfer of immovable properties (other than agricultural land) where the consideration paid or payable is more than Rs 50,00,000/-. Earlier, there was no such deduction in case of immovable properties as it is in the case of salary, interest, rent etc. Any person responsible for paying to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), is liable to deduct tax at source under section 194-IA.Where the transaction is less than Rs 50,00,000 /-, the liability to deduct tax at source will not be applicable. 

Rate at which TDS shall be deducted :-

  • Tax is deductible at the rate of 1% of the consideration payable to a resident transferor.
  • If a valid PAN is not provided by the seller, the tax rate would go up to 20%.

Obtaining TAN:-

Purchaser is not required to obtain a TAN for deduction. 

Payment and return of TDS :-

  • Tax shall be deducted at the time of payment or at the time of giving credit to the transferor, whichever is earlier.  If advance payment is being made then TDS would be required to be deducted at the time of advance payment itself. And if installment payment is made, the TDS would be required to be deducted at each such installment.
  • The tax deducted shall be paid to the credit of Central Government within a period of seven days from the end of the month of deduction.
  • Online payment u/s 194IA is mandatory and the tax should be deposited on challan-cum-statement on Form No.26QB. Form No 16B (TDS Certificate) will be issued by the deductor within fifteen days from the due date of depositing tax.

Applicability of section :-

Section 194IA is only attracted for the transactions on or after 1st June, 2013. For example:-

  • Sale agreement is made before 1st June, 2013 but consideration received after 1st June, 2013 – Sec 194IA is not applicable.
  • Advance consideration of Rs 5000,000 or more is received before 1st June, 2013 but sale agreement made after 1st June, 2013. – Section 194IA is not applicable.

Where property is held by Joint-owners :-

In case of joint owners, the threshold limit of Rs 50,00,000/- is to be determined property-wise and not transferee-wise. The number of buyer or seller would not matter at all. The value of property should be more than Rs 50,00,000/- for applicability of deduction of tax.

For example:- A,B and C  jointly purchased an immovable property. The purchase price for each owner is Rs 20lakhs, Rs 15 lakhs and Rs 35 Lakhs respectively. In this case individual purchase price is less than Rs 50,00,000 but the aggregate value of the transaction is exceeds Rs 50,00,000. Thus section 194-IA would be applicable.

Scope :-

  • Section 194-IA is applicable to all including relatives, minor, senior citizens etc.
  • However, if transfer is made without payment of any consideration like in case of gift, then this section will not apply.

Provisions for Non Resident Indian:-

  • If payment is made to a Non-Resident then section 194-IA will not be   applicable. Rather section 195 will be attracted and TDS is required to be deducted @20%+EC&SHEC on the sale consideration. Surcharge @10% will be applicable if amount paid exceeds Rs 1 crore. The limit of Rs 50,00,000/- is not applicable in case of payments made to NRI’s.

Non Compliance:-

In case of failure to comply with the provisions, interest and penalty would be imposed to the purchaser.

  •  Interest will be charged @ 1% p.m or part of the month for failure to deduct tax or short deduction of tax from the date the tax was deductible till the date the same is deducted.
  •  Interest will be charged @ 1.5% p.m or part of the month for tax deducted but not paid to the government from the date of deduction till the date of actual payment.

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About: 

Alok Patnia founded Taxmantra.com, an expert in tax advisory & compliance. He is a Chartered Accountant having prior exposure with Ernst & Young & KPMG.

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