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Saturday, June 29, 2013

TDS on property sale in India Section 194-IA

[Last updated : 12-Dec-2017]
If you are buying a property, remember that it is your responsibility as a buyer to withhold 1% of the sale deed value from the payment to the seller and get it deposited with the Income Tax authorities as TDS in the sellers name. This tax (called as Withholding Tax), is applicable from 1st June 2013, on sale of any immovable property (other than agricultural land) costing more than Rs.50 lakh u/s 194-IA.

What is Withholding Tax?
This provision requires Tax Deduction at Source (TDS) to be deducted at 1% of the price being paid by the buyer (on behalf of the seller) of an immovable property, irrespective of the quantum of capital gains of the seller. This is applicable only if the sale price of the property is equal to or more than Rs. 50 Lacs.

Why this tax?
The reason of introducing this TDS provision is not quoting of PAN number by seller or buyer in most of the property transactions and significant transactions not being reported.
To track the real estate transactions in more realistic manner, the government introduced this TDS provision by inserting section 194IA with the current TDS provisions restricted under the Income Tax Act, 1961.

From when is it applicable?
Section 194-IA amendment would be applicable from all sale and purchase of immovable property with effect from 1st June, 2013.

What is the Tax Liability?
  • Tax will be 1% of the sale price (as mentioned in the Sale Deed)
  • If the seller has not disclosed his PAN then the applicable TDS would be 20%. 
  • No TDS is applicable if the total income of the seller is below the basic exemption limit as per applicable tax slabs in that Financial Year.

On which property is it applicable?
The immovable property may be in the nature of land, buildings or flats. However, the deduction does not apply to purchase of agricultural land.

Who will pay and whose tax will be deducted?
  • Such TDS would be deducted from the consideration being paid to the seller and have to be paid separately to the government by the purchaser. 
  • Such tax would have to be deducted irrespective of who the seller is, whether a builder or a flat owner making a subsequent sale. 

What if partial payment was made prior to 1st June 2013?
For the purposes of computation of the limit of Rs.50 lakh, the total consideration, whether paid before 1 June 2013 or subsequently, would have to be considered. Therefore, for a property agreed to be purchased for Rs.75 lakh, if payments of Rs.30 lakh have been made before 1 June 2013, even if the payments being made after 1 June 2013 are less than Rs.50 lakh, TDS would have to be deducted from the payments of Rs.30 lakh as and when such payments are made.

What are the consideration amount components for Rs. 50 Lacs?
The consideration would include various incidental payments required to be made to the seller, such as legal fees, contribution towards shares, payment for parking spaces.
However, stamp duty required to be borne by the purchaser or registration fees or transfer fees borne by the purchaser would not be regarded as payments being made to the seller as consideration, and would therefore not be subject to TDS.
Fortunately, the applicability of TDS is only to the actual consideration specified in the transfer documents, and is not on the basis of a notional fair market value, such as a stamp duty valuation, even though such valuation may be higher.

How does the purchaser deposit the TDS to the govt?
Fortunately, the purchaser deducting such TDS is not required to comply with the cumbersome TDS procedural requirements applicable to other TDS deductors, such as obtaining a Tax Deduction Account Number, filing a TDS return, issuing a TDS certificate, etc. All that the purchaser is required to do is fill in a form online (www.tin-nsdl.com), and either make an e-payment of the tax or physically make the payment in a bank branch. The seller would get credit for the TDS on the basis of his PAN, which is required to be mentioned in the form.

What if the purchaser is taking home loan for purchase?
In such cases, to the extent of the loan amount, the bank or finance company would directly make the payment to the seller, and not route the payment through the purchaser, who is the borrower. 

Key Responsibilities of the Buyer / Purchaser
  • The TDS deducted by the buyer at the time of making payment to the seller must be deposited within a period of 30 days from the end of the month in which the deduction has been made.
  • All details regarding the transaction and TDS are required to be submitted in Form 26QB. This payment can be done online by clicking here. If you wish to pay offline by visiting the bank branch, you can take a print out of the filled up Form 26QB.
  • After making the TDS payment via Form 26QB, the buyer will be required to issue Form 16B to the seller. This Form 16B can be downloaded from the same website.

Official Link?
Go through the TDS on Purchase of Immovable Property section of the Income Tax India website  by clicking here to get all the official details.

History
12-Dec-2017 : Added a section on 'Key Responsibilities of Purchaser
29-Jun-2013 : Original Article

Cheers

Manoj Arora
Official Website

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