For AY 2017-18, As amended by Finance Act, 2016:
TDS has to be deducted when you purchase a property (house, plot, bunglow, shop, villa, pent house, etc.) except agricultural land in rural area.
Section 194IA has come into effect from June 01, 2013. It is important to understand the applicability of this section. This section will not be applicable for sale agreements made before June 01, 2013 irrespective of the date of receipt of consideration. Also advance received before June 01, 2013 will not be covered under the ambit of this section. Also transfers without any consideration do not hold a place in this section.
This section clearly states that TDS should be deducted at source from the amount paid to the seller/transferor of Immovable Property (other than rural agricultural land) where the total consideration paid or payable is more than Rs 50,00,000/-. The person buying the property is liable to deduct TDS; but it is not required to furnish any TAN details, thus acquiring TAN becomes non-mandatory. The provisions clarify that, “Any person responsible for paying to a resident transferor any sum by way of consideration for transfer of any immovable property (other than rural agricultural land), is liable to deduct tax at source under section 194-IA”. It should be noted that this section does not apply to transactions where the total consideration is less than Rs 50,00,000 /-.
The reason of introduction of this provision was to eliminate the undervaluation or under reporting of the transaction related to property.
Provisions of Section 194IA:
(1) Any person, being a transferee, responsible for paying (other than the person referred to in S. 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 per cent 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 S. 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.
Scope of S. 194IA:
S. 194IA, as inserted with effect from 1-6-2013 provides that any person, being a transferee, responsible for paying (other than the person referred to in S. 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land) shall deduct an amount equal to one per cent of such sum as income-tax 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 cheque or draft or by any other mode, whichever is earlier.
No deduction shall be made where consideration for the transfer of an immovable property is less than fifty lakh rupees.
What payment is covered by S. 194IA:
Any sum paid by way of consideration for transfer of any immovable property (other than agricultural land) is covered u/s 194IA, provided the consideration for transfer of an immovable property is not less than Rs. 50 lakhs.
Agricultural Land: Agricultural land means agricultural lands in India, not being a land situated in any area referred to in S. 2(14)(iii)(a)/(b).
A land shall not be treated as Agriculture Land, if:
a) It is situated within jurisdiction of Municipality or Cantonment Board which has a population of not less than 10,000; or
b) It is situated in any area within below given distance measured aerially:
| Population of the Municipality | Distance from Municipal limit or Cantonment Board |
| More than 10,000 but does not exceed 1,00,000 | Within 2 kms. |
| More than 1,00,000 but does not exceed 10,00,000 | Within 6 kms. |
| Exceeding 10,00,000 | Within 8 kms. |
Immovable Property: Immovable property means any land (other than agricultural land) or any building or part of building.
Who is the payer:
The payer is any person, being a transferee, responsible for paying (other than the person referred to in S. 194IA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land).
Who is the payee:
The payee is resident transferor of any immovable property (other than agricultural land).
Conditions to be satisfied for applicability of S. 194IA:
For applicability of S. 194IA following conditions need to be satisfied:
• The payer must be any person referred to in Para 4 above.
• The payee must be a resident transferor of an immovable property (other than agricultural land).
• The payment must be by way of consideration for transfer of any immovable property (other than agricultural land).
• The quantum of payment must be Rs. 50 lakhs or more.
Time of deduction of tax:
Tax shall be deducted 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.
Rate of TDS:
Tax shall be deducted at the rate of 1%.
Effect of non-furnishing of PAN on rate of tax:
S. 206AA, as inserted with effect from 1-4-2010, provides as under:
• Every person whose receipts are subject to deduction of tax at source (i.e., the deductee) shall furnish his PAN to the deductor.
• If such person does not furnish PAN to the deductor, the deductor will deduct tax at source at higher of the following rates:
(a) the rate prescribed in the Act;
(b) at the rate in force, i.e., the rate mentioned in the Finance Act; or
(c) at the rate of 20 per cent.
• Where the PAN provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his PAN to the deductor and above provisions shall apply accordingly.
Tax Deduction and Collection Account Number (TDCAN):
Provisions pertaining to Tax Deduction and Collection Account Number, i.e., S. 203A, shall not apply to a person deducting tax at source u/s 194IA.
Deposit of tax to the credit of the Central Government:
Any sum deducted u/s 194IA shall be paid to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No. 26QB.
The sum so deducted shall be deposited to the credit of the Central Government by remitting it electronically to the Reserve Bank of India or the State Bank of India or to any authorised bank.
Certificate/statement for tax deducted at source:
Every person responsible for deduction of tax u/s 194IA shall furnish the certificate of deduction of tax at source in Form No. 16B to the payee within fifteen days from the due date for furnishing the Challan-cum-statement in Form No. 26QB under Rule 31A after generating and downloading the same from the web portal specified by the Director General of Income-tax (System) or the person authorised by him.
Furnishing of statements by tax deductor to department:
Every person responsible for deduction of tax u/s 194IA shall furnish to the Director General of Income-tax (System) or the person authorised by him a challan-cum-statement in Form No. 26QB electronically within seven days from the end of the month in which the deduction is made. CPC-TDS has also enabled the online functionality for correction in Form 26QB.
Penalty for Delay in TDS Filing:
- Penalty u/s 201 of the Income tax Act
Once an assessee is deemed to default u/s 201, interest shall be levied @ 1% per month or in part from date on which tax was deductible till the date of actual deduction and 1.5% per month or part from date of deduction till date of actual payment.
- Penalty u/s 234E of the Income tax Act
This involves penalty in case of failure to file TDS statements within the prescribed time limit. Penalty is imposed at Rs. 200 per day for the number of days till the default continues or TDS amount whichever is lower. Penalty cannot exceed the TDS amount.
Joint Ownership of Property:
In case of joint ownership of property, the upper limit of Rs. 50 lakhs is to be determined on property basis and not on value to individual basis irrespective of number of co-owners. For example, F, I, N jointly own a property, value of which for individual owner is 20 lakhs each. In this case, though the individual price is less than the upper limit, but the aggregate value exceeds 50 lakhs, which makes this transaction eligible for Section 194 IA.
Exception to the section:
Section 194IA is not applicable if payment is made to Non Resident Indian. The above transactions come under the purview of section 195 of the Income tax Act. Hence, upper limit is not applicable here. Also, TDS here will be deducted as per rate prescribed chapter XVIIB or 20%+EC+SHEC (whichever is higher) on the sale consideration. Surcharge @ 10% will be applicable if amount paid exceeds rs. 1crore.It is important to consider the DTAA provisions of the relevant country if any.
Reference:
http://www.incometaxindia.gov.in/Charts%20%20Tables/TDS%20Purchase%20of%20Immovable%20property.htm