TDS on transfer of immovable property’ is a very relevant issue for every person who has or is planning to acquire any house, flat or commercial space in India. Section-194-IA has been inserted by Finance Act, 2013 for TDS applicability on sale or purchase of immovable property (both residential or commercial). The provisions of this section are applicable w.e.f. 01-06-2013. Thus, TDS u/s 194-IA shall be applicable on amount due/ payable on or after 01-06-2013.
Who is required to deduct TDS under section 194-IA?
Under section-194-IA, the buyer of any immovable property is required to deduct TDS @ 1% of the consideration for acquisition of such property from a resident.
Following points are to be noted in this regard: -
- No TDS u/s 194-IA is required to be deducted where the value of the property (sale consideration) is less than Rs. 50 Lakhs. Therefore, if you are purchasing a property with value Rs. 50 Lakhs or more, then only you need to deduct TDS @ 1% of the value.
- Section 194-IA is applicable only where you are acquiring an immovable property from a resident Indian.
- It is not necessary that the property should be situated in India.
- It does not matter that the property is owned by the seller as a capital asset or stock in trade.
- if such property is acquired from a non-resident person, then section-195 is applicable instead of section 194-IA.
- TDS @ 1% is to be deducted on all types of immovable property whether it is residential, commercial or industrial. However, no TDS is to be deducted on transfer of rural agricultural land.
In what circumstances, TDS is not required to be deducted u/s 194-IA?
TDS u/s 194-IA is not required to be deducted in the following cases: -
- Where the consideration for the property is less than Rs. 50 Lakhs
- Where the immovable property transferred is in the nature of agricultural land which is not a capital asset (rural agriculture land)
- Where the property has been acquired from a non-resident liable for TDS u/s 195
- Where the provisions of section 194LA are applicable regarding compulsory acquisition of immovable property
What is the meaning of ‘Consideration’ for section 194-IA?
‘Consideration’ for transfer of immovable property shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or ay other charges of similar nature, which are incidental to transfer of the immovable property.
This definition has been inserted w.e.f. 1st September, 2019. Before this date, the word ‘consideration’ was not defined in the Income Tax Act. So, Finance Act, 2019 brought an amendment to insert the above definition.
Effect of this amendment is that the buyer will deduct 1% TDS on payment of not only the flat’s purchase price but also on the other charges levied by the builder at the time of sale of flat.
I have acquired an agriculture land falling in the local limits of municipality and the consideration is more than Rs. 50 Lakhs. Is TDS applicable?
Exemption from TDS provisions of section 194-IA is available only where the agriculture land is not a capital asset. Therefore, Urban agriculture land is not covered by the exemption. Hence, in your case, you are required to deduct TDS @ 1%.
What is the rate of TDS under section 194IA?
- TDS is required to be deducted @ 1% of the consideration payable to the seller of the property.
- However, if the PAN of the seller is not available, then TDS shall be deducted @ 20%.
- No TDS is applicable where the consideration amount is less than Rs. 50 Lakhs. But if the consideration is Rs. 50 Lakhs or more, TDS is required to be deducted on the entire amount and not on the amount in excess of Rs. 50 Lakhs. For example, suppose the consideration is Rs. 70 Lakhs, then TDS should be deducted on entire Rs. 70 Lakhs & not only Rs. 20 Lakhs.
Owing to COVID-19 pandemic, the Government has allowed a relaxation in TDS rate till 31.03.2021. So, for the period 14.05.2020 to 3103.2021, TDS shall be deducted @ 0.75%.
When should TDS be deducted u/s 194-IA?
- TDS is required to be made at the time of credit of such sum to the account of the payee (seller) or at the time of payment, whichever is earlier.
- In case the value of property is Rs. 50 Lakhs or more and the payment is required to be made in several instalments, then, TDS shall be required to be deducted on payment of every instalment. The buyer should not wait for final instalment for deducting TDS.
What is the due date of depositing TDS under section 194-IA?
- The buyer of the property is required to submit FORM 26QB which is a challan cum statement for deduction of TDS u/s 194-IA.
- Form 26QB is to be submitted within 30 days from the end of the month in which payment is made. Form 26QB is to be submitted online through NSDL website. Manual submission of Form 26QB is not permitted.
- If TDS is deducted in instalments, then Form 26QB is to be filed for each and every instalment.
- Form 26QB is required to be filed for each buyer as well as separately. For example, if there are 2 joint sellers and 2 joint buyers, then 4 Form 26QB is to be filed (2x2).
How TDS under section 194-IA will be applicable in case of joint sellers and joint buyers?
Multiple Sellers: - In case the buyer purchases a property which is jointly owned by multiple sellers, TDS shall be deducted separately for each seller and Form 26QB will be submitted separately. However, for the purpose of determining applicability of TDS provisions, total value of property shall be looked into and not the share of joint owners.
For example, the value of the property is Rs. 80 Lakhs and it is jointly held by 2 sellers in 50% ratio. In this case, the buyer is liable to deduct TDS as the value of property is more than Rs. 50 Lakhs. In this example, the share of joint owners is not relevant.
Multiple Buyers: - In this case also, for the purpose of TDS deduction, we will look into the total value of property and not the share of joint buyers. For example, A & B purchases a property from C for Rs. 80 Lakhs. Share of A & B is 50% each i.e. Rs. 40 Lakhs. Both A & B shall deduct TDS @ 1% as the total value of property is more than Rs. 50 Lakhs. Individual share of A & B is not relevant.
However, there is a judgement of Delhi ITAT in the case of Vinod Soni vs. ITO in which the Tribunal has ruled that in case of purchase by multiple buyers where individual share of each buyer is below Rs. 50 Lakhs, section 194-IA is not applicable. But in our opinion, different views may come in future due to lack of clarity in the provision.
Is section 194-IA applicable where the seller of property is a non-resident? What are the tax implications in that case?
Section 194-IA is applicable only when the seller of the property is a resident Indian. If the property is purchased from a non-resident person, TDS will be deducted u/s 195 of the Income Tax Act. In such case, TDS is deducted as per rates prescribed by section 195. TDS rate will be 30% if the property is sold by such non-resident person within 2 years of purchase and 20% if it is sold after 2 years of purchase.
I am resident of Jaipur and I have purchased a plot of land for Rs. 55 Lakhs from a resident of Bangalore. The plot of land is located in Germany. Is TDS applicable u/s 194-IA?
For applicability of section 194-IA, it is not necessary that the immovable property should be situated in India. Hence, in your case you are liable to deduct TDS @ 1% u/s 194-IA on consideration of Rs. 55 Lakhs as the seller is a resident of India.
Do I need Tax Deduction Account Number (TAN) for deducting TDS u/s 194-IA?
For deduction of TDS u/s 194-IA, you are not required to obtain TAN. Form 26QB which is a challan cum statement for TDS deduction can be filled and submitted on the basis of PAN of the buyer and seller.
I have taken a home loan for purchase of a flat from a builder for Rs. 60 Lakhs. Is TDS applicable in my case?
- In case the buyer has taken home loan on the property being purchased, then TDS shall be deducted at the time of payment of sale consideration to the builder and not at the time of payment of EMIs to the bank.
- Further, in case where the payment is made by the bank directly to the builder, it is the responsibility of the buyer and not the bank that TDS is deducted while making payment to the builder.
For example, the bank makes payment directly to the builder Rs. 7 Lakhs. We should consider that this as payment after TDS so the gross payment will be Rs. 7 Lakhs/0.99 = Rs. 707071. The difference Rs. 7071 is to be paid by the buyer as TDS.
What are the penalties for non-deduction/ deposit of TDS on immovable property under section 194-IA?
- Interest on late deduction of TDS: - If TDS is not deducted, interest @ 1% per month or part thereof is payable from the date on which TDS is deductible to the date on which TDS is actually deducted.
- Interest for TDS deducted but not deposited: - If TDS has been deducted but not deposited by the buyer, interest @ 1.5% per month or part thereof is payable from the date on which TDS is actually deducted to the date on which TDS is actually deposited.
- Penalty for late filing of Form 26QB: - Besides interest, the buyer would also be liable to pay late fees at the rate of Rs. 200 per day for which the default continues. However, the penalty amount cannot exceed the amount of TDS to be deducted. Further, the Assessing Officer (Income Tax Officer) may also impose a penalty upto Rs. 1 Lakhs u/s 271H.
