CA Rohit R Sharma

CA Rohit R SharmaMost of the people who were happy and proud with their achievement of buying their own house in the recent past are now sleepless, thanks to the provision, called Section 194-IA of the Income Tax Act 1961.

Some people even came upto me to explain their hardships saying “Sir Ek to itna Mushkil se Ghar Kharido at such sky rocketing prices, EMI’s pay karo and after this long battle what do you get? A notice from the IT department saying what you did was wrong and now pay us Fine and Penalty. Neither have they helped in reduce the high cost and now they are behind our lives just because we are trying to do better in life.”

I can understand the pain these people are going through and the irritation they might be going through when their happiness of buying a house, gets buried under the burden of a Notice from the Income Tax Department.

Let us see what exactly Section 194-IA is.

As per Finance Act 2013, TDS is applicable on transfer of an Immovable property (other than agricultural land), wherein the consideration of the property exceeds or is equal to ₹ 50 Lakhs.

Who exactly is required to deduct TDS:

THE PAYER: The payer can be any person, being a transferee, responsible for paying (other than the person referred to in section 194-IA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land).

THE PAYEE: The payee must be a resident transferor of an immovable property (other than agricultural land). Please note this section is not applicable to non-resident payee.

On transactions meeting the above conditions Tax @ 1% should be deducted by the buyer of the property at the time of making payment of sale consideration w.e.f  01st June 2013 i.e This Section is only applicable in cases where payment is made on or after 01st June 2013. The payment can be in any form like Cash, Cheque, Demand Draft, Bank Transfer or even a Bank Loan.

The tax so deducted should be deposited to the Government treasury through an online payment or by filling up a Challan in any of the authorized bank branches. Any sum so deducted under section 194-IA shall be required to 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.

The payment shall be accompanied by an online Form 26QB which contains the details of the party, like the PAN Number, Place of residence, Purchase Consideration, Date of Payment etc to name a few.

After filing the online form and making the respective tax payment, TDS certificate in Form 16B is required to be issued by the buyer of the property to the seller, in respect of the taxes deducted and deposited into the Government Account.

What do you mean by Agricultural Land?

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 MunicipalityDistance from Municipal limit or Cantonment Board
More than 10,000 but does not exceed 1,00,000Within 2 kms.
More than 1,00,000 but does not exceed 10,00,000Within 6 kms.
Exceeding 10,00,000Within 8 kms.

What if the property is purchased before 01st June 2013 but part of the amount is paid after 01st June 2013?

If in case the purchase consideration of the property exceeds Rs. 50 Lacs then TDS will be applicable even if the amount paid after 01st June 2013 is less than Rs. 50 Lacs.

Suppose Mr. Tom purchased a property from Mr. Jerry on 01st January 2013 for a total consideration of Rs.90 Lacs and Mr Tom has already paid Mr. Jerry Rs.75 Lacs before 01st June 2013 and the Balance Rs.15 Lacs is payable on 01st August 2013, then Mr. Tom shall deduct TDS @ 1% on the balance amount payable which is Rs.15,000/- and pay the Balance of Rs.14,85,000/- to Mr. Jerry.

What if the Amount is paid in Instalments?

As per Section 194-IA, TDS is to be deducted at the time of making the payment. So the payer/ purchaser of the property is required to deduct TDS every time he makes a payment to the payee/seller. So in cases where the property is under construction or in cases where payment is made in installment basis, TDS has to be deducted on payment of every installment.

In situations where there are More than 1 Buyer/ 1 Seller:

In situations where there is more than 1 buyer or more than 1 seller the First question arises is whether TDS is to be considered based on the whole Sale Consideration or on the individual share of the purchaser/ seller. So if a property is worth 70 Lacs and there are 2 sellers involved then the individual share of each seller comes to Rs.35 Lacs which is well below the limit of Rs.50 Lacs. But in such a situation for the applicability of TDS we have to consider the total sale consideration which is Rs.70 lacs which is above the basic limit of Rs. 50 Lacs and hence TDS is applicable and is to be deducted on each sellers share of Rs.35 Lacs which comes to Rs.35,000/- each.

In cases where there are 2 buyer and 2 sellers then 1 buyer deducts Rs.17,500/- for one seller and Rs.17,500/- for the other seller and the same is to be repeated by the other buyer. So in short there will be 4 payments and 4 Form 26QBs to be filled.

What if I did not deduct TDS or have not paid the amount to the credit of Central Government?

In case where TDS is not deducted: As explained earlier, TDS is to be deducted and paid to the credit of central government within a period of seven days from the end of the month in which the deduction is to be made, in cases where TDS is not deducted then interest @ 1% shall be payable for the period of delay from the date such TDS was supposed to be deducted to the date on which such TDS is actually deducted.

In case where TDS is deducted but not paid: In cases where TDS is deducted but not paid then interest @ 1.5% shall be payable for the period of delay from the date such TDS was deducted to the date on which such TDS is actually paid.

Is There any Penalty or Late Fee if the TDS Return is not filed on the due date?

Yes, there is a clause for Late Fee as well as Penalty in cases where TDS return is not filed on time.

Late Fee: In cases where the TDS return/ Form 26QB is not filed on time, u/s 234E late fee @ Rs.200/- day shall be levied on the deductor/ purchaser of the property for every day of delay from the last date of furnishing the return. Such total late fee cannot exceed the total amount of Tax deductible.

Penalty:  U/s 271H penalty can be separately/ additionally levied on the deductor for non-filing of TDS Returns or for filing incorrect returns. This penalty ranges from Rs.10,000/- to Rs.100,000/- which is upto the discretion of the Assessing Officer.

Please note that the penalty is in addition to the Late Fee, whereas the late fee is mandatory and has to be paid before filing the returns and without which the returns cannot be filed, the penalty is upto the discretion of the Assessing Officer and can be levied by him separately.

If you are among the unfortunate lot to have received a notice, remember to consult your tax advisor on the way forward to deal with it. The provision, though simple in language, has left much to be interpreted by courts. Although there might be many scenarios where the provision can be appealed against, one should analyse the cost of litigation versus the benefit due before taking any decision. That being said, levy of penalty, being at the discretion of the Tax Officer, should be definitely litigated in case reasonable cause and bonafide belief can be proven.

(The Author is a Chartered Accountant and can be reached at rrco1905@yahoo.com or 9920930544.)

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  • Mohit Pathak

    I am working with a real estate consultants. Whenever I try to explain clients about the provision 90% of them do not agree to pay any TDS. They pay TDS only after builder asks them to pay that.
    Currently maximum home buyers are salaried employees and purchasing it for own use. Interest is fine but FEE and penalty provisions are very harsh and prompt means you file TDS lately any you will received notice within 7 days. It becomes more harsh when there are more than 1 buyer in this case you will receive Tow notices with almost same amount.
    Has anybody filed any petition against this provision since these provisions are torturing common man?
    All news agencies talk about wrongdoing of builders and nobody talks about these provisions where government is playing villain.

    WILL NON PAYMENT OF FEE MAKE ASSESSEE AN ASSESSEE IN DEFAULT?

  • H K

    Sir, how does the buyer arrange to download or get the Form 16B, which you mention is to be given to the Seller. Of course, TDS has been paid and 26QB filed.

  • Rakesh Garg

    One of my client has sold residential property for Rs. 68.00 lacs. The buyer has paid Rs. 50.00 lacs in FY 2015-16 and deducted TDS under section 194-IA. However actual sale deed has been executed in FY 2016-17. The TDS deducted by the buyer in FY 2015-16 is appearing in form 26AS of seller. Kindly advice on the following:
    1. Treatment of TDS for the FY 2015-16 in the seller ITR for the AY 2016-17
    2. Treatment of capital gain in AY 2017-18.

    Thanks
    Rakesh Garg