No requirement to obtain TAN by transferee deducting tax under section 194-IA
Section 194-IA was proposed to be inserted by the Finance Bill, 2013 to provide for deduction of tax at source@1% on consideration for transfer of immovable property, other than agricultural land. However, no tax is to be deducted if the consideration for transfer of immovable property is less than Rs.50 lakhs.
Since this provision requires deduction of tax by the transferee, it presupposes that the transferee should have a TAN. This may cause genuine hardship to those transferees who do not possess a TAN. Further, it would be an additional burden to require such persons to apply for and obtain TAN for a single transaction.
To address this concern, sub-section (3) has now been inserted in section 194-IA to provide that provisions of section 203A containing the requirement of obtaining TAN, shall not apply to a person required to deduct tax in accordance with the provisions of section 194-IA.
Finance Bill 2013 as presented in Lok sabha on 28.02.2013
Amedndment to Finance Bill 2013 as passed by Lok Sabha on 30.04.2013
@vswami
A Rider:
The fear or apprehension about getting a proper credit allowed for TDS and inherent hassles, as aired in the second sub-para under, -2. Business income, it needs to be underlined, is very much real, not imaginary. For knowing more and an appreciation in proper light, attention is invited to a couple of material authored by accounting experts published in the ICAI’s Book, titled, -A Comprehensive Workshop on Real Estate and Property Development (November 2011). Particularly, the one on the relevant topic of “Accounting for Real Estate Transactions” (pgs. 191-244) is noted to cover the implications of the Accounting (also of the Tax Accounting) Standards on Construction Contracts; and makes for a useful reading,
Contd. (to elaborate):
The scheme of provisions governing taxation of profits or gains from transfer of immovable property of the kind sought to be covered in section 194IA are to be found in two sets of sections, respectively governing (1) capital gains and (2) business income.
1. Capital gains:
By virtue of the overriding provisions of sections 54 and /or 54EC, any income chargeable as long term capital gains will not be assessable / chargeable to tax, in the event the transferor qualifies for the exemption as envisaged. That is, by reason of his having complied with the specified conditions in absolute terms. If so, then, at no point in time, he wiil conceivably have income to be charged – be it in the year of transfer (of the old property) or the year in which he has utilised and appropriated the amount of capital gains for purchase of a new asset as contemplated by law.
It is beyond doubt that , withholding tax is a mode of collection of tax at source and in advance. As such, by necessary implication, in order to attract withholding tax, the transferor under a transaction envisaged in section 194 IA should have chargeable income , and eventually be assessable. That will not be so, in a case qualifying for the tax exemption in terms of sections 54 or section 54EC. To be precise, in such cases the requirement of withholding tax should not come into play; hence ought not to be complied with, more so insisted upon. As , otherwise, it will be tantamount to offending, and in patent violation of the very scheme of things under the law.
Under the present wording of section 199, left unchanged for the current year, if it were strictly construed, in a case where the income is entitled for full exemption, allowing credit for tax withheld will pose a problem; for, in any such case, deductee will have no chargeable income so as to become “assessable” as envisaged there under.
2. Busiiness income:
The 1% deduction is, as intended, required to be made on the amount of ‘gross receipt’; not on the ‘income’ (profits or gains) imbedded therein.
In the case of transfer by a business man, of a property held as his stock-in-trade, he, as may be/to the extent permissible by law, follow, for accounting of income, what is known as the percentage- of- completion method (also as, Progressive basis). Under the extant law, so far as one could see, there is no rule providing for an apportionment, on a suitable and acceptable basis; hence, no way to allow, without hassle, credit for TDS spread over more than one year.
For the foregoing reasons (subject to correction if wrong or without substance), in one’s independent perception, the above mentioned aspects do not seem to have been kept in mind, or duly taken into consideration, before deciding to go ahead with enactment of the subject section 194IA in its present form.
In the common interest of both deductors and deductees, it might be worthwhile for those really concerned, if/suject to being convinced of the merits thereof, to expeditiously take up the foregoing aspects, so also others, if any, with the Revenue / CBDT, urging for a suitable remedial action ; do so advisably, before it turns out to be too late.
Obtaining TAN may not be difficult for a person who is selling a property for more than Rs. 50 Lakhs. Without TAN paying the TDS and getting credit for the same will become cumbersome.
“No requirement to obtain TAN by transferee of immovable properties”
Reflecting on this develoment,it is really sad to observe that the amendment has come to be applauded by some but from a closed (in-box) point of view but without having regard or giving any insightful thought to the deficiencies inherent in the very proposal in question.
As brougt out in several related previous expert articles or posts on this website, so also elsewhere,the proposed withholding requirement,particularly if proceeded with in its present form, without making the requisite changes in all the other connected provisions- i.e.mainly, sections 197 A and 199, perceptibly, has every potential to eventually result in hassles / hardships, otherwise avoidable; thereby lead to a further muddling up, beyond ready repair,of the already preailing tragic state of affairs, largely obtaining in the TDS regime.
It appears that,paradoxically, certain crucial points of concern/suggestions, though briefly made and underlined, have, by and large, failed to percolate through, let alone the directly concerned taxpayers (i.e.both deductors/deductees of withholding tax),even in the supposedly well informed circle of advising professionals.
And, the Revenue has, of course, as has always been its wont, but as is not unsual or unexpected,is bent upon going ahead with the proposal, obstinately and in a cavalier fashion,not even caring to go into/ mindfully cdonsider the rationale behind those valid suggestions.
To reinforce and repeat,one such crucial point of concern is that, the 1% TAX WITHHOLDING IS REQUIRED TO BE EFFECTED, ALBEIT IN ONE’S OPINION WRONGLY,EVEN IF THE PAYEE IS GOING TO HAVE NO INCOME CHARGEABLE IN RESPECT OF A GIVEN TRANSACTION. FOR A CLUE,CONSIDER THE CASE OF SELLER OF A RESIDENTIAL PROPERTY, BY REASON OF HIS HAVING ALREADY PURCHASED OR CONSTRUCTED A NEW ONE EVEN BEFORE SUCH SALE,HENCE STRAIGHTAWAY TAX EXEMPT U/S 54.Also, the other instance, where the taxpayer has already gone ahead by taking steps/committed to purchase / or construct a new property, within the stipulated time limit of 2/3years.
Further, it is one’s conviction that,under the present unclear wording of section 199- the word of concern is,- “assessable”, and if it were strictly construed bgyn the AO,a taxpayer might be faced with the problem of , -even if he is not chargeable to tax,- getting credit for and a reund of the 1% tax withheld in the year of sale of old property.
(unedited; may be contd.)
Payment using PAN of deductee would not require application for TAN and filing of ADS returns and will facilitate credit to the deductee.
As Declared last year when this amendment tried to introduced last year, the tax deducted should be deposited on PAN/ by using the PAN of deductee. This may solve the problem.
In case of Barter both parties may have to deduct TDS.
I am also thinking how will the challan b paid?
IS it “Transferor” or “Transferree”
What to do when there is barter of real estate?
How person will deposit the TDS? Which Challan he will use to pay the TDS?