• Mar
  • 06
  • 2013

Sale of all Immovable property now subject to TDS – an insight and practical challenges

Posted In Income Tax | | 9 Comments » Print Friendly and PDF

The Finance Minister in Finance Bill 2013 has proposed withholding tax at 1% to be deducted by every buyer from any sum payable to the resident seller if the sale consideration for transfer of immovable property, other than agricultural land,is Rs.50 lacs or more.

The reason mentioned for introduction of this TDS provision is not quoting of PAN number by seller or buyer in most of the transactions and significant transactions not being reported.

In order to track the real estate transactions more deeper and wider, the Finance Minister has introduced this new TDS provision by inserting section 194IA with the current TDS provisions contained under the Income Tax Act, 1961 (the ITA).

Presently, there is no requirement to deduct tax at source on purchase of immovable property except in case of compulsory acquisition of immovable property. Hence, a transferee of immovable property under compulsorily acquisition is excluded from this new provision.

The proposed TDS provision is to be applied to transferor of immovable property, wherein the ‘immovable property’ means:

  • any land (other than agricultural land) or
  • any building; or
  • part of a building.

The proposed amendment will be applicable from 1 June 2013.

It is interesting to note that somewhat similar provisions were also proposed by the Finance Bill, 2012; however due to much hue and cry, the said provisions were not incorporated when the final Bill was passed by the parliament. It is worthwhile to see how the current TDS provision which are applicable to sale of immovable property is different than proposed vide Finance Bill, 2012.

Finance Bill, 2012 Finance Bill, 2013
TDS applicable only if

  • Sale consideration equal to or more than INR 5,000,000 for immovable property in specified areas
  • Sale consideration equal to or more than INR 2,000,000 for immovable property in other areas
TDS applicable only if consideration equal to or more than INR 5,000,000
Stamp duty value has to be considered for withholding of taxes where the consideration for transfer is less than the stamp duty value No such provisions
Proof of withholding of taxes to be furnished to the authority registering the document of transfer of immovable property, failing which the property will not be registered No such provisions
Purchaser of property is not required obtain Tax Deduction Account Number (TAN) to comply with the above provisions No such provisions

 From above comparison, it can be noted that instead of two threshold limit for applicability of TDS provision as proposed in last years proposal, it is now one threshold limit of Rs.50 lacs. This will certainly give some respite to buyers in rural areas or non-metro cities. Further, not linking the sale consideration with stamp duty value for applicability of this TDS provision also relieves a buyer from undue litigation. This is possibly in line with the intent behind insertion of this provision, to track the transactions at first and then probe further if required.

However, the difficult part is the implementation of this TDS provision that a buyer may have to face which could be as under:

  • Now, every buyer will have to obtain TAN number for complying with the provisions;
  • Deposit the taxes deducted within the specified time limit with the Government;
  • File the quarterly TDS returns and mention the Permanent Account Number (PAN) of seller;
  • Issue TDS certificate to the seller; and
  • May be subjected to scrutiny by the TDS officer

It may also be mentioned that the above rate of 1% may increase to 20% if seller does not provide PAN due to overriding provision of section 206AA of ITA.

The proposed TDS provision is required to be applied on gross transaction value rather than net gains which will have significant bearing on cash flow issues of the real estate industry. This may result in higher interest cost for the industry, consequently further contributing to the increase of cost of the property for the general public.  The good intent of FM of curbing the under reporting and/or non- reporting of real estate transactions will find larger acceptability if the above concerns are also addressed when the Bill is passed.

Authors:-

Nilesh BhagatNilesh Bhagat is Senior Manager at Deloitte Haskins & Sells.

Kalpesh KatiraKalpesh Katira is Deputy Manager at Deloitte Haskins & Sells.


9 Responses to “Sale of all Immovable property now subject to TDS – an insight and practical challenges”

  1. BHAWANI SINGH RATHORE says:

    Thank you sir for providing a full information in small package.

    but i want to know something more …..
    whether a government authority is liable to deduct their tds  or vice versa on purchase and sale of land or any other immovable property 

  2. D. Rahul says:

    I have a small doubt, whether this Tds on Property will be applicable for individuals irrespective of the conditions laid down for applicability of TDS i.e., he should be liable to Tax audit ???

  3. Gopalakrishna Gupta ES says:

    It is really fine, giving hardships to be faced by the buyer of the property.
    As we are all well aware of the fact that, TDS provisions are always tedious.
    And as you rightly mentioned in your write up, these should be addressed properly or a simple mechanism to provided in the rules.
    Thanks for your immediate efforts and through some light on the implication of the proposed provision in ITA

  4. ANTHONY says:

    Good. It is said that this shall be effective from ist June 2013. Does this mean that property sales beween Ist april 2013 to 31st May 2013 wherein consideration amount is more than 50 lac, the seller shall not be required to pay TDS @1%. Please clarify.

  5. Shahid Khan says:

    A better option would have been to require the registrar of immovable properties to collect the TDS amount from the purchaser at the time of registration, deposit it with the Government, issue TDS certificate in the name of the seller, and file the TDS return. Since the Registrars already have the TAN for filing AIR they do not need to obtain fresh TAN also.

  6. sukumar Mondal says:

    New provision of TDS on sale/purchase of immovable property

    Finance Bill 2013 has proposed to cast an obligation on the buyer of a property to withhold taxes on payments to the resident seller.
    If section 194IA is introduced in its present form then it would cause genuine hardship for individual buyer, since he would have to apply for TAN, file TDS return and issue form 16A to seller.
    All this would increase accounting issues for him and the scope for accounts professional would increase.
    And sellers will face difficulty to get credit of the same TDS as we expect most of the buyers shall not file TDS return ,issue TDS certificate
    In case of exemption claimed by the sellers u/s 54F etc. refund claim will be next to impossibility

    Rather Registrar, Govt Authority, already having TAN, and used to make TDS, and filed TDS Returns, should be empowered to collect the TDS amount by a separate Draft/ or cash deposited in Treasury and isuue a TDS Certificate either in Form No.16A, suitably revised with such provision or a new Form devised , giving details of Sellers/ Buyers , detail address , PAN , details of the property, Value as per deed , Value as determined by Registrar etc. to the seller and file the TDS return accordingly which will make the Refund easier

  7. Mukesh says:

    its really a very good analysis, giving quick overview of the subject and challanges to be faced.
    Very good efforts to share this kind of information.
    Regards,
    Mukesh

  8. susheel gupta says:

    Whether TDS is required to be deducted in case of purchase of property in auction from bank

  9. SRIKANT AGARWAL says:

    Very good article. The hardship being faced by a prospective buyer (with value >50 Lacs) would be huge in terms of compliance with the provisons of TDS.
    Again the buyer would have to surrender the TAN after the completion of transaction, else he may be penalised for non-filing of Nil TDS return and all.
    Beside it, there would be a great scope for Accounts professional in terms of compliance with TDS provisons.

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