TDS provisions and its compliance related to real estate sector

Brief analysis:

1. Section 194IA and section 194IC of the Income Tax Act, 1961 are attracted on real estate transactions.

2. In simple words, as per section 194IA, if agreement value is equal to or more than Rs. 50, 00,000/- then buyer of the property has to deduct the TDS @ 1% on the agreement value and It should be deposited in the PAN of the seller.

3. Section 194IC talks about the specified agreements on which TDS to be deducted @ 10%

Detail provisions and practical issues discussed below:

To be discussed next:

We shall discuss soon, Capital gain related issues as per the latest amendments w. r. t. Joint development agreements, development agreements with area sharing/ revenue sharing/ flats allotments models

In depth summary:

Section 194IA:

Provision Extract:

‘194-IA. Payment on transfer of certain immovable property other than agricultural land.—(1) Any person, being a transferee, responsible for paying (other than the person referred to in section 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 section 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.’.

As per the plain reading of the above provisions, it is interpreted that agreement value of any property other than agriculture land is equal to or more than Rs. 50, 00,000/- then buyer of the property has to deduct the TDS @ 1% on agreement value while making payments to seller against that agreement value. To decode further, please take the following pointers into consideration for the crucial application of section 194IA:

1. Seller should be the resident of India

2. The subject value of the agreement should be “Immovable property”. This section is not applicable for tenancy rights; transferable development rights (TDR) etc. because they are movable in nature.

3. TDS should be deducted on every payment/ installment paid before agreement and balance on agreement. Because agreement is the document through which total amount is going to be credited to seller’s account.

4. TAN is not required to both the parties i.e. buyer and seller for the further compliance of the TDS provisions.

5. Form 26QB filed at the time of payment of TDS is itself treated as TDS return. There is no any separate return required to be filed.

6. The whole obligation of the TDS deduction and its payment to the government account is on the buyer. Seller is not responsible for the compliance.

Section 194IC:

Provision Extract:

Section-194IC- Notwithstanding anything contained in section 194-IA, any person responsible for paying to a resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (5A) of section 45, shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon. 

Section-45(5A)-Notwithstanding anything contained in sub-section (1), where the capital gain arises to an assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both, under a specified agreement, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority; and for the purposes of section 48, the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by the consideration received in cash, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset :

Provided that the provisions of this sub-section shall not apply where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion, and the capital gains shall be deemed to be the income of the previous year in which such transfer takes place and the provisions of this Act, other than the provisions of this sub-section, shall apply for the purpose of determination of full value of consideration received or accruing as a result of such transfer.

Explanation.—For the purposes of this sub-section, the expression—

(i)  “competent authority” means the authority empowered to approve the building plan by or under any law for the time being in force;

(ii) “specified agreement” means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash;

(iii)  “stamp duty value” means the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of an immovable property being land or building or both.]

As per the above provisions, it is interpreted that specified agreement means a Joint development agreement or development agreement through which one party sale the development rights to another party for the monetary consideration or consideration in kind or both.

If there is monetary consideration then section 194IC is attracted. Buyer of the development rights has to deduct the TDS @ 10% on monetary consideration and should be deposited in the seller’s PAN.

 To decode further, please take the following pointers into consideration for the application of section 194IC:

1. Seller should be resident of India

2. Section 194IC is applicable only if seller of the property is individual or HUF. It is not directly mentioned anywhere in the section 194IC but it may infer from the careful reading of section 45(5A) with section 194IC. We will discuss in detail through next article as most of the part is related to capital gain.

3. Whatever you are labeled to specified agreement like joint development agreement or development agreement or any other name but if the one party sale the development rights to other party in lieu of the monetary consideration with or without the consideration in kind then TDS should be deducted @ 10% on the monetary consideration u/s 194IC. It is the nature of the transaction what says about the applicability of the section 194IC and not by the label of the document you are given to it.

6. The joint development agreement (JDA) may be executed with different models like area sharing, revenue sharing or combination of the both but if there is monetary consideration is involve in the arrangements/deals then for sure section 194IC is going to be attracted.

7. TAN of the buyer is required to deposit the TDS in the PAN of seller and further compliance.

8. There is no separate TDS return for the section 194IC. TDS deducted should be deposited in the PAN of the seller till 7^th day of next month in which agreement executed or amount paid whichever is earlier and TDS return should be filed at quarter end at due dates of the regular TDS returns.

Author Can be reached at “canitesh.mukadam@gmail.com”