SECTION 194IA: Deduction of tax at source from payment on transfer of certain immovable property  [AY 2021-22]

 Provisions of Section 194-IA:

(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 transfer or 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.

Section 194IA, 194IB & 194LA of Income Tax Act, 1961 In detail

(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;

(aa) “consideration for transfer of any 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 any other charges of similar nature, which are incidental to transfer of the immovable property;’

(b) “immovable property” means any land (other than agricultural land) or any building or part of a building.

Points to remember:

1. The Provision for deduction of TDS is applicable for transfer of any immovable property other than agricultural land.

2. TDS should be deducted at 1% of the sum by way of consideration for transfer of immovable property.

3. The TDS should be deducted by the buyer while making the payment.

4. No TDS is applicable for transaction amount less than Rs. 50 lakhs.

5. Where the transaction amount exceeds Rs. 50 lakhs, the TDS shall be deducted on entire amount of transaction and not just the amount above Rs. 50 lakhs.

6. Where payments are made in installments, TDS needs to be deducted on each installment.

7. The charges such as club membership, car parking, maintenance fees, advance fees, electricity fees have also been included under ‘consideration for immovable property’. All such charges will be added to the taxable amount for the purpose.

8. If the buyer do not obtain PAN from the seller for deduction of TDS, the TDS needs to be deducted at 20%.

Procedure to be followed:

1. Payment needs to be made through challan 26QB.

2. Go to https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

3. Select 0020 if you are corporate payer and 0021 if you are a non-corporate payer. Fill in all the necessary details.

4. There are two Options: e-tax payment immediately (through net banking facility) and e-tax payment on the subsequent date (e-payment of taxes by visiting any of the Bank branches).

5. Under the net-banking facility, you will be able to login to your bank and pay online. After you have paid, the bank lets you print Challan 280 with a tick on 800 (i.e. payment of TDS on sale of property).

6. If one cannot pay online, an online receipt for Form 26QB with a unique Acknowledgment Number can be generated. This is valid for 10 days after generation which can be taken to one of the authorized banks along with your cheque. The bank will proceed with the online payment and generatechallan.

7. If a first-time user, register on TRACES as a Tax Payer with your PAN Card Number and the Challan number registered during payment.

8. Once you register, you will be able to obtain approved Form 16B (TDS certificate) and you can issue this Form to Seller.

9. Check your Form 26AS seven days after payment. You will see that your payment is reflected in Part F under “Details of Tax Deducted at Source on Sale of Immovable Property u/s 194(IA) [For Buyer of Property]”. Part F information is not available for Claim in ITR of the buyer.

10. Details such as TDS certificate number (which TRACES generates), name and PAN of deductee, transaction date and amount, acknowledgement number (which is the same as the one on your Form 26QB), date of deposit and TDS deposited will be reflected in the same.

11. After payment in Form 26AS has been reflected, login to TRACES. Go to the Download tab at the tab and click on “Form-16B (for the buyer)”.

12. To finish this process, fill PAN of the seller and acknowledgement number details pertaining to the property transaction for which Form-16B is to be requested and click on “Proceed”.

13. Verify all thedetails once and click on “Submit request”.

14. After a few hours, your request will be processed. Click on the Downloads tab and select Requested Downloads from the drop-down menu.

15. You should be able to see that the status of your Form 16B download request is Available. If the status says Submitted wait for a few hours more before repeating the last step. Download the .zip file. The password to open the .zip file is Date of Birth of Deductor (the format is DDMMYYYY). Your form will be available inside the .zip file as a pdf.

 Consequences of Non-Filing of Form 26QB:

If the buyer has not deducted tax at source at 1% (or 0.75% currently) of the transaction amount or not filed TDS within the specified time, the IT department will send a notice to the buyer.

1. 1% per month for the period from the date on which TDS is deductible/collectable to the date on which TDS/TCS is actually deducted is payable for non deduction of TDS.

2. 5% per month for the period from the date on which TDS is deducted to the actual date of payment is payable for non remittance of TDS.

3. In case of default of non-filing or late filing of Form 26QB, a penal fee is applicable under section 234E of the income tax act. Rs. 200 has to be paid for every day during which such failure continues. The buyer would also be liable for defaults of late Deduction, late payment and interest thereon.

4. Assessing Officer may levy penalty under section 271H at his discretion. This section is applicable when a statement as required by the tax laws is not submitted timely. Penalty under this section must be more than Rs 10,000 and can extend to Rs 1lakh. However, if TDS is deposited with fee & interest and statement is submitted within 1 year of the time prescribed, no penalty shall be levied.

SECTION 194-IB: Payment of rent by certain individuals or Hindu undivided family.

Provisions of Section 194-IB:

194-IB. (1) Any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent of such income as income-tax thereon.

(2)  The income-tax referred to in sub-section (1) shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be, 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.

(3)  The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

(4)  In a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

Explanation.—For the purposes of this section, “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.

Points to remember:

Under Section 194IB, individuals or Hindu Undivided Families (who aren’t liable for audit under Section 44AB) shall deduct TDS for rent payment made to an Indian resident for rent amount more than Rs.50,000/month.

1. Rent constitutes payments made for a lease, tenancy, sub-lease or other arrangements for properties like

  • Land with factory
  • Land
  • Building with factory
  • Equipment
  • Machinery
  • Plant
  • Furniture
  • Fittings

2. TDS on rent under Section 194IB of the Income Tax Act has to be deducted on the earlier of the following –

  • When rent is credited for the last month of the previous year or last month of tenancy in case the property is not being occupied anymore.
  • When rent is paid by cheque, draft, cash, or other modes.

3. The rate of TDS under Section 194IB of Income Tax Act is 5% if the tenant obtains the owner’s PAN. If PAN is not obtained the TDS needs to be deducted at 20%.

4. This payment is required to be made through Form 26QC.

  • It can be made online or offline through an authorized bank.
  • Form 16C needs to be collected and submitted to the landlord.

5. TDS needs to be deducted on following dates:

  • If the rent is paid on behalf of the government, TDS has to be deposited on the very same day.
  • If payment is not on behalf of the government, TDS has to be deposited within 7 days from the last date of the month in which the deduction was carried out.
  • If payment was made in March, TDS deposit has to be made before the 30th of April.

SECTION 194LA: Payment of compensation on acquisition of certain immovable property.

Provisions of Section 194LA:

194LA. Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, 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 ten per cent of such sum as income-tax thereon:

Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed two hundred and fifity thousand rupees.

Explanation.—For the purposes of this section,—

(i)  “agricultural land” means agricultural land in India including land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;

(ii) “immovable property” means any land (other than agricultural land) or any building or part of a building.

Points to remember:

1. The payer is liable to deduct TDS u/s 194LA if the aggregate amount of payment during the financial year exceeds INR 2,50,000. The payer shall deduct TDS within earlier of the below mentioned dates –

  • At the time of payment of the amount in cash; or
  • At the time of payment of the amount in cheque or draft or any other mode.

2. The Deductor is liable to deduct TDS @ 10% under section 194LA of the Income Tax Act, 1961.

3. No surcharge, education cess or SHEC shall be added to the above rate. Hence, TDS shall be at the basic rate.

4. The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee.

5. TDS is not deductible under section 194LA in following cases when –

  • The person is paying an amount to a ‘non-resident’ person.
  • Aggregate consideration during the Financial Year is less than INR 2,50,000.
  • Payment is in respect of any award / agreement which is exempt from income tax.
  • The payee has filed an application in Form No. 13 to the Assessing Officer and has obtained a certificate for No / lower deduct of tax.

(The Author is a Chartered Accountant and can be reached at [email protected])

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