Analysis of Section 194LA of Income Tax Act, 1961
This section is effective from 1-10-2004 which provides as follows;
a. Any person responsible for paying any sum to a resident is required to deduct tax at source;
b. The payment must be in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, underany law for the time being in force, of any immovable property, other than agricultural land;
c. The tax must be deducted at the rate of 10 per cent. No surcharge or health and education cess shall be added to the above rates. Hence, tax will be deducted at source at the basic rate. The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee.
d. The tax shall be deducted at the time of payment of the sum in cash or by issue of the cheque or of draft or by any other mode, whichever is earlier;
e. No deduction is required where the amount of such payment or the total amount of such payment does not exceed Rs. 2.5 lakh, during the financial year; and
f. For the purpose :
Immovable property means any land (excluding agricultural land) or any building or part of a building;
agricultural land means agricultural land in India, wherever situated [i.e., including land situate in any area referred to in section 2(14)(iii)(a)/(b)]Thus Agricultural land even if situated in urban area is excluded from the term immovable property.;
g. The TDS is required only in case of compulsory acquisition under any law. In other words, for purchase of any immovable property, tax is not required to be deducted at source, where such purchase is from a resident.
h. The limit for no deduction is fixed with reference to the payments made during a financial year and not the aggregate payments in respect of the acquisition of the land. To illustrate, if the land is acquired, say, for Rs. 1,95,000 in the financial year 2019-20, no deduction is required. If the compensation is enhanced by Rs. 50,000 in the next financial year, no tax is required to be deducted since the aggregate payment during the next financial year does not exceed Rs. 2.5 lakh.
i. Finance Act, 2017 has inserted new proviso after the Explanation to provide that no deduction of tax under the section is required, if the payment is made in respect of any award or agreement which has been exempted from levy of income tax under section 96 of “Right to Fair Compensation and Transparency in Land Acquisition Rehabilitation and Resettlement Act, 2013“
j. The assessee to whom compensation is payable may make an application in Form No. 13 for obtaining a certificate for deduction of tax at any lower rate or no deduction of tax, as the case may be.
1) Who is responsible to deduct tax u/s 194LA?
Any person, who is responsible for paying, on or after 1.10.2004, 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, deduct income-tax thereon.
“Immovable property” means any land (other than agricultural land) or any building or part of a building.
2) When to Deduct TDS under Section 194LA?
Tax is deductible at the time of payment of aforesaid sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.
3) Rate of TDS under Section 194LA
The rate of tax deduction u/s 194LA is 10%(7.5% w.e.f. 14.05.2020 to 31.03.2021) of such compensation.
1. No surcharge and Health & Education Cess shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.
2. The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee
4) Where No TDS under Section 194LA is to be Deducted?
- No deduction shall be made under this section in a case 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 ₹2,50,000.
- No deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
5) Other key points related to section 194LA
Agricultural land for the purpose of this section means agricultural land in India situated in any area. Therefore, tax cannot be deducted in respect of compensation payable on account of compulsory acquisition of agricultural land situated in urban area.
6) Points to be noted
1. Agricultural land means agricultural land in India.
2. Immovable property means any land (other than agricultural land) or any building or part of a building.
3. Deduction shall not be made where payment is made in respect of any award or agreement which has been exempted from levy of income-tax u/s 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
Extract of Section 194LA of Income Tax Act, 1961
Section 194LA TDS on Payments of Compensation on Acquisition of certain Immovable Property
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 lakh and fifty thousand rupees:
Provided further that no deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013).
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.
(Republished with amendments)
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