This provision is applicable on transfer of immoveable property of Rs. 50 lacs or more. It requires TDS to be deducted at 1% of the price being paid by the purchaser of an immoveable property, irrespective of quantum of capital gains. If the seller does not have/provide a PAN, the rate of TDS would be 20%. The property may be in the nature of land, buildings or flats. However, the deduction does not apply to purchase of agricultural land which is not located within municipal limits or within the specified distance from municipal limits.

Usually, tax has to deducted either at the time of credit or payment of consideration, whichever is earlier. In most of the cases of individuals purchasing immoveable property, the question of credit of consideration in the books of account should not arise, as there would be no books of account maintained for such transactions. Therefore, effectively TDS would be required to be deducted at the time of payment.

Such TDS would be deducted irrespective of who the seller is. whether a builder or a flat owner making a sale. However, the provisions fo this section does not apply on Non-Resident.

For the purposes of computation of the limit of Rs. 50 lacs, the total consideration, whether paid before 01 June 2013 or subsequently, would have to be considered.

Fortunately, the purchaser deducting such TDS is not required to comply with the cumbersome TDS procedural requirements applicable to other TDS deductors, such as obtaining a Tax Deduction Account Number, filing a TDS return, issuing a TDS certificate, etc. All that he is required to do is fill in a form online (www.tin-nsdl.com) or either make a e-payment or physical payment with the bank.

One practical difficulty which arise in situations when the purchase of property will be financed through a loan from a bank or housing finance company. In such cases, to the extent of the loan amount, the bank or finance company would directly make the payment to the seller, and not route the payment through the purchaser, who is the borrower.

There are many more issues which arise in respect of those provisions, particularly as to their applicability to development agreements where the considerations is in the form of a revenue share of sale proceeds.

(Compiled by ‘Prateek Manocha’ A Student of Institute of Chartered Accountants of India)

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Category : Income Tax (25516)
Type : Articles (14977)
Tags : Section 194IA (41)

0 responses to “Tax Deduction on Purchase of Immoveable Property”

  1. CA Rajesh Kumar Gupta says:

    At the time of payment made by Bank , it should deducted TDS and deposited by assessee or banker (on behalf of assessee) to the credit of CG.

  2. Prithviraj Singha says:

    Hi, I am a resident of US, but having PAN no and maintaining a NRO account in India. I purchased an apt by giving 116 lacs in April 2011, now I intend to sell it 170 lacs. In that case what amount the purchaser has to pay as TDS ?
    Regards
    Prithviraj.

  3. Prateek Manocha says:

    Sachin
    In my opinion you are not liable to deduct TDS because it is a mere loan. Bank had made the payment on your behalf and now you are repaying the loan.. and the property was transferred before June 1, 2013,,,so in that case,according to me, you are not liable to deduct TDS

  4. Sachin says:

    Dear all,
    Can anyone explain my doubt: Whether this provison is applicable if I have registered a Under construction property on August 2012 but Bank has already paid the money to Builder and I am now repaying EMI’s. So am I liable to deduct TDS on the amount paid to bank???

  5. Prateek Manocha says:

    In my opinion, you are liable to deduct Tds on whole amount… As per my interpretation, tds should be deducted as
    1. On payment made on or after june 1st, 2013- 45 lacs + installments amt
    2. Thereafter, tds should be deducted on amount of installment.

  6. Sandeep Gala says:

    I have purchased a flat from a builder for a consideration of 75 lacs.Till date I have not entered into any agreement,I have already paid him Rs.45 lacs till 31/05/2013.Further i have to pay him in instalments and on the final payment the builder will enter into agreement.Am i liable to deduct tds and if yes on what amount.

  7. Prateek Manocha says:

    The bank is merely discharging teh obligation of the purchaser who is responsible for making payment of the purchase price, and the purchaser is therefore required to deduct TDS in respect of such amount as well. The purchaser would therefore have to request the bank/finance company to pay the seller loan amount net of TDS, the purchaser would then pay the TDS to the government, and claim reimbursement of the TDS from the bank/ finance company. of Course, explaining this procedure to the bank/finance company and convincing them is a tall task in itself, particularly as the provisions are new.

  8. Prateek Manocha says:

    In my opinion, since the cost of land acquired is less than Rs. 50 lacs, therefore, this section is not applicable in this case

  9. Jayaraj says:

    In this regard, I wish to know more about this option……….

    Recently I purchased a land for house construction in Corporation limit, which costas around 12 lakhs and also I paid around 90000 rupees for stamp duty,registration fee etc.The selller is not having PAN. Whether I am eligible for tax excemption on the any of the payment menstioned above. Hoping a positive reply

  10. Ravi Kiran R says:

    Dear Sir,

    Please clarify whether TDS will have to be deducted at the time of payment of advance towards a property purchase? technically, sale of property is completed only when the sale deed is made and is registered with the registering authority; normally, only an Agreement to Sell would be entered into while paying property advance; and there is every chance that the transaction is cancelled after property advance has been paid; sometimes, even the property advance can get forfeited; in these situations, whether it would be mandatory to deduct and remit TDS at the time of receiving property advance.

  11. Rajesh gupta says:

    what would be the procedure for payment of TDS IF SALE CONSIDERATION is fully/partly financed from BANK

  12. Prateek Manocha says:

    Yes.. for instance, if a property agreed to be purchased for Rs. 75 lac, if payments of Rs. 30 lacs have been made before 1st June 2013, even if the payments being made after 1 june 2013 are less than Rs. 50 lacs, TDS would have to be deducted from the payments of Rs. 30 lacs as and when such payments are made…

  13. Prateek Manocha says:

    This section does not deals with Non-residents

  14. Prithviraj says:

    IF an NRI were to purchase a property in India using the option of a Bank Loan is this section applicable. Could you pls provide the particular provisions which exempt an NRI from deducting TDS.

  15. B.Chakrapani says:

    Is it correct that part of the consideration paid before 1/6/2013 has to be
    taken to determine the threshold limit of 194IA.

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