TDS on Immovable Property Purchase (Section 194-IA)
Section 194-IA of the Income Tax Act mandates that any person (buyer) purchasing an immovable property (excluding rural agricultural land) from a resident seller must deduct tax at source (TDS). The tax deduction requirement is triggered if the sales consideration or the stamp duty value of the property, whichever is higher, amounts to ₹50 lakhs or more. The prescribed tax rate is 1% of this higher value, which is not increased by Surcharge or Health & Education Cess. However, if the seller does not furnish their PAN, the tax rate defaults to 20% under Section 206AA. TDS is deducted at the time of payment or credit of consideration, whichever is earlier. For the purpose of calculation, sales consideration includes all incidental charges related to the transfer, such as club membership, car parking, utility, maintenance, and advance fees. The Stamp Duty Value is the value adopted, assessed, or assessable by government authorities for stamp duty payment. Significantly, the buyer (deductor) is not required to obtain a TAN (Tax Deduction or Collection Account Number) and can use their PAN in place of TAN. If there are multiple transferors (sellers) or transferees (buyers), the consideration is the aggregate of amounts paid or payable by all transferees to all transferors (effective October 1, 2024). This provision applies only when the seller is a resident; if the seller is a non-resident, tax is deducted under Section 195. Certain payments are exempt from this TDS provision, including payments made to the Government, the Reserve Bank of India (RBI), specific Corporations exempt from income tax, Mutual Funds under Section 10(23D), and ‘Air India Limited’ in a specific corporate restructuring transfer. Separately, if the property is transferred by compulsory acquisition, TDS is governed by Section 194LA.
The deductor is responsible for the timely deposit of the deducted tax and subsequent compliance. The tax deducted must be deposited to the credit of the Central Government through Form 26QB electronically within 30 days from the last day of the month in which the deduction occurred. This Form 26QB serves as a challan-cum-statement. Following this deposit, the deductor must issue a TDS certificate to the seller (assessee) in Form No. 16B within 15 days from the due date of furnishing the TDS statement (Form 26QB). Failure to comply with these provisions results in the deductor being treated as an assessee-in-default, attracting multiple consequences. If the deductor fails to deduct tax, an interest of 1% per month or part of the month applies from the date the tax was deductible until the date it is actually deducted. If the deductor deducts the tax but fails to deposit it, an interest of 1.5% per month or part thereof applies from the date of deduction until the date of deposit. Penalties and prosecution may also apply: failure to deduct tax makes the person liable for a penalty under Section 271C. Failure to deposit tax deducted makes the person liable for penalty under Section 221 and prosecution under Section 276B, though prosecution may be waived if the failure was due to reasonable cause. Furthermore, failure to furnish the TDS statement (Form 26QB) attracts a fee of ₹200 per day under Section 234E (not exceeding the TDS amount), and penalties under Section 271H (up to ₹1,00,000) and Section 272A (₹500 per day). Failure to issue TDS Certificates (Form 16B) also attracts a penalty of ₹500 per day under Section 272A.
TDS from sum paid to buy an Immovable Property
Section 194-IA provides that any person buying an immovable property (other than rural agricultural land) from a resident seller shall deduct tax at the rate of 1% from the sales consideration or the stamp duty value of such property, whichever is higher. The tax shall be deducted if the amount of sales consideration or stamp duty value is Rs. 50 lakhs or more.
Deductor
Any person (buyer) who is responsible for making payment of sales consideration in respect of purchasing an immovable property (other than rural agriculture land) shall deduct tax under this provision. The tax is deducted at the time of payment or at the time of credit of consideration, whichever is earlier.
There is no requirement to apply or obtain Tax Deduction or Collection Account Number (TAN) for deducting tax under this section. Hence, a deductor can use his PAN in place of TAN.
Deductee
The seller of immovable property shall be the deductee under this provision. However, the tax shall be required to be deducted under this section only if the seller is resident in India. If the seller is a non-resident in India, the tax shall be deducted under Section 195.
Rate of TDS and threshold limit
The tax shall be deducted at the rate of 1% of sales consideration or stamp duty value, whichever is higher if the amount of consideration or the stamp duty value of the immovable property is Rs. 50 lakhs or more.
The rate shall not be further increased by Surcharge and Health & Education Cess. If the deductee does not furnish his PAN to the deductor, the tax shall be deducted at the rate of 20% under Section 206AA.
Note: If there is more than one transferor or transferee in respect of any immovable property, then the consideration shall be the aggregate of the amounts paid or payable by all the transferees to the transferor or all the transferors for the transfer of such immovable property. (w.e.f. 01-10-2024)
Meaning of Sales Consideration
Sale consideration shall include all charges which are incidental to the transfer of such immovable property, such as club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee, or any other charges of similar nature.
Meaning of Stamp Duty Value
“Stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of the immovable property.
Exemption from TDS
No tax is required to be deducted from any sum paid or payable to the following:
a. The Government
b. The Reserve Bank of India
c. Corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income tax on its income
d. Mutual Fund specified under Section 10(23D); or
e. Payment made to ‘Air India Limited’ for the transfer of immovable property to ‘Air India Holding Limited’ under a plan approved by the Central Government.
Further, if the immovable property is transferred by way of compulsory acquisition. The tax, in this case, shall be deducted under Section 194LA from the amount of compensation or enhanced compensation paid or payable on the compulsory acquisition of immovable property.
Deposit of TDS
Tax deducted under this provision is required to be deposited to the credit of the Central Government through Form 26QB within 30 days from the last day of the month in which the tax was deducted.
Filing of TDS statement
The person responsible for the deduction of tax at source under this provision is required to furnish a challan-cum-statement in Form 26QB electronically.
TDS Certificate
The deductor shall issue a TDS certificate to the assessee in Form No. 16B within 15 days from the due date of furnishing of the TDS statement.
Consequences for failure to deduct or deposit tax
Where any person responsible for deducting tax at source fails to deduct tax or after deducting fails to deposit the same, he shall be treated as assessee-in-default. In that case, interest under section 201 will be applicable.
If the deductor fails to deduct TDS, interest at the rate of 1% per month or part of the month shall be applicablbe applicable, till such failure continues. Interest shall be calculated from the date when such tax was required to be deducted till the date such tax is actually deducted.
Further, if the deductor after having deducted the tax, fails to deposit the same to the credit of the Central Government, interest at the rate of 1.5% per month or part thereof shall be applicable till such failure continues. The interest computation shall commence from the date on which the tax was deducted and end with the date when such tax was deposited to the government.
Penalty and Prosecution for not deducting or depositing TDS
Failure to comply with the provisions of deduction of tax at source under this provision may result in penalties and prosecution as per the following provisions:
a. If a person fails to deduct tax at source, he shall be liable for payment of penalty under Section 271C;
b. If a person deducts tax but fails to deposit the same to the credit of the Central Government, he shall be liable for the penalty under Section 221 and prosecution under Section 276B.
However, no person shall be punishable under Section 276B if he proves that there was reasonable cause for the failure. Further, a person can also file an application for compounding of offence.
Consequences for failure to furnish TDS Statement
Where any person fails to furnish a TDS statement, section 234E shall be applicable, wherein the deductor is liable to pay fees at the rate of Rs. 200 per day during such default continues. However, such fees should not exceed the amount of TDS.
Moreover, he shall be liable for penalties under sections 271H of Rs. 10,000 which can be extended to Rs. 100,000, and 272A of Rs. 500 for every day during which failure continues.
Consequences for failure to issue TDS Certificates
Where any person, responsible for issuing TDS Certificates, fails to issue such certificates, a penalty under section 272A shall be applicable of Rs. 500 for every day during which failure continues.
MCQs on TDS from sum paid to buy an immovable property
Q1. The tax under section 194-IA shall be deducted if the amount of sales consideration or stamp duty value is________ .
a Rs. 50 lakhs or more
b. 40 lakhs or more
c. 1 crore or more
d. Up to Rs. 50 lakhs
Correct answer – (a)
Explanation: The tax under section 194-IA shall be deducted if the amount of consideration or the stamp duty value of the immovable property is Rs. 50 lakhs or more.
Q2. What is the tax rate for the deduction of tax under section 194-IA?
a. 5%
b. 10%
c. 1%
d. 1%
Correct answer – (c)
Explanation: The tax under section 194-IA shall be deducted at the rate of 1% if the amount of consideration or the stamp duty value of the immovable property is Rs. 50 lakhs or more.
Q3. Tax under section 194-IA is deductible at the rate of 1% if the__________ is Rs. 50 lakhs or more.
a. Sales Consideration
b. Stamp Duty Value of such property
c. Higher of (a) or (b)
d. Lower of (a) or (b)
Correct answer – (c)
Explanation: The tax under section 194-IA shall be deducted at the rate of 1% of sales consideration or stamp duty value, whichever is higher if the amount of consideration or the stamp duty value of the immovable property is Rs. 50 lakhs or more.
Q4. TAN is not required for the tax deduction under section 194-IA.
a. True
b. False
Correct answer – (a)
Explanation: There is no requirement to apply or obtain a Tax Deduction or Collection Account Number (TAN) for deducting tax under section 194-IA. Hence, a deductor can use his PAN in place of TAN.
Q5. Which of the following TDS return is required to be furnished if tax is deducted under section 194-IA?
a. 26Q
b. 26QB
c. 27Q
d. 24Q
Correct answer – (b)
Explanation: The person responsible for the deduction of tax at source under section 194-IA is required to furnish a challan-cum-statement in Form 26QB electronically.
Q6. Tax deducted under section 194-IA is required to be deposited to the credit of the Central Government through Form 26QB within__________ from the last day of the month in which the tax was deducted.
a. 15 days
b. 30 days
c. 7 days
d. 10 days
Correct answer – (b)
Explanation: Tax deducted under section 194-IA is required to be deposited to the credit of the Central Government through Form 26QB within 30 days from the last day of the month in which the tax was deducted.
Q7. Which form is required to be issued as a TDS certificate if tax is deducted under section 194-IA?
a. 16A
b. 16B
c. 16C
d. 16D
Correct answer – (b)
Explanation: The deductor shall issue a TDS certificate to the assessee in Form No. 16B within 15 days from the due date of furnishing of the TDS statement.
(Republished with amendments)
