Introduction
In India, tax compliance is an integral part of any financial transaction, including property transactions and rental income. Sections 194-IA and 194-IB of the Income Tax Act deal with Tax Deducted at Source (TDS) in these contexts. This article will delve into the specifics of TDS on property transactions (Section 194-IA) and rental income (Section 194-IB) in the Indian tax landscape.
TDS Obligation for Individual PAN based include TDS provisions on 194-IA (Purchase of Immovable Property) & 194-IB (Rent)
194-IA: Payment on transfer of certain immovable property other than agricultural land.
1. Who has to deduct TDS u/s 194-IA:
(i) Any person, being a transferee, responsible for paying 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 or the stamp duty value of such property, whichever is higher, as income-tax thereon.
(ii) Provisions of section 194-IA shall not apply to any person responsible for paying to a Copyright02022 resident any sum, being in the nature of Income Tax Department 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).
(iii) Provisions of section 194-IA shall not apply to 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 of the Income-tax Act i.e. Joint Development Agreement.
(iv) “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.
(v) “Immovable property” means any land (other than agricultural land) or any building or part of a building.
(vi) “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 an immovable property.
2. Threshold Limit u/s 194-IA: No deduction under section 194-IA shall be made where the consideration for the transfer of an immovable property and the stamp duty value of such property, are both, less than fifty lakh rupees.
3. When to Deduct TDS under Section 194-IA: Tax shall be deducted under this section:
(a) Either at the time of credit to the account of the payee, or
(b) At the time of payment thereof, whichever is earlier.
For this purpose, “payment” can be in cash or by issue of a cheque or draft or by any other mode.
4. Rate of TDS under Section 194-IA Tax: 1% of consideration or Stamp Duty Value, whichever is higher. Rate of TDS is 20% if PAN/Aadhaar is not furnished by the deductee as per section 206AA. However, higher rate of TDS as per section 206AB for non filers of ITR does not apply to deduction u/s 194-IA w.e.f. 01.04.2022.
5. Other issues:
(a) If the Immovable Property is partly financed by Bank/Lender, the TDS will be required to be deducted by the transferee on the entire amount of consideration or Stamp Duty Value, whichever is higher, irrespective of the amount of financing.
(b) For payment of instalments, TDS to be deducted on each instalment paid.
(c) If the seller is found to be a NRI, then tax deduction shall be made by the buyer as per section 195.
6. Failure to Deduct the TDS: Failure to deduct tax under section 194-IA may result in the person i.e. the transferee being deemed to be an assessee in default. Failure to deduct tax will attract interest and penalty also.
7. Time Limits and Procedure of depositing TDS and Issue of TDS Certificate:
- Both transferee and transferor must have Permanent Account Number (PAN)
- Transferee is not required to hold/obtain TAN for payment of TDS.
- Payment of TDS can be made through online or through bank.
Online payment of challan is available on TIN NSDL website.
Any sum deducted under section 194-IA shall be paid to the credit of the Central Government within a period of 30 days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No. 26QB.
The person responsible for deduction of tax under section 194-IA shall furnish the certificate of deduction of tax at source in Form No.16B to the payee within 15 days from the due date for furnishing the challan-cum-statement in Form No.26QB under rule 31A after generating and downloading the same from the web portal.
Steps to fill & submit online Form No. 26QB :
1. Go to TIN NSDL website (https://www.protean-tinpan.com/index.html).
2. Under ‘TDS on sale of property’, click on “Online form for furnishing TDS on property (Form 26QB)”.
3. Select the applicable challan as “TDS on Sale of Property”.
4. Fill the complete form as applicable.
User should be ready with the following information while filling the Form 26QB :
a) PAN of the seller & buyer.
b) Communication details of seller & buyer.
c) Property details.
d) Amount paid/credited & tax deposit details.
5. Submit the duly filled form to proceed. A confirmation screen appears. After confirming, a screen appears showing two buttons as “Print Form 26QB” and “Submit to the bank”. A unique acknowledgement number is also displayed on the screen. It is advisable to save this acknowledgment number for future use.
Click on “Print Form 26QB” to print the form. Then click on “Submit to the bank” to make the required payment online through internet banking. Then proceed to the payment page through internet banking facility of various banks.
6. On successful payment, a challan counterfoil will be displayed containing CIN, payment details and bank name through which e-payment has been made. This counterfoil is proof of payment being made.
Proceed to TRACES portal (www.tdscpc.gov.in) after 5 days to download Form 16B:
II. Steps to Download Form 16B:
1. Register & login on TRACES portal (www.tdscpc.gov.in) as taxpayer using your PAN.
2. Select “Form 16B (For Buyer)” under “Downloads”
3. Enter the details pertaining to the property transaction for which Form 16B is to be requested. Enter the Assessment Year, Acknowledgment Number, PAN of Seller and click on “Proceed”.
4. A confirmation screen will appear. Click on “Submit Request” to proceed.
5. A success message on submission of download request will appear. Please note the request number to search for the download request.
6. Click on “Requested Downloads” to download the requested files.
7. Search for the request with request number. Select the request row and click on “HTTP download”
Section 1941B
Section 1941B: Payment of rent by certain individuals and Hindu Undivided Family
Provisions of section194IB applies to:
Any person, being an individual or a HUF responsible for paying to a resident any income by way of rent exceeding Rupees Fifty thousand per month or part of a month.
Meaning of Rent:
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.
Threshold Amount:
Payment of rent exceeding Rs. 50,000/- per month or part of month.
Rate & time of tax deduction u/s 194IB:
The rate of tax deduction is 5% and if the PAN of the recipient is not available then the rate will be 20% as per Section 206AA or in case if the receiver of rent is a specified person as per section 206AB then the deduction would be at 10%. In 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 tenancy, as the case may be.
Time of Deduction:
TDS u/s 194IB is to be deducted 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 maybe, 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.
Compliance requirements:
There is no requirement of obtaining TAN for the deductor. She/he can quote PAN/Aadhaar Number.
The sum deducted under section 1941B shall be paid to the credit of the Central Government within a period of thirty days from the end of the month in which the deduction was made and shall be accompanied by a Challan-cum-statement in Form No. 26QC.
TDS certificate is to be issued by the deductor in Form No. 16C by the deductor within 15 days from the due date of furnishing Form 26QC.
Failure to Deduct TDS:
Failure to deduct tax under section 194IB may result in the person i.e. the tenant being deemed to be an assessee in default. Further, failure to deduct tax will attract interest and penalty also.
Conclusion
TDS on property transactions (Section 194-IA) and rental income (Section 194-IB) plays a crucial role in ensuring tax compliance in India. Understanding the obligations, rates, and procedures related to these sections is essential for both buyers and tenants. Failure to adhere to these provisions can lead to financial consequences, so it’s vital to comply with the tax regulations for property transactions and rental income in India.
