Finance Bill 2013 has introduced Section 194IA to cast an obligation on the buyer of a property to withhold taxes on payments to the resident seller.

Before introduction of this section, tax deduction obligation is imposed on a buyer purchasing immovable property from a non-resident seller under Section 195 of the Act and on a person compensating for compulsory acquisition of immovable property (other than an agricultural land) under Section 194LA.  Now after introduction of section 194IA, buyers will require to deduct tax at 1% on the sale consideration payable to resident sellers.  However, there is no obligation on the buyer to deduct tax when the immovable property is an agricultural land.  In order to avoid the compliance hassles for small tax payers this requirement will not apply if the total consideration is less than fifty lakh rupees.

On the flip side, those who claim exemption from long-term capital gains through re-investment in house property/ bonds will now be required to file a tax return to claim refund of the tax deducted at 1%. Any seller not in possession of Permanent Account Number may be subject to tax deduction at a higher rate of 20%. Despite this hiccup, with the Centralised Processing Centre (CPC) in place, one can anticipate quicker refund.

Some important provisions or points related to section 194 IA is as under:

  • TDS to be deducted @ 1% of the total sale consideration. However, TDS needs to be deducted @ 20%, if the deductee does not furnish PAN.
  • No tax is deductible where the consideration paid or payable for the transfer of an immovable property is less than Rs. 50,00,000/-.
  • Online Payment of TDS through challan cum statement on Form 26QB through NSDL Website:- Tax so deducted should be deposited to the Government Account through any of the authorized bank branches using the e-Tax payment option available at NSDL. TDS so deducted shall be paid within 30 days from the end of the month in which TDS was deducted.
  • TDS certificate must be issued to the deductee in Form 16B within 15 days from the due date of deposit of TDS.
  • The deductee shall be entitled to avail credit for the entire amount of TDS deducted during the financial year in its Return of Income.
  • TDS u/s 194-IA shall be deducted even if the transaction takes place before 1st June, 2013 and payment is made after 1st June, 2013.
  • However, if credit to the account of the transferor has been given before 1st June, 2013 then provisions of section 194-IA will not apply, even if payment has been made after 1st June, 2013. (Payment or credit whichever is earlier)
  • Threshold limit of Rs. 50 Lacs will be applicable to each & every property separately. Property can be either of residential or official purpose.
  • In case any installment becomes due before 1st June, 2013 but paid after 1st June, 2013 and the transferee has not credited the same to the account of the transferor before 1st June, 2013, then provisions of section 194-IA shall apply and TDS will be deducted on the amount paid after 1stJune, 2013.
  • In case of installment system of payment, TDS is required to be deducted on all such installments individually which fall due after 1stJune, 2013 but only on principal portion and not on the interest or penalty portion.
  • The threshold limit of Rs. 50 Lacs is with reference to each property. If a property transaction involves more than one buyer and share of each buyer in the property is less than Rs. 50 Lacs but the value of the property in aggregate is more than Rs. 50 lacs then provisions of section 194-IA will be applicable. In such case, TDS will be deducted and deposited by each buyer in respect of their respective share in the property.
  • Similarly, in case of a property transaction involving more than one seller, TDS will be deducted in respect of amount paid to each seller and their respective PAN will be quoted while making payment through Form 26QB.
  • TDS provisions of section 194-IA shall apply only if the transferor is resident in India.

Republished with Amendments

More Under Income Tax

9 Comments

  1. Muralikrishna Nuggu says:

    I have entered into development agreement with a builder to construct residential flats on the plot owned by me. Total flats so constructed by the builder o his cost will be shared on 50:50 basis. My investment is only plot. Does this attract any tax? I am not going to sell my share of flats right now. Will let it out for few years. Please reply. Thanks

  2. Rakesh Garg says:

    My client entered in an agreement to sell the property for a total consideration of 70.00 lacs. Part payment has been made by the seller in previous year i.e 2015-16 and TDS @ 1% has been deducted on such advance payment. However sale deed has been executed in current year i e 2016-17. The TDS is appearing in form 26As of the buyer. Now how TDS deducted on advance payment will be shown in ITR of previous year.

  3. Rahul Bajaj says:

    Hello Team,

    I had sold a property in 2013 and had paid 1% TDS on property. As per my ITR (filed manually and not online) I was supposed to get the 1% TDS refunded.

    Now I haven’t got the refund as yet hence I had been to the Income Tax Office for the same. The Income Tax Officer told me that he does not know how to process the TDS refund.

    I am not sure as to what I need to do now. My TDS Refund is stuck for on reason.

    Appreciate your help in guiding me further.

    Thanks

    Rahul Bajaj

    9930838411

  4. Lowndes says:

    Hello,

    I have a query and will be glad if someone could please answer this for me.

    I am an NRI and am at an advanced stage of picking up a flat for little above 1 Cr. Is this applicable to me? Should I deduct the 1% TDS from the seller? Are there any further charges other than this?

    Hoping for a reply pls.

    Rgds

    Lowndes

  5. G S Rao says:

    Buyers and sellers may not have knowledge of the provisions. It causes hardship both to seller and buyer. Seller will not get TDS credit unless the buyer does his compliance. This should be imposed on real estate dealers and not on individual buyer/sellers.

  6. sukumar Mondal says:

    New provision of TDS on sale/purchase of immovable property

    Finance Bill 2013 has proposed to cast an obligation on the buyer of a property to withhold taxes on payments to the resident seller.
    If section 194IA is introduced in its present form then it would cause genuine hardship for individual buyer, since he would have to apply for TAN, file TDS return and issue form 16A to seller.
    All this would increase accounting issues for him and the scope for accounts professional would increase.
    And sellers will face difficulty to get credit of the same TDS as we expect most of the buyers shall not file TDS return ,issue TDS certificate
    In case of exemption claimed by the sellers u/s 54F etc. refund claim will be next to impossibility

    Rather Registrar, Govt Authority, already having TAN, and used to make TDS, and filed TDS Returns, should be empowered to collect the TDS amount by a separate Draft/ or cash deposited in Treasury and isuue a TDS Certificate either in Form No.16A, suitably revised with such provision or a new Form devised , giving details of Sellers/ Buyers , detail address , PAN , details of the property, Value as per deed , Value as determined by Registrar etc. to the seller and file the TDS return accordingly which will make the Refund easier

  7. sukumar Mondal says:

    I agree with view expressed by SRIKANT AGARWAL
    Rather Registrar, Govt authority should be empowered to collect the TDS amount by a separate Draft/ or cash deposited in Treasury and isuue a TDS Certificate in Form No.16A, suitably revised with such provision or a new Form giving details of Seller/ Buyer,adrees, PAN details of the property, Value as per deed , Value as determined by Registrar etc. to the seller and file the TDS return accordingly which will make the Refund easier

  8. SRIKANT AGARWAL says:

    very impressive article.
    If section 194IA is introduced in its present form then it would cause genuine hardship for individual buyer, since he would have to apply for TAN, file TDS return and issue form 16A to seller.
    All this would increase accounting issues for him and the scope for accounts professional would increase.

  9. vswami says:

    The observations in the penultimate para (opening words – “On the flipside..), in one’s perception,are not complete; in that, without the corresspondingly warranted changes having been made in the other related sections of the Act,taxpayer’s claim for a refund would be seriously hampered /jeopordised.

    To pinpoint:

    Provisions for tax exemption of capital gains (section 54 and 54 EC) continue to be in force. Should a taxpayer opt to, or intend opting for, such exemption, by complying with the stipulated conditions within the specified time frame, then he gets an extended time (2/3 years) for being taxed/to pay tax. If so, the other inter-related/connected provisions would require to have been correspondingly changed; but not done. To be focused on and requiring a close study is, besides the saving section 197, section 199 (rwr 37BA there under).

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