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