Lakshmi Pichaimani

Lakshmi PichaimaniReal estate accounts for about 5% of India’s Gross Domestic Product (GDP) and is the second largest employment generating sector next to agriculture.The report by the High-level Committee – “The White Paper on Black Money” highlighted that the real estate sector is one of the biggest source and mode for generating and consuming black money in India as most of the transactions are either unreported or under reported.  To deal with this revenue menace, the Finance Bill 2013 has proposed to cast an obligation on the buyer of a property to withhold taxes on payments to the resident seller.  A similar proposal was made inthe Budget 2012 but was rolled back during the budget discussions. 

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Currently, 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.  Following this, Budget 2013 proposal requires buyers 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. This will be effective 1st June 2013 once assented by the Honourable President of India.

In Budget 2012, a lower exemption ceiling was prescribed for properties located other than in specified urban areas. There was also a clarification that stamp duty value will be regarded as consideration if the property value is less than value adopted/assessed for stamp duty purposes. Besides this, it was also provided that the registration will not be carried out in the absence of proof for tax deduction.In comparison, the budget 2013 has now presented the diluted version to drive the proposal to the next stage. Lesser will be the distress, if the Government notifies the one page challan proposed last time to facilitate tax credit through Permanent Account Number.

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.

Adam Smith, in his book “Wealth of Nations” had insisted “convenience of tax payment” as one of the principles of an ideal tax system. If the Government notifies easy procedures and the same is supported by a technology driven administration, the proposed regulation will ensure collection of taxes in advance besides putting a reporting mechanism in place for real estate transactions.

(Author is a Manager at Deloitte Haskins & Sells)

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2 responses to “TDS on sale of immovable property – Tedious?”

  1. 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.

  2. 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

  3. 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

  4. 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.

  5. 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

  6. 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

  7. 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.

  8. 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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