TDS on Sale of Property

As we discussed in the basic concepts of Income Tax II regarding evasion of Income Tax that the main instrument adopted by tax evaders is non-reporting of capital gains on sale of capital assets and specifically real estate assets that’s why while presenting budget for FY 2013-14 he introduced new section 194IA relating to deduction of tax at the time of sale of property, which is reproduced below: –

 (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) 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 as income-tax thereon.

(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.

(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

Explanation.—For the purposes of this section,—

(a)  “agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;

(b)  “immovable property” means any land (other than agricultural land) or any building or part of a building.

In nutshell, from 1st June 2013 onwards the additional compliance burden has been provided for entering into any property transaction above Rs. 50.00 Lacs. The provisions in simple and layman language is given below: –

1. any person buying any immovable property other than agricultural land has to deduct tax @ 1% on the total value of the transaction if the value of the property is more than Rs. 50.00 Lacs.
2. This limit of Rs. 50.00 lacs is applicable per person i.e. if there are more than one buyer and the share of each person is less than Rs. 50.00 Lacs then provisions of this section does not apply. But if each share increases Rs. 50.00 Lacs then different form 26QB has to be filed for each individual seller/buyer.
3. This section is applicable for sale of property only, in case of rent the provisions of section 194-I applies i.e. tds @ 10% has to be deducted on the rental value net of GST.
4. TAN is not required to deduct tax under this section as relaxation has been provided in sub-clause 3 of Section 194-IA
5. Tax has to be deposited within 30 days from the end of the month in which tax has been deducted vide notification no. 30/2016 dated 29th April 2016.
6. As buyer is not required to get TAN he is also not required to file quarterly tds return as required in all other TDS cases but instead buyer is required to File Form 26QB and the information required to file form 26QB is as below: –
   1. PAN of the Buyer
   2. Address of the buyer
   3. Date of Agreement
   4. PAN of the sellar (if PAN  not available then TDS @ 20% will be deducted)
   5. Address of the seller
   6. Address of the property for which transaction is being entered into
   7. Residential status of the seller because this section is applicable in case of domestic seller only. In the case of NRI seller section 195 of the Income Tax Act, 1961 applies.
   8. Date of Payment
   9. Amount Paid
   10. Total Transaction Value as Tax @ 1% has to be deducted at the total value (GST/Service Tax/Sales Tax if applicable will not be included in the transaction value)
7. This Form 26QB has to be filed online only but challan can be paid online as well offline. For depositing offline, Form 26QB along with challan has to be presented to the bank. Information regarding online or offline has to be given at the time of filing of Form 26QB.
8. After depositing the TDS the buyer has to apply for form 16 B (which is available at the government site of tds deposition and can be downloaded after making request to the department within 15 days from the end of the month in which TDS is being deposited. This form 16 B is given to the seller of the property so that he claim the tax benefit of the amount deducted by the buyer.
9. TDS is required to be deducted at the total transactional value but will be deducted at the time of payment of each and every transaction, where transaction is completed in different instalment.
10. In case of non-compliance i.e. non deduction of tax interest @ 1% per month or part of the month and in case of non-deposition (after deduction of tax) interest @ 1.5% per month or part of the month has to be charged.
11. In case of late filing of Form 26QB penalty @ Rs. 200 per day is to be charged.
12. This whole section is applicable for resident transferee/buyer only and in case of NRI Transferee provisions of section 195 will apply (to be discussed in next post)