A new section 194-IA has been inserted in the Income-tax Act, 1961 by the Finance Act, 2013 with effect from 1st June 2013. It provides for withholding tax or tax deduction at source on transfer of immovable property other than agricultural land.
As per this new provision, any person, being a buyer responsible for paying to a resident seller by way of consideration for transfer of 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, is required to deduct an amount equal to 1 percent of such sum as income-tax thereon specially when the value of the immovable property is Rs. 50 lakh (INR 5 million) or more.
No TAN required :
Whenever the formalities relating to tax deduction at source are to be complied with, there is also a requirement of obtaining TAN No. (Tax Deduction Account Number). But in respect of TDS relating to purchase of immovable properties there is no requirement to obtain TAN.
It is important to obtain the Permanent Account Number of the seller from whom such tax is being deducted at source. If the seller of the property do not have PAN Card, TDS would be deducted at 20 per cent. It’s therefore imperative to have A PAN number.
Where and how to Deposit Tax ? :
The new challan-cum-statement under form 26QB has been introduced for the purpose of electronic deposit of the TDS. Form 16B has been introduced for the issuance of the TDS certificate by the buyer to the seller.
Form 26QB includes details such as the name, address and permanent account number (PAN) of the transferor, payee or seller. No separate withholding tax (TDS) return is required to be submitted.
The Tax deducted under section 194-IA has to be deposited within 7 days from the end of month in which the tax has been deducted.
Form 16B can be downloaded electronically and furnished to the seller within 15 days of the due date of filing form 26QB, that is with 22 days from the end of month in which the tax has been deducted.
Log on to NSDL-TIN website (www.tin-nsdl.com) or directly use the link - https://onlineservices.tin.nsdl.com/etaxnew/tdsnontds.jsp
Alternatively the form can also be printed and payment be made to an authorized branch of the department. TDS Certificate can be obtained from the site itself and its credit can also be viewed in the 26AS statement.
For Under Construction Properties:
In case of under construction properties where the money is paid to builder in installments , TDS is required to be deducted by buyer on installments paid on or after 1st June, 2013, if the total purchase price is more than Rs. 50 Lacs.
The total property price comprises of Development Charges which are paid to Government e.g External Development Charges (EDC) and Infrastructure Development Charges (IDC) charged by Haryana Government. Does this form part of the total property price? If we see logically this shouldn’t be considered as part of the property price but there is little clarity on the subject.
Besides the total property price charged by the builder includes components like PLC (Preferential Location Charges), Right to use car park, Club Membership, Maintenance Security, etc. Does all these form part of total property price? To me the PLC looks to be logical while other components could be excluded from the cost of property for the purpose of deducting TDS, but there is no clarification on this as of now. As it is the buyer responsibility for deducting the TDS, the assumption can be basis buyer’s interpretation.
No TDS is required to be deducted in respect of installments paid before 1st June, 2013. 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 1st June, 2013.
I am aware of certain builders who have provided their PAN details for the deduction of the TDS on the installments paid by the buyer but there are still many who are reluctant to provide these details. As the onus is on the buyer to deduct TDS, buyer will have to continue following up with the builder to get the details for depositing the TDS.
The other practical challenge is the administrative overhead in deducting the TDS for under construction properties for every installment. A typical payment plan in under construction property comprises of 10 installments and as per the current interpretation this exercise needs to be performed by buyer 10 times which is a nightmare. This is also a big overhead even for the back office team of builders who need to account for all these transaction going forward. The more practical approach could be one time deduction of TDS for these kind of properties by the buyers, which could be either at the first installment or at the last installment.
Multiple sellers and/or multiple buyers:
If there are multiple buyers and share of each buyer in the property is less than Rs. 50 Lacs but the value of the property exceeds Rs. 50 lacs then provisions of section 194-IA will be applicable. TDS will be deducted and deposited by each buyer in respect of their respective share in the property.
In case of a property being in name of 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.
As I conclude, the section 194-1A applies to every person and puts a significant compliance burden on the buyers of the property. This section has many interpretation lacunae which need to be clarified for the successful and in spirit implementation of the same.