Section 194 IA: Payment on transfer of certain Immovable Property other than Agricultural Land (with effect from 01.06.2013)
Vide BUDGET 2013, read with Notification No.39/2013 dated 31st May, 2013, a new Section 194-IA was inserted to Income Tax Act, 1961 in the case of transfer of immovable property (situated in India or abroad/commercial or residential). The Section has become applicable w.e.f. 1st June 2013. This section has been introduced by the Finance Minister to mitigate undervaluation and non-disclosure of transfers of immovable property.
Provisions of TDS on sale of Immovable Property (Sec 194IA) – as stated in the Act:-
(1) “Any person, being a transferee, responsible for paying (other than the person referred to in the 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 time in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 1% of such 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 Rs. 50 Lakh.
(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section”
Analysis through FAQ:
Q1: Who has to deduct TDS at 1%?
Every person is liable to deduct tax @ 1%* on payment made for purchase of immovable property to a person resident in India except for:
i. Rural agricultural land and
ii. Where the sale consideration for the property is less than 50 Lakhs
Therefore, if the immovable property is purchased from a Non-Resident Indian (NRI) then TDS has to be done U/s 195 (TDS is at 20%) and not under this section.
Q2: Is it mandatory for the buyer to obtain PAN of the seller?
Yes. If PAN is not provided by the seller then the TDS will be deducted at 20%.
Q3: Is it mandatory for the purchaser of the immovable property to obtain a Tax deduction account number (TAN)?
No, it is not mandatory for the purchaser of the immovable property to obtain a TAN. Unlike other TDS provisions, PAN of the purchaser is sufficient to comply with the tax withholding requirement under section 194-IA.
Q4: Is it necessary that the land must be situated in India?
It is not necessary that the land or building should be situated in India. If any person is purchasing property outside India from a person resident in India, he is liable to deduct tax at source on sale consideration @ 1%
Q5: What happens in case of Joint Owners selling the property, for example:
Mr. A and Mr. B are the joint holders of a building situated at Ashoka Pillar, Bangalore having equal share in the building. They sold the house to Mr X on 05-08-2013 for a consideration of Rs. 55 Lakh. It has been decided that Mr. X will pay Rs. 27.5 Lakhs to each seller ie.,Mr. A and Mr. B.
Now Mr. X while making the payment to Mr. A and Mr. B is required to deduct tax under section 194-IA @ 1% since the total consideration for transfer of an immovable property is Rs. 50 Lakhs or more (Rs.55 Lakhs).
Q6: What happens in case of buying the property jointly, for example:
Mr. Abhayand Mr. Kushal purchased a building situated in Ludhiana jointly. They bought it from Mr. Kumar for a total consideration of Rs. 60 Lakhs. Mr. Abhay and Mr. Kushal are required to pay Rs. 30 Lakhs each.
Now Mr. Abhay and Mr. Kushal both are required to deduct TDS @1% on the amount paid by them since the total consideration is Rs. 50 Lakh or more for transfer of an immovable property.
Q7: In case the property is sold for a consideration other than a cash:
BKC Pvt Ltd acquired the land situated at Yamuna expressway from Raheja Builders and issued 1000000 equity shares having a face value of Rs. 10 each at a premium of Rs. 15 each in consideration of the land
BKC Pvt Ltd is required to deduct TDS @ 1% on Rs. 2,50,00,000 at the time of issue of shares.
Q8: What provisions are applicable while buying property from Non-resident?
Mr. P non-resident sold his building situated at Mumbai to Mr. Z for a total consideration of Rs. 1.25 Crore. Should he deduct tax?
Section 194-IA does not apply where the payment is made to a non-resident. However Mr. Z will make payment to Mr. P after deduction of tax @ 20% plus surcharge and education cess (on capital gain computed) under section 195. (Section 195 deals with the payments made to non- residents, which is chargeable to tax under Indian Income Tax Act 1961)
Q9: So, what happens if you sell a property to Non Resident?
Mr. Akash, resident in India, sold his house situated in Kolkata to Mr. Rahul who is the resident of USA for a total consideration of Rs. 2 Crores
Mr. Rahul is required to deduct TDS @ 1% under Section 194-IA while making payment to Mr. Akash.
Q10: If a property is sold at a price lesser than stamp duty value, what value TDS to be done?
Mr.Deepak, resident in India, owned a house in Jaipur. He sold the house to Mr. Anand resident of Jaipur for a total consideration of Rs. 48 Lakhs. However, the stamp duty value of the property is Rs. 55 Lakhs
Now Mr. Anand is not required to deduct TDS under section 194-IA since the total consideration does not exceeds 50 Lakhs. So, the stamp duty value is not a consideration for TDS!
This article is written by CA Nikhil Jain