The Indian Finance Minister P. Chidambaram while announcing the Budget 2013-14 introduced TDS on Property @ 1% on all Immovable Property Transactions over Rs. 50 Lakhs under Section 194IA.
Reason for Introduction of TDS on Property
P. Chidambaram while introducing TDS on Property said that Transactions of Immovable Property are usually undervalued and under-reported. Almost half of the Transactions don’t even carry the PAN Card No. of the parties concerned.
With a view to improving the reporting of such transactions and the taxation of Capital Gains, P. Chidambaram has introduced section 194IA which states that TDS on transactions of immovable property is to be deducted @ 1% where the consideration exceeds Rs. 50 Lakhs. This Section 194IA would be applicable wef 1st June 2013.
This would also tighten screws on Corruption and Black Money which is being circulated in the Real Estate Market as property transactions are at times used to park and generate black money.
However, Chidambaram specifically mentioned in his Budget speech that sale of Agricultural Land would be exempted from levy of TDS.
Although the Finance Minister has introduced TDS on Property @ 1%, the corresponding provisions of Section 54 have not been amended. This would lead to anomaly wherein tax may be required to be deducted even in cases where the capital gains are exempted under section 54.
- Exemption of Long Term Capital Gains under Section 54
- Tax benefits of Home Loan under Section 24, 80C, 80EE
Tax deducted on Property to be deposited with Govt
As per the Income Tax Act, any TDS deducted shall be deposited with the govt on or before the specified due date of deposit of TDS. Moreover, any person deducting TDS shall also apply for a TAN No. under Section 203A. This TAN No. is mandatorily required to be quoted at the time of deducting any TDS and also at the time of filing returns and deposit of TDS with the Govt.
The insertion of this new section 194IA for deduction of TDS on Property would have caused unnecessary hardship to the buyer of the property as he would have to apply for a TAN No. before purchasing any property. So as to remove any such hardship, the govt has introduced a new sub-section(3) to Section 194IA which states that a person deducting TDS on Property is not mandatorily required to possess a TAN No.
As per Notification No. 39 dated 31st May 2013, the TDS deducted by the buyer at the time of making the payment to the seller has to be deposited within a period of 7 days from the end of the month in which the deduction has been made. Form 26QB has been prescribed for making such payment and such payment can be done at any of the authorised bank branches and can also be done online on website of NSDL as mentioned below:-
After depositing the TDS, the buyer of the property would also be required to issue Form 16B to the Seller of the property in respect of the TDS deducted and deposited with the govt. Form 16B can be downloaded from the website of the centralised processing cell of TDS (CPC-TDS) i.e. www.tdscpc.gov.in
In case the PAN Card No. is not given by the buyer to the seller, TDS would be required to be deducted @ 20% under Section 206AA
TDS on Amount paid in Installments
As per Section 194IA, TDS is to be deducted at the time of payment. The date of transfer is not relevant as TDS is not required to be deducted at the time of transfer but is required to be deducted at the time of payment.
Therefore, irrespective of the date of transfer, the TDS is required to be deducted at the time of payment. So even if advance payment is being made, TDS would be required to be deducted. Moreover, in case the payment is being made in Installments to the Seller, the TDS would be deducted at the time of paying each installment.
More than 1 Buyer or 1 Seller
In case there is more than 1 buyer and the individual purchase price of each buyer is less than Rs. 50 Lakhs, but the aggregate value of the transaction exceeds Rs. 50 Lakhs, Section 194IA would be applicable and the TDS on Property would be required to be deducted and deposited with the govt before the due date.
Similarly, if there is more than 1 seller and the individual sale price of each seller is less than Rs. 50 Lakhs, but the aggregate value of the transaction exceeds Rs. 50 Lakhs, Section 194-IA would be applicable and TDS would be required to be deducted by the buyer at the time of making the payment to the seller.
Tutorial on payment of TDS on Property
TDS on property @ 1% was earlier introduced by Pranab Mukherjee in the year 2012 to be applicable from 1st October 2012 but it was rolled back before being implemented. However, P. Chidambaram has reintroduced TDS on Property wef 1st June 2013
Other Relevant Points regarding TDS on Sale of Property
- TDS on sale of property is required to be deducted on the total amount in case the value of the property sold is more than Rs. 50 Lakhs. This can be explained with the help of an example. If the property sold is worth Rs. 85 Lakhs, the TDS would be deducted on Rs. 85 Lakhs and not on Rs. 35 Lakhs (i.e. 85 Lakhs – 50 Lakhs). TDS on property in this case @1% would be Rs 85,000
- In case of more than 1 buyer/ 1 seller, Form 26Q has to be filled in separately for each buyer-seller combination. Eg: In case of 1 buyer and 2 sellers – 2 forms have to be submitted, and in case of 2 buyers and 2 sellers – 4 forms have to be submitted for their respective property share.