Property buyers, be aware of Section 194-IA; TDS on such purchase


By Nitin J Shetty
Chartered Accountant, Mangaluru

Mangaluru, Aug 4: Transactions in the purchase and sale of immovable properties such as lands, apartments and villas are generally undervalued and under reported. To curb such transactions which often lead to generation of black money, the then governmet in the Union Budget of 2012-13 introduced Section 194-IA of the Income Tax Act. With the insertion of this new section, TDS (Tax Deducted at Source) on transfer of certain immovable property became effective from June 1, 2013.

This means tax will now be deducted at source on sale of immovable property having a consideration of Rs 50 lacs and above. The rationale behind the measure was to create an audit trail of such transactions as they would then invariably get reported to the Income Tax department.

Unfortunately, many property buyers in India are not aware of the crucial Section 194-IA. Being ignorant of this proviso, when they go to the sub-registrar’s office for registration of the property they purchased, at the last moment they find that they cannot register the same. In the bargain the whole process of registration gets complicated and unnecessarily delayed.

There is a saying forewarned is forearmed. Be well informed buyers. Keep in mind the following details when purchasing immovable property where the consideration exceeds Rs 50 lacs. Don’t forget to keep aside the prescribed amount of money as TDSso that you don’t have to go through unnecessary hassles and delay due to your ignorance.

Under the new section on sale of immovable property, as a buyer you will have to deduct tax at the rate of 1% at the time of remitting the sale consideration to the seller.


There are, however, three important provisos’ before Section 194-IA becomes applicable:

1. The said property is not a rural agricultural property
2. The aggregate value of the transaction is Rs 50 lacs or above.
3. The seller or transferor is an Indian resident.

The new section does not apply in case sale of property is covered under Section 194-LA (where tax is deducted at source on payment of compensation on compulsory acquisition of certain immovable property by the government).

Also note Section 194-IA will not be applicable if the seller is a NRI (Non-Resident Indian). The payment made to a NRI seller will attract Section 195 under which TDS is required to be deducted @ 20% on the sale consideration. The limit of Rs 50 Lac is not applicable in case of payments made to NRIs.

However, the NRI seller has the option to make an application to his Jurisdictional Income Tax Officer and obtain a certificate directing the purchaser to deduct tax at a specified lower rate oratanil rate.

Here is an example as to how Section 194-IA operates. Suppose a person in India ‘X’ purchases property worth Rs 65 lacs from a resident property owner ‘Y’. ‘X’ needs to deduct tax @1% of the total amount, which works out to Rs 65,000 as TDS.

This amount shall then be paid by ‘X’ to the Income Tax Department on account of ‘Y’. It is mandatory to make online payment of the TDS amount. NSDL site has provided a link “TDS on sale of property” under ePayment of taxes to electronically deposit such payments.

In case you the buyer (deductor) don’t have net-banking facility, an alternate has been provided. You can fill the information online and then opt for e-tax payment on subsequent date option. Once the form is duly completed, an acknowledgement will be generated.

You can then visit a bank branch for payment,furnishing the acknowledgment number. The bank will use TIN web site to retrieve payment information based on the acknowledgement number and then proceed to make the payment electronically.

It is also compulsory to furnish PAN of both transferor (seller) and transferee (buyer). Complete address of buyer and seller of the immovable property must be given. With regard to property, full address, value consideration, date of agreement and whether payment is made in lump sum or installment is also to be provided in the online form.

While filling up PAN details online be extremely careful. In case of erroneous PAN, once entered there is no provision for correcting the same online. The only option available will be to approach the Assessing Officer or TDS-CPC.

TDS certificate in respect of the said deduction under Section 194-IA will have to be issued by you (buyer) to the seller in Form No 16B, manually. This form has to be issued within 15 days from the due date of depositing tax. Form 16B can be downloaded from the TRACES website. There is no need to file separate TDS return quarterly. Form 16B will suffice for the purpose.

After completion of this procedure the certificate of the TDS deduction has to be presented to the registrar at the time of registration of property. Also note as a property buyer in this instance you are not obligated to procure TAN (Tax Deduction Account Number) which is otherwise mandatory for all deductions as per Section 203A.


Conclusion:

Advance warning always provides an advantage. Buyers and sellers of immovable property (worth Rs 50 lacs and above) keep in mind the above details while carrying out the transaction. Don’t forget to deduct the tax amount at the right time and remit it to the Income Tax Department on time.

Here’s wishing all you property buyers and sellers smooth, hassle-free transaction.

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Comment on this article

  • CA Nitin J Shetyy, Mangalore

    Fri, Apr 8 2016

    Need not pay the TDS amount. Give the Income Tax Dept proof that the payments were made before June 2013.

    DisAgree Agree Reply Report Abuse

  • Pankaj Bishnoi, Ghaziabad

    Wed, Apr 6 2016

    Hello Sir/Madam,

    My query is regarding the income tax levied on buying of property above 50 lacs.

    Please see below the details of my case.

    1. I bought a flat rated above 50 lacs in the month of january 2013.
    2. The full payment of this ready to move in flat was paid by march 2013.
    3. Registry was delayed because the flat was not ready for possession and some work was to be done on that.
    3. in June 2013 the 194-IA was put in force by the government.
    4. After June the registry was done for the flat. where we dicussed the 1% tax that was to applied to us or not.
    5. The builder said you donot need to pay anything.
    6. Now i have got an email as a TDS initmation and asking for the tax payed on the immovable property.

    Can you please let me know the following.

    1. In my case, does it qualify for the 1% tax submission?
    2. if not, who should pay the 1% percent tax?
    3. what if the builder disagrees to pay the tax?

    Any other advice from your experience would be huge favor.

    Thanking you in advance and anticipating a reply from you.

    Regards
    Pankaj Bishnoi

    DisAgree Agree Reply Report Abuse

  • Guruprasad, Bangalore

    Thu, Jan 7 2016

    Sir, I chanced to go through this site and found the information highly useful for buyers of immovable property. I shall thank you to let me know whether apart from the TDS deduction obligation and form 16B, any other reporting obligation is to be fulfilled by the buyer? If yes, please furnish the form number etc.

    DisAgree Agree Reply Report Abuse

  • Basti Shenoy, Mangalore

    Thu, Aug 6 2015

    Very informative article. Thank you. Come out with such articles to help common man. Best wishes.

    DisAgree Agree [7] Reply Report Abuse

  • Philo, canada

    Wed, Aug 5 2015

    "The payment made to a NRI seller will attract Section 195 under which TDS is required to be deducted @ 20% on the sale consideration".I hope 20% is a print mistake!!That is lot of TDS!!

    DisAgree [1] Agree [8] Reply Report Abuse

  • Vidya, Dubai

    Fri, Aug 7 2015

    The 20% tax is a capital gains tax and would be charged on the gain made on the sale of the property.

    DisAgree [1] Agree Reply Report Abuse

  • shalu, Moodbidri

    Wed, Aug 5 2015

    Hope this rule will not applicable when sharing parents property between sibling...can someone explain please

    DisAgree [1] Agree [6] Reply Report Abuse

  • CA Nitin J shetty, Mangalore

    Wed, Aug 5 2015

    Only if there is a consideration passing then TDS will be applicable.

    DisAgree Agree [3] Reply Report Abuse

  • simple, bengaluru

    Tue, Aug 4 2015

    N.J. Shetty, C\A, Mangaluru

    Thank you vm for enlightening on Section 194-IA - TDS on such purchases.
    Many people will benefit from this information given by you as it will result in "fore warned fore armed".
    Hope persons like Mr. Shetty use this forum to educate on various matters, giving some of their precious time.

    DisAgree Agree [11] Reply Report Abuse

  • Mms, mangalore

    Tue, Aug 4 2015

    Sir, my question is suppose a Buyer has deducted 1% TDS before making a payment to a Seller as the above case. But in future Agreement between a Buyer & a Seller will be cancelled. Seller is ready to make refund of an amount to the extent which he received thru bank payment only. Then, in such case how a Buyer will get refund of 1% TDS from the Income Tax Authority? How long they should wait to get credit of the TDS amount? please explain Sir

    DisAgree [1] Agree [8] Reply Report Abuse

  • CA Nitin J Shetty, Mangalore

    Tue, Aug 4 2015

    After the end of the financial year the Seller will have to file his return of income and claim a refund of the said TDS

    DisAgree Agree [2] Reply Report Abuse

  • avinash, ksd/bluru

    Tue, Aug 4 2015

    Jossey and all other sickulars please dont blame this process coz it was introduced by upa govt. Read the article properly and pass favorable comments about this.

    DisAgree [22] Agree [12] Reply Report Abuse

  • Jossey Saldanha, Mumbai

    Tue, Aug 4 2015

    I don't want this TDS money to be spent on useless World Tours ...

    DisAgree [36] Agree [107] Reply Report Abuse

  • CHRIS, DUBAI

    Tue, Aug 4 2015

    lolz good one .

    DisAgree [13] Agree [42] Reply Report Abuse

  • j.anata, Mangaluru / Bengaluru

    Tue, Aug 4 2015

    Jossey, let not your frustration & obsession on Modi take away the actual benefits from his visits overseas

    DisAgree [36] Agree [17] Reply Report Abuse

  • CHRIS, DUBAI

    Tue, Aug 4 2015

    And what benefits are those?,please do elaborate....

    DisAgree [9] Agree [25] Reply Report Abuse

  • avinash, ksd/bluru

    Tue, Aug 4 2015

    Jossey then what you want to do ? Do you want this money to be sent to Italy?

    DisAgree [32] Agree [22] Reply Report Abuse

  • Vinod, Muscat

    Tue, Aug 4 2015

    Union Budget of 2012-13 introduced Section 194-IA of the Income Tax Act. With the ion of this new section, TDS (Tax Deducted at Source) on transfer of certain immovable property became effective from June 1, 2013. (Which Govt ????)

    DisAgree [3] Agree [13] Reply Report Abuse

  • Jossey Saldanha, Mumbai

    Tue, Aug 4 2015

    You guys are cornered ...

    DisAgree [3] Agree [9] Reply Report Abuse

  • Abdullah Amin, Udupi

    Wed, Aug 5 2015

    Well said, Vinod! That confirms hawala route to Italy and effectively shuts up Jossey Saldanha.

    DisAgree [10] Agree [3] Reply Report Abuse

  • pk, mangalore

    Tue, Aug 4 2015

    Information provided is informative and will make buyer and seller more vigilant and help understand whole process.

    DisAgree [1] Agree [32] Reply Report Abuse

  • Roshan P. D'Mello, M'lore

    Tue, Aug 4 2015

    R.E is complicated. Invest in equities, which is simple product & Tax free after 1 yr of investment.

    DisAgree [6] Agree [27] Reply Report Abuse


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