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Section-194IA was introduced in the Income-tax Act, 1961 by way of an amendment in the Finance Bill 2013 to have a reporting mechanism of transactions in the real estate sector and also to collect taxes at the earliest by deduction of tax at source. Since it covers high-value immovable transfers it also ensures the continuous inflow of revenue to the government.
Payment on transfer of certain immovable property other than agricultural land
| Applicability of the Section | Any person, being a transferee(not being a person referred to in section 194LA), and Responsible to pay any sum to a resident transferor as a consideration for the transfer of Immovable property*(not being an Agricultural land**) |
| Timing of Deduction | TDS should be deducted at the earlier of credit to the account of transferor or payment. |
| Mode of Payment | The Payment of consideration could be done by any mode such as cash, cheque, and draft or electronic clearing system through a bank account. |
| Threshold Limit | No deduction under section 194IA should be made if the amount of consideration for transfer of immovable property is less than fifty lakh rupees. |
| Rate of TDS | The transferee should deduct TDS at the rate of 1% of the sum of consideration paid under the Section-194IA. However, TDS needs to be deducted @ 20%, if the deductee does not furnish his PAN. |
| Requirement of TAN (Section-203A) | The Provisions of Section 203A to have a Tax Deduction Account No. (TAN) is not applicable for deduction of TDS under this section. |
| Implications in case of Multiple Buyers | In the case of multiple buyers, each buyer should deduct TDS as per their share in the property purchased. * For Example: If A & B decide to purchase a property for Rs 60 lakhs for 50% share each, they will have to deduct TDS @ 1% i.e. Rs 60,000 divided equally among them which comes out to be Rs 30,000 each. |
| Implications in case of Multiple Sellers | If the property being transferred has more than one owner, then the buyer had to deduct the TDS at the applicable rate for all the owners. However the applicability to deduct TDS is to be seen from the total value of property. * For Example: If A purchase a property for Rs 60 lakhs having co-owners sharing 50% each, A will have to deduct TDS @ 1% i.e. Rs 30,000 for each co-owner respectively. |
| Deposit of TDS and Form Filing Requirements | The TDS deducted by the purchaser should be deposited through the filing of Form 26QB which is a Challan cum Declaration Statement within 30 days from the end of the month in which the payment was made, after which there is a late fee penalty of Rs 200 per day till the failure to file TDS continues. The need to file separate TDS returns does not arise in this section. |
| Furnishing of TDS Certificate | The deductor is required to furnish TDS Certificate under Form-16B within 15 days from the date of filing of Form-26QB. |
*Immovable property is defined as any land, not being an agricultural land or any building/part of a building.
**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.
Practical issues faced while deducting TDS u/s 194-IA
In this section, the buyer is required to deduct TDS at the rate of 1% and at the rate of 20% in case PAN is not furnished by the seller. However, Form 26QB mandates the PAN of the transferor as a mandatory field and hence the buyer cannot file 26QB in case where PAN is not furnished by the seller. In the country like India, villagers generally don’t have PAN and for them to follow this section is quite difficult.
We assist our clients in filing of TDS returns and render advisory service with regard to applicability and implication of the section. If you have any questions with regard to payment / deduction of TDS, you may reach us, kindly click here
