TDS on purchase of immovable property

TDS on purchase of immovable property

IF your are planning to buy a immovable properties, you should be ready to deduct tax at source (TDS) @1% subject to certain conditions from 1st Jun, 2013. The Finance bill, 2013 reintroduce provision for TDS on purchase of immovable property under section 194-IA.

As per this section every buyer at the time of making payment or crediting of any sum as consideration for transfer of immovable property other than agricultural land shall deduct tax at source at 1% of such sum where the total amount of consideration for the transfer of such immovable property is Rs. 50 Lakh or more.

As per above provision, we can break it into below mentioned ingredient to deduct TDS @1%:

  1.  In case of transfer of Immovable property other than agricultural land
  2. Consideration amount exceed Rs.50 Lakh
  3. Effective date for this provision is 01.06.2013
  4. Obligation is on every buyer irrespective of the status i.e individual, HUF, company , partnership firm etc . for tax deduction @1%
  5. Tax to be deducted at the time of making every payment or crediting of any sum as consideration

It is to be noted that it is statutory requirement to furnish the PAN in the documents relating to sale of property. Seller must have a Permanent Account Number otherwise as per Section 206AA of the Income tax Act; buyer is required to deduct tax at source @20% instead of 1%.

Provision of Section 203A relating to TAN is not applicable for Tax deducted under section 194I-A.

Practical Challenges:

  1. Seller and buyer both need to have PAN
  2. Every buyer need to deduct tax irrespective of status
  3. Tax deduction required while paying amount or crediting amount which could be booking amount or installment amount. This can be voluminous task for property developer to maintain records of Tax deduction by every buyer.

With introduction of this provision, Property transactions exceeding Rs.50 Lakh can easily monitor by Income tax department. Seller need to file income tax return and claim TDS on immovable properties which is deducted by buyer base on TDS certificate.

Posted in Income Tax Tagged with: ,
2 comments on “TDS on purchase of immovable property
  1. Anirban Gangopadhyay says:

    Thanks for the article. However, the 3rd point of practical challenges where it has been mentioned that “Buyer need to have a TAN” is not correct. Since form number 26QB through which the TDS is required to be paid does not insist on buyers TAN. Here the only important thing is the sellers PAN. In such transactions the buyer need not to file a TDS return. His responsibility is limited only to the extent of payment of TDS and issue of Form 16B to the seller and the whole process can easily be completed with out a TAN.
    Anirban Gangopadhyay
    FCA

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