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TDS on Property

TDS on sale of Immovable Property (Sec 194IA).

Section 194-IA is applicable on sale of Property. However, if is not applicable if the transfer property is made without any payment or consideration, like take the case of gift, this section will not apply. TDS on sale of Immovable Property should be deducted at source from payment on transfer of immovable properties (other than agricultural land) where the consideration paid or payable is more than Rs 50,00,000/-.

Any person who makes a purchase of Property, who is responsible for paying to a resident Seller of property or pays any sum by way of consideration for transfer of any immovable property (other than agricultural land), is liable to deduct tax at source under section 194-IA. Where the transaction is less than Rs 50,00,000 /-, the liability of T.D.S will not be applicable.

At what Rate the TDS shall be deducted :-

Tax is deductible at the rate of 1% of the consideration payable to a resident transferor. If a valid PAN is not provided by the seller, the tax rate would go up to 20%.

Payment and Return of TDS :-

Tax shall be deducted at the time of payment or at the time of giving credit to the transferor, whichever is earlier. If advance payment is being made then TDS would be required to be deducted at the time of advance payment itself. And if installment payment is made, the TDS

would be required to be deducted at each such installment. The tax deducted shall be paid to the credit of Central Government within a period of seven days from the end of the month of deduction. Online payment u/s 194IA is mandatory and the tax should be deposited on

challan-cum-statement on Form No.26QB.

Form No 16B (TDS Certificate) will be issued by the deductor within fifteen days from the due date of depositing tax.

Obtaining TAN:-

The Purchaser is not required to obtain a TAN for deduction, to fill up the requisite Form No.26QB .

What should you know before filling up of the columns in the new FDorm No. 26 QB which is a challan-cum-statement for deduction of tax are as under:

1. Full name of the transferee/payer/buyer

2. Complete address of the transferee/payer/buyer

3. Full name of the transferor/payee/seller

4. Complete address of the transferor/payee/seller

5. Complete address of the property transferred

6. Date of agreement/booking

7. Total value of consideration rupees

8. Payment in installment or lump sum

9. Amount paid/credited

10. Date of payment/credit

11. Rate at which tax deducted

12. Amount of tax deducted at source

13. Date of deduction

14. Date of payment of tax deducted at source

15. TDS (Income-tax) Credit of tax to the deductee shall be given from this amount.

Where property is held by Joint-owners.

In case of joint owners, the threshold limit of Rs 50,00,000/- is to be determined property-wise and not transferee-wise. The number of buyer or seller would not matter at all. The value of property should be more than Rs 50,00,000/- for applicability of deduction of tax.

The columns given above should more be filled up carefully in the challan-cum-statement for deduction of tax under section 194IA. Also, once the tax has been deducted at source, the buyer/purchaser should prepare Form No. 16B which will be generated electronically on the government’s website, download the same, send it to the seller.

Any Person who is investing in purchase of immovable property other than rural agricultural land of the value of Rs50 lakh or more should carefully understand his/her obligations for deducting income-tax at the rate of 1% from the payment made to the seller in respect of purchase of the properties on or after 1 June 2013.

The TDS certificate can be downloaded from TRACES

(www.tdscpc.gov.in).

It is pertinent to note that the above mentioned provisions are not applicable to a “NRI” seller as he will be governed by the provisions of Section 195 of the Income Tax Act, 1961.

T.D.S. need to be DEDUCTED on Purchase of Property from an " NRI "

In case of NRI (Non-Residents of India), TDS i.e; tax deduction at source is explained as per section 195 of the Income Tax act which says any person responsible for paying the same to a non-resident, not being a company, or to a foreign company, any interest (not being interest on

securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries” shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force .

For Non Resident Indians.

If payment is made to a Non-Resident then section 194-IA will not be applicable. Rather section 195 will be attracted and TDS is required to be deducted @ 20%+EC&SHEC on the sale consideration. Surcharge @ 10% will be applicable if amount paid exceeds Rs 1 crore. The limit of Rs 50,00,000/- is not applicable in case of payments made to NRI’s.

This brings us to two interesting questions –

Does the buyer need to deduct the Tax?

As per the act if one is paying any “sum” to a Non-Resident, where such sum is chargeable under the Act, one is required to deduct tax. Hence the buyer is liable to deduct tax from the payment made to the seller.

Does the buyer need to deduct the tax on the whole transaction or the portion of capital gain?

The important phrase in the section is “sum chargeable under the provisions of the Act”. This means that whatever be the amount paid, buyer has to deduct tax on that sum, not the profit earned by the seller on it. In other words, buyer cannot compute the Long term or short term capital gain and deduct the tax due on it. The liability to deduct tax is on the gross amount paid.

I further reasoned why TDS is on the gross amount and not on the capital gains made by the seller? There are practical challenges faced if the payee has to calculate the Tax liability of the seller.

Some of them are:

How to determine the capital gains for the seller? If the seller gives his purchase agreement, then it may be possible to know the cost. However the property could be constructed. The buyer may not have bills for material, contractor or labour. If the property is acquired prior to 1.4.81, the market value may not be available.

The seller is willing to invest in capital gains bonds, or buy / construct another property. The investments can be made within the prescribed time which can be up to 3 years in case of property to be constructed. The prescribed time for deducting TDS and paying to the government is a maximum of 2 months from the end of the month in which payment is made / credited to the non-resident’s account. Can the buyer wait till the seller invests in the bonds or the flat? What if the buyer waits, but the seller cannot invest?

Rate of which tax to be deducted:

As per Sec 195, tax has to be deducted at the ‘rates in force’. ‘Rates in force’ is defined u/s 2(37A)(iii) as the rate specified in the Finance Act. Currently the effective rate is 20% +EC & SHEC.

What is the provision on TDS if there is no capital gain in the transaction?

If there is no capital gain at all in the transaction or the tax payable on capital gain is less that the TDS deducted, then the payer can approach the assessing officer and get a exemption certificate or a certificate of lower or Nil Deduction of TDS. This is provided in subsection (2) of

Section 195. Alternatively, u/s 195(3), payee also can approach the AO (Assessing Office) and get the certificate. Unless such certificate is not obtained, the payer has to deduct tax, even in case where the property is sold at a loss.

In most of the cases (apart from one’s where NRI or buyer gets the permission from the Assessing Office) the tax deducted for the NRI would be in excess.

NRI Needs to file his return of income in India and claim the refund of access amount.

Process for Deducting TDS on payment to NRI:

The purchaser should have his Permanent Account Number (PAN) before he enters into any such transactions. The purchaser before deducting income tax from such payment, should apply for and get a Tax deduction Account Number (TAN) as per section 203A of the Income Tax Act 1961.

The purchaser should collect the Permanent Account Number (PAN) of the said Non Resident Indian before deducting the tax. The purchaser should deposit, (by using challan for payment of TDS), the income tax so deducted, with the government (through banks authorized to collect direct taxes) within seven days from the end of the month in which such tax is deducted. The purchase should file the TDS returns electronically, and issue TDS certificate to the seller.

Documents Required To File Application of Lower Deduction OR Exemption Certificate.

1. Duly filled and signed Form 13.

2. Photo copy of PAN Card of seller.

3. Proof of residential Status.

4. Passport copy with VISA stamping.

5. Proof of TDS, Advance Tax paid, if any.

6. In case Income during the previous 3 years was below taxable limit, an affidavit to that effect.

7. Copy of the Registered Sale deed (at the time of purchase of property).

8. Copy of the sale agreement by virtue of which transaction occurs.

9. Capital gain calculation.

10. Proof for exemption/deductions claimed under the head capital gain.

11. Bank guarantee for the tax liability arising out of the transaction if it is proposed to issue the certificate at 0%.