TDS on sale of Immovable Property – TDS Section 194IA

  1. Should the buyer need to comply with TDS provisions if the agreement is entered before 1st June 2013 but the payments are made after 1st June 2013? What if when part payment has been made on or before the agreement date and agreement was made after 1st June 2013? What if the part payment is made before 1st June and balance is paid after 1st June? Whether TDS to be deducted on the entire amount or the balance amount? On aforementioned issues there is judicial impasse. Th us, it is advisable for buyers to deduct tax on every payment made after 1st June 2013, if total payment after 1st June 2013 is likely to be INR 50 lakh or more
  2. In case of payment in installments, tax is required to be deducted for every installment. Th e same will increase the compliance burden on the buyers.
  3. In case of under construction property and payments are made in installments. Now the question here is whether the banks/FIs will deduct tax @ 1% and pay to the government or bank will pay the full installments and the buyer will pay the tax and get it refunded from the builder. Th ere is no clarity on this aspect till date. In my view, Banks/ FIs will not take the additional administrative burden and buyer should discharge these obligations
  4. As per section 199 (read with Rule 37BA) of the Act, a person can avail credit of TDS in the year in which the income is assessable. In case of Real Estate Developers who are following project completion method, TDS refund has to be claimed each year during the construction stage.
  5. In case of sellers claiming exemption u/s 54, 54EC, 54F of the Act, Tax has to be deducted u/s 194-IA. Th ey will be required to claim refund by fi ling the return of income. Till that time, their refund lies with the revenue authorities for a return of 6% per annum, which is even lower than the treasury rates. Facility of lower or NIL deduction is not provided under section 194-IA

6. In case of joint ownership of property.

For example, a property under joint ownership is sold for INR 60 lakh, where individual share of each of the seller is less than INR 50 lakh. In case of jointly purchase of property having a value of INR 60 lakh, where each buyer had contributed less than INR 50 lakh, whether each buyer has to make comply with the provisions of the Act as per their share or 1 buyer can make compliance for entire transaction? In case of two or more buyers or two or more sellers, there is no clear guidance. Th ough, a bare reading of the section gives an impression for applicability of the section if the consideration for immovable property value in Rs. 50 Lacs or above. It is advisable that each buyer comply the provision in respect of their share in property. Still the same needs clarifi cation for preventing litigation. 7. Whether deemed consideration, being stamp duty value as per section 50C / 43CA, can be replaced with actual consideration for compliance? In Finance bill 2012, there was a proposal to take stamp duty value for TDS. However, the same is missing in the newly introduced section. Th us, actual consideration should be considered for compliance. 8. In case of cancellation of transaction/booking, procedure of claiming refund has not been prescribed. 9. Sellers cannot apply for lower deduction certificate as section 197 does not cover section 194-IA. Th is will lead to unwarranted exercise of tax and then claiming refund from government. 10. Th ere is no guidance regarding sale of immovable property as slump sale.

Conclusion

Section 194 IA puts additional compliance burden for property buyers. Th e provisions are required to be complied by them timely in order to prevent penal action. Moreover, the provision has acted as trail for government to trace the major property transactions and to ensure proper valuation and reporting of same to the government authorities leading to higher tax revenue for the government. However, several issues need to be clarified in order to avoid future litigations.