Section 194IA Of Income Tax: TDS On Immovable Property
Among various forms of taxes in India, buyers are also liable to deduct tax at source (TDS) when purchasing certain properties. Section 194IA of the Income Tax Act, 1961 ensures deduction of TDS for purchasing immovable property during the transaction time.
To understand how this Section works, keep reading!
What Is Section 194IA of the Income Tax Act?
From June 1 2013, when purchasers buy immovable properties (it can be a building or a portion of buildings or land except for agricultural land) costing above Rs. 50,00,000, they have to deduct TDS when they pay sellers. This has been specified in Section 194-IA.
Let’s understand this provision with the help of an illustration.
Situation 1
Miss Gita, an Indian resident, sells her house to Mr. Varun, an Indian resident. This house is located in Delhi, and the sale consideration is Rs. 80 lakhs. Mr. Varun will have to deduct TDS u/s 194IA on Rs. 80 lakhs.
Situation 2
Miss Mandira, a non-resident, sells her house to Mr Raghav, a resident individual. This house is located in Bangalore, and sale consideration is Rs. 40 lakhs. Mr Raghav doesn’t have to deduct TDS u/s 194IA because the transaction amount is below Rs. 50 lakhs.
Also Read- Section 80D Of The Income Tax Act
Section 194IA of the Income Tax Act states these parameters:
Transfer of immovable properties
It includes charges such as advance fee, maintenance fee, water or electricity facility fee, car parking fee, club membership fee etc. It also consists of other similar charges that are incidental to immovable property transfer.
Agricultural land
It defines an agricultural area in the Indian sub-continent. This does not include lands located in any area specified in Section 2, clause (14), sub-clause (iii), (a), and (b).
Who Should Deduct Section 194IA TDS?
A transferee is responsible for deducting TDS. In this case, a transferee is the buyer of immovable property. Such a transferee can be a non-resident or a resident. However, a seller or transferor should be a resident. When a seller is not an Indian resident, Tax Deducted at Source u/s 194IA of the Income Tax Act is not applicable.
Let’s understand this scenario with the help of three examples:
Example 1
Mr. Rahul, a resident individual, sells his property to Mr Vijay, a resident individual. His property is located in Kolkata. Vijay will deduct TDS under this provision.
Example 2
Miss Reema, a non-resident, sells her house to Mr Veer, an Indian resident. Her home is located in Chennai. Mr Veer is liable to deduct TDS under this Section.
Example 3
Mrs Leela, a resident, sells her property to Mr George, a non-resident. Her property is located in Kochi. This situation does not qualify for Section 194IA deduction. TDS will be deducted u/s 195.
When Is the TDS Deducted U/S 194IA of Income Tax?
A buyer should deduct TDS on these cases, whichever is earlier:
- While making payment in cash or by issuing a draft, a cheque or via any other mode
- During the credit of such amount to a transferor’s account
What Is the TDS Rate as Per Section 194IA?
- Tax Deducted at Source rate on purchasing immovable property is 1% of the transaction amount.
- The deductor should not add education and health cess or any surcharge to the rate mentioned above.
- If a seller cannot present his/her PAN, the TDS rate will be 20%.
Also Read – Section 194C Of The Income Tax Act
How to Claim TDS Under Section 194IA of Income Tax?
Note the following points while purchasing immovable property:
- This Section does not apply to the transfer of agricultural plots and mandatory acquisition of immovable property.
- Neither a seller nor a buyer requires TAN for deducting TDS
- TDS should be deposited to the Government of India’s credit within thirty days from the month-end, during which TDS has been removed.
- The purchaser should pay TDS via Form 26QB and specify the seller’s PAN
- He/she should provide Form 16B as a TDS certificate. Form 16B is available on the TRACES portal within 10-15 days.
- An individual does not need to file a TDS return for such a transaction.
- The seller can adjust a TDS deduction against income tax payable while filing income tax returns.
- When making a TDS payment, the mandatory fields should be filled up correctly. The details are assessment year, PAN, type of payment (TDS), head of payment and amount of TDS.
What Happens During TDS Default?
The registrar and sub-registrar office provides the AIR (Annual Information Return) to the tax department. AIR retains the information of sale and purchase of immovable properties and its transaction values. Therefore, when a buyer deducts TDS at a different rate or has not deducted TDS or has not deposited TDS, the tax department records it.
The purchaser will receive a notice from the income tax department for such a default. Based on the kind of default, the following will apply to the purchaser:
- An interest for not deducting TDS (no TDS deduction interest)
- Prosecution
- Interest for non-payment of TDS
- Penalty
What Are the Implications of Default?
- No TDS deduction interest, low TDS deduction interest or non-payment of TDS interest goes to the Central Government’s credit.
- There exists a penalty charge of Rs. 200 each day for not filing Form 26QB u/s 234E of income tax.
- No prosecution, penalty or interest against the seller at the time of non-payment or non-deduction of TDS.
- The seller cannot claim TDS deduction when TDS is deducted, but the purchaser has not paid it. This will raise the tax liability of the seller. So, the sellers must understand the tax provisions, and the purchasers must adhere to these.
Final Word
Section 194IA of the Income Tax Act deals with TDS payments. The Finance Act, 2013 formulated this provision to track the purchase of immovable properties by resident taxpayers. An individual must go through the different sections of the Income Tax Act to learn about deductions and tax benefits.
Frequently Asked Questions
Every purchaser should fill out form 26QB challan for each unique seller-buyer combination (involving their respective share). When there are two sellers and a single buyer, 2 forms need to be filled up. Similarly, when there are two buyers and two sellers, then 4 forms will be filled in.
Yes, the TDS on a house is refundable. The purchaser will be deducting TDS on the house and depositing it with the Central Government when selling the house. Conversely, a seller can opt for credit of TDS or claim a refund of TDS by filing Income Tax Return (ITR).
There exists a penalty for non-payment of TDS on immovable property as per Section 201. An individual will have to pay a 1% interest a month when the tax was not deducted, whereas 1.5% when the tax was deducted and not paid to the Government of India. A late filing fee is applicable in Section 234E based on the tax due.
Yes, advance payment of TDS is feasible. A property’s buyer will be deducting TDS, either while executing a conveyance deed or making an advance payment (in case any advance has been paid before execution of a conveyance deed).
The purchaser needs to provide the transaction details of the immovable property online through the TIN portal. After furnishing the transaction details, the deductor will be able to:
> Pay TDS online via e-tax payment platform.
> Pay TDS later via the e-tax payment platform or by reaching the authorised banks.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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