Tax and investment consultant Subhash Lakhotia gives a detailed explanation on the new section in the Income Tax Act of 1961- TDS on transfer of immovable property.
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A new section 194IA has been inserted in the Income-tax Act, 1961 by the Finance Act, 2013. It provides for tax deduction at source on transfer of certain immovable property other than agricultural land.
In this article, procedural aspects connected with tax deduction at source has been brought together at one place so that tax compliance becomes easy for all those persons who are going to buy immovable property of Rs. 50 lakh or more.
As per this new provision, any person, being a transferee responsible for paying to a resident transferor by way of consideration for transfer of immovable property other than agricultural land, shall at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, is required to deduct an amount equal to 1 percent of such sum as income-tax thereon specially when the value of the immovable property is Rs. 50 lakh or more.
From the provisions as contained in section 194IA, it is very clear that the provisions relating to tax deduction at source by the purchaser come into operation only when the payments are made to a resident transferor.
Thus, it is clear that in case the payments are made to a Non-Resident transferor, in that situation the above mentioned provisions relating to TDS at the time of purchase of the property is not applicable.
If a person purchases some property in London the value of which is Rs. 80 lakh, still the purchaser will not be required to comply with the formalities of tax deduction at source on purchase of the property because in this case the payment is made to a Non-Resident transferor.
The Income-tax Act provides that the purchaser shall at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, is required to deduct an amount equal to 1 percent of such sum as income-tax thereon specially when the value of the immovable property is Rs. 50 lakh or more.
The Income-tax (Fifth Amendment) Rules 2013 which have been issued vide Notification No. 39/2013 dated 31st May 2013 clearly specifies the changes which have been made in the Income-tax Rules and the forms. Rule 30 and Rule 31 together with Rule 31A of the Income-tax Rules, 1962 have been amended.
It may be noted here that Rule 30 of the Income-tax Rules provides for guidelines relating to time and mode of payment to the account of the Government in respect of the tax deducted at source.
The new amendment rules specifically state that the amount of tax deducted at source consequent to payment on transfer of certain immovable property in terms of section 194 IA of the Income-tax Act, 1961 shall be paid to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made.
It further provides that the payment shall be accompanied by a challan-cum statement in Form No. 26QB.
Likewise, it is also provided in the new amendment that where the tax deducted is to be deposited in respect of transfer of certain immovable property, then the amount of the tax which is to be deposited shall be accompanied by a challan-cum statement.
A new Form No. 26QB has been provided which is actually a challan-cum statement for the TDS amount in respect of payment for immovable property.
It is specifically provided that the amount of TDS in respect of purchase of the property shall be deposited to the credit of the Central Government by remitting it electronically.
Tax payers of India are fully aware that whenever tax is deducted at source by the employer, a certificate in Form No. 16 is issued to the salaried employees in respect of the tax so deducted. Likewise, Form No. 16A is a certificate issued in respect of various types of tax deducted at source.
Now a new Form No 16B has been prescribed which is a certificate of deduction of tax at source in terms of section 194IA. This being a certificate of TDS in respect of payment of TDS on transfer of certain immovable properties has to be issued to the payee within fifteen days from the due date for furnishing the challan-cum statement in the above mentioned Form No. 26QB.
Thus, it is crystal clear that to comply with the formalities of tax deduction at source in terms of section 194IA when the payment is for purchase of certain immovable properties of the value of Rs. 50 lakhs or more, the tax deduction has to be done at the rate of 1 percent for which Form No. 26QB has to be filled up and there has to be e-payment of such tax using electronic payment facility at any of the authorised bank including Self Net Banking Facility.
Finally, the certificate of TDS in Form No. 16B should be issued by the deductor.
It is important to note that generally speaking, whenever the formalities relating to tax deduction at source are to be complied with, there is also a requirement of obtaining TAN No. (Tax Deduction Account Number).
But in respect of TDS relating to purchase of immovable properties there is no requirement to obtain TAN. However, what is most important is to obtain the Permanent Account Number of the seller from whom such tax is being deducted at source.
This is one of the most important point to be taken care of while depositing the TDS amount. In case there is no Permanent Account Number of the seller, in such a situation TDS at source will be required to be deducted at the rate of 20 percent. For ready reference it should be noted that section 206AA of the Income-tax Act, 1961 requires furnishing of Permanent Account Number to the person responsible for deducting tax at source.
It is specifically mentioned in this section that where such Permanent Account Number is not submitted, in that case the rate of TDS will be at the rate of 20 percent. The provisions of this section 206AA will also be applicable in case of TDS by the purchaser of immovable property of Rs. 50 lakhs or above.
Hence, whenever you are entering into property transactions, make sure that you obtain the Permanent Account Number of the seller and deduct TDS only at the rate of 1 percent specifically when the property purchase value is Rs. 50 lakhs or above.
Practical wisdom demands that in case the seller does not have a Permanent Account Number, then it is better to wait for a few days and let the seller obtain a Permanent Account Number so that TDS by the purchaser is done at the rate of 1 percent only as against 20 percent TDS for non-mentioning Permanent Account Number of the seller.
The new Form No. 26QB which is a challan-cum statement of deduction of tax under section 194 IA contains certain important details which are required to be filled up while making payment of TDS in respect of purchase of the property of the value of Rs. 50 lakhs or above.
Some of the important columns in the new Form No. 26QB 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.
The above mentioned columns should more particularly be filled up carefully in the challan-cum statement for deduction of tax under section 194IA. Likewise, once the tax has been deducted at source, the purchaser should also prepare Form No. 16B which will be generated electronically on the Government’s website should be prepared and sent to the seller.
This Form No. 16B being certificate for tax deducted at source from the seller contains the various details relating to the name and address of the deductor, name and address of the deductee, the PAN Number of the deductor and the deductee as also summary of the transaction.
All those persons who are deducting tax at source in respect of payment made to the seller for purchase of property of the value of Rs. 50 lakhs or above should ensure that the TDS certificate is given in this new Form No. 16B only and not in any of the earlier existing forms for TDS certificates.
All those persons who are making investment on purchase of immovable property other than rural agricultural land of the value of Rs. 50 lakhs or more should carefully understand their obligations for deducting income-tax at the rate of 1 percent from the payment made to the seller in respect of purchase of the properties on or after 1st of June, 2013.
The TDS certificate can be downloaded from TRACES (www.tdscpc.gov.in).
The Author is Tax and Investment Consultant at New Delhi for the last over 40 years.