Budget 2022: Home buyer should deduct TDS on stamp duty value or purchase price, whichever is higher

In Budget 2022, the finance minister proposed that at the time of buying a property, the home buyer should deduct TDS at the rate of 1% of the property value or stamp duty, whichever is higher, effective from April 1. The aim is to bring parity between the different sections of the Income-Tax Act, 1961, namely 194-IA, 43CA and 50C.

According to the current provision under section 194-IA of the income-tax act, a home buyer at the time of making payment to the seller needs to deduct 1% of the property value as TDS, if the property value is more than Rs 50 lakh.

However, till now under section 194-IA it is not mentioned on what amount TDS should be deducted, in case there is a difference between actual price of the property paid by the buyer and the stamp duty value of the property. Actual price is usually the market value of the property, whereas stamp duty value is calculated based on the ready reckoner rate (which is also known as the “circle rate” or “guidance value” in other parts of the country), which is the minimum rate fixed on per square feet or per square meter of a property by the state government.

Unlink 194-IA, provisions under other sections like 43CA and 50C of the Act, for the computation of income under the head “Profits and gains from business or profession” and “capital gains” respectively, consider stamp duty value or the market value whichever is higher.

“To eliminate inconsistencies, it is proposed to amend section 194-IA of the Act to require TDS to be deducted at a rate of 1% of the amount paid or credited, or the stamp duty value of the property, whichever is larger. This shall prevent tax leakage in immovable property transactions,” said Sandeep Sehgal, Partner-Tax, AKM Global, a tax and consulting firm.

Once deducted, a home buyer is required to deposit the TDS with the income tax department, this helps the tax department to track financial transactions and eventually minimise tax evasion.