Budget 2019: TDS to now be paid on parking charges, maintenance fees while purchasing property

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Budget 2019 has proposed that car parking fees, club membership charges, maintenance fees and water charges be clubbed with the cost of the property while determining the amount of tax that the homebuyer is expected to pay at the time of property purchase.

This is what the Budget memorandum says:
“Section 194-IA of the Act relates to payment on transfer of certain immovable property other than agricultural land and provides for levy of TDS at the rate of one per cent on the amount of consideration paid or credited for transfer of such property. The term ‘consideration for immovable property’ is presently not defined for the purposes of this section. It is noted that in the transaction involving purchase of immovable property, there are other types of payments made besides the sales consideration and the buyer is contractually bound to make such payments to the builder/seller, either under the same agreement or under a different agreement.

Some of such payments are those for rights to amenities like club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee etc. Accordingly, it is proposed to amend the Explanation to said section and provide that the term “consideration for immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property.”

What this means

This pertains to property transactions where the value is Rs 50 lakh or more. This amendment will take effect from September 1, 2019.

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A buyer is required to deduct TDS at the rate of 1 percent on the amount of consideration paid for transfer of certain immovable property other than agricultural land (where the consideration involved is more than Rs 50 lakh).

The term ‘consideration for immovable property’ was not defined before the interim budget.

However, from September 1, 2019 on wards, consideration of immovable property shall include all charges of the nature of club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property.

To cite an example, if the total value of a property is Rs 1 crore, the amount would have to paid in five equal installments of Rs 20 lakh each. The demand letter issued by the builder for Rs 20 lakh comprises categories such as BSP, EDC, IDC, parking fee etc. While the BSP is marked at Rs 18 lakh, Rs 2 lakh are for other charges.

The confusion earlier was whether TDS was to be deducted on Rs 18 lakh or Rs 20 lakh that also includes miscellaneous charges. Now with the explanation added, it has been clarified in Budget 2019 that TDS is to be deducted on Rs 20 lakh.

"The explanation would certainly help glade the ambiguity and eliminate divergent practices that were being followed. Homebuyers can now simply deduct TDS on the value in the demand letter inclusive of charges such as club membership fee, car parking fee, maintenance fee etc," says Harpreet Singh, Partner in KPMG.

"This will simplify matters as all these are payments required to be made to the developer when buying a property rather than the current confusion that all such payments to be considered as sale consideration and TDS may be deducted on this entire amount. This will also settle disputes around cost of acquisition in calculation of capital gains on sale of property," says Sonu Iyer, partner, EY.