TAX TALK-30.03.2015-THE HITAVADA
CA. NARESH JAKHOTIA
TDS has to be done while purchasing Urban Agricultural Land also
U/s 195 of Income Tax Act, the purchaser of house hold property is required to deduct 1% TDS. Whether this will be applicable in case of joint property (50:50) where the total sale value is more than Rs. 50 Lacs but the share of each holder’s is less than Rs. 50 Lacs & the amount is paid accordingly to each holder? Please give your opinion. [Rajendrapaul Guptaemail@example.com]
Tax Deduction at Source (TDS) is one of the major source of tax collection, by which a certain percentage of a transaction amount is deducted by a person at the time of making/crediting certain specific nature of payment to the other person, and the deducted amount is remitted to the Government account on behalf of payee. It ensures regular inflow of cash resources to the Government & also acts as a powerful instrument to prevent tax evasion. Though, tax professionals to a great extent helps in creating awareness about the changing tax laws, minimal & un-matching advertisement & publicity from the side of government contributes towards non-compliances & results in penal consequences on the taxpayers. One such provision is TDS u/s 194IA of the Income Tax Act-1961. All those who are purchasing an immovable property (other than RURAL agricultural land) of the value of Rs. 50 Lacs or more should carefully understand their obligations of deducting income-tax @ 1% from the payment made to the seller against purchase of the property on or after 1st June 2013. The provision is not applicable where the consideration for transfer of an immoveable property is less than Rs. 50 Lacs.
There are multiple issues on TDS u/s 194IA as payments in most of the cases are required to be done in installments spread over more than 1 financial year & installments is required to be paid before as well as after the agreement is made which is in further variance with the date of possession. The confusion prevails as to the timing of doing tax deduction- Whether on first payment, on agreement or on possession? In view of the wide reaching applicability of this new section and harsh consequences in case of non – compliance, I have attempted to simplify the provisions of the section. Few of the important aspects which tax payer should know about TDS on immoveable property are as under:
- Urban agricultural land attracts TDS provision u/s 194IA. Its only rural agricultural land which is outside the purview of TDS provision. An agricultural land is considered as rural agricultural land if it is not situated in any area within the distance (measured aerially) of not more than:
a] 2 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but not exceeding 1,00,000; or
b] 6 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 1,00,000 but not exceeding 10,00,000; or
c] 8 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000.
- TDS U/s 194IA is required to be done only when the payments are made to a resident transferor. If payment is made to a Non-Resident then TDS provisions of section 194IA will not be applicable. Rather, in such cases TDS would be required u/s 195 which is @ 20% plus applicable education cess & surcharge. Further, the limit of Rs 50,00,000/- is not applicable in case of payments made to NRI(s).
- The law was newly introduced in the last year and lot many people who have purchased an immoveable property without doing TDS in the FY 2013-14 are now facing the unpleasant music from the income tax department. In case of failure of the buyer to deduct tax at source, buyer will have to pay interest & penalty along with TDS amount. If, however seller has filed the return of income incorporating income from sale of such property & furnishes CA certificate to the seller in Form No. 26A then TDS amount cannot be again recovered from the buyer, Thanks to proviso inserted in section 201 by the FA-2012.
In case of failure to comply with the provision of TDS, interest is to be charged is:
i] @ 1% pm or part of the month for failure to deduct tax or short deduction of tax, from the date the tax was deductible till the date the same is deducted
ii] @ 1.5% pm or part of the month for tax deducted but not paid to the government, from the date of deduction till the date of actual payment.
- An important issue in your query which is frequently raised in almost all the tax related programme is about the limit of Rs. 50 Lacs, whether it is per person or per property. To clarify, the relevant part of section 194IA is reproduced hereunder:
194IA(2) “No deduction under sub-section (1) shall be made where the consideration for the transfer of an immoveable property is less than fifty lakh rupees.”
In the case of jointly owned property, it may so happen that the share of each joint owner is less than Rs. 50 Lacs but the property value is Rs. 50 Lacs or more. In my opinion, the limit of Rs. 50 Lacs is qua agreement & not qua buyer/seller. Even if multiple sellers (or even buyers) are there & if the transactions value of the property is Rs. 50 Lacs or more, buyer should deduct & pay the tax. However, possibility of alternative argument that every joint owner is transacting for his share in an immoveable property and the consideration for the transfer of immoveable property of individual co-owner is less than Rs. 50 Lacs cannot be overruled. It is advisable to adopt the conservative approach in complying with the TDS provisions to have a better sleep & peace of mind. Those who have already completed the transactions of buying an immoveable property without complying with the TDS provision on the ground that individual share of each co-owner is less than Rs. 50 Lacs may receive the notices from income tax department and may be required to undergo the legal battle to settle the issue in their favor.
- Where immovable property is transferred at a value less than the value adopted for stamp duty purposes, the stamp value would be deemed to be sale consideration for such transfer for the purpose of calculating capital gain tax. However, such value is only for computation of capital gains and would not impact TDS U/s 194IA. Accordingly, TDS is required to be done on the actual sale value and not on the ready reckoner value or guideline value or Government valuation.
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at SSRPN & Co, 10, Laxmi Vyankatesh Apartment, C.A. Road, Telephone Exch. Square, Nagpur-440008 or email it at firstname.lastname@example.org.]