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A Brief Overview of TDS under Section 194IA

A Brief Overview of TDS under Section 194IA

We know that income tax liability arises for the seller at the time of transfer of an immovable proper subject to the provisions of capital gain tax.However, the responsibility to deduct tax and submit it with the Government lies on the buyer and not on the seller. This section deals with the liability of a buyer to deduct TDS at the time of purchase of an immovable property.

As per the provisions of Section 194IA, when a buyer buys immovable property (i.e. a building or part of a building or any land other than agricultural land) costing more than Rs 50 lakhs, he has to deduct tax at source (TDS) when he pays the seller. This section is applicable with effect from 1stJune 2013. 

Nature of Transactions covered under this Section:

  • The income derived from the sale of an immovable property is liable to TDS deduction under this section if the sale consideration exceeds Rs. 50 Lakh in a financial year.
  • Consideration for Immovable Property’shall include:
  • Club Membership Fee;
  • Car Parking Fee, Electricity or Water Facility Fee;
  • Maintenance Fee, Advance Fee; or
  • Any other charges of similar nature which are incidental to the transfer of the immovable property.
  • This is applicable for immovable property purchased on or after 1 September 2019 as per Budget 2019.

Liability to Deduct TDS and Rate of TDS:

  • The buyer of the immovable property is liable to deduct TDS at 1% on the total sale consideration.
  • If the payment is made by installments, then TDS has to be deducted on each instalment paid.
  • Where PAN is not furnished by the seller, buyer has to deduct TDS is at 20%. PAN of the buyer is also mandatory.
  • TDS is to be paid on the entire sale amount including additional charges incidental to the transfer of the immovable property.
  • Example:
  • If you have bought a house at Rs 60 lakh, you have to pay TDS on full amount of consideration i.e. Rs 60 lakh and not on Rs 5 lakh (i.e. Rs 60 lakh – Rs 50 lakh). This is applicable even when there is more than 1 buyer or seller. Post the budget 2019 amendment to section 194-IA, in the above example, if on 1 September 2019, you have paid Rs 2 lakh towards parking fee, Rs 1 lakh for water facility fee and Rs 1 lakh for electricity fee, your sale consideration would be Rs 64 lakh (60+2+1+1). You will have to pay TDS on Rs 64 lakh @ 1%. Your TDS payable would be Rs 64,000. In case the transaction is carried out from 14 May 2020 to 31 March 2021, the rate is 0.75%.
  • Time of TDS Deduction and Deposit:
  • TDS is deducted at the time of payment (including instalment payments) or at the time of giving credit to the seller, whichever is earlier.

Form 26QB – TDS Return-Cum-Challan:

  • The TDS on the immovable property has to be paid using Form 26QB within 30 days from the end of the month in which TDS was deducted. For example, if TDS is deducted in the month of April, it must be credited the Government till 30th May.
  • Please note that Form 26QB is a Return-cum-Challan, hence there is no need to file a separate TDS Return.
  • Form 26QB can be filed online from the web portal tin.nsdl.com.

Form 16B – TDS Certificate:

  • After depositing TDS to the Government, the buyer is required to furnish the TDS Certificate in Form 16B to the seller.
  • This is available around 10-15 days after depositing the TDS and can be downloaded from TRACES.
  • The buyer is required to obtain Form 16B and issues the same to the seller.

Non/Late filing of TDS Statements:

  • The income tax department receives an Annual Information Return (AIR) from the registrar/sub-registrar office regarding the purchase and sale of property regularly. From this report, the department can figure out if you have made a property transaction exceeding Rs.50 lakh.
  • If the buyer has not TDS at 1% of the transaction amount or not filed TDS within the specified time, the IT department will send a notice to the buyer.

Penalty for the Buyer:

  • In case of default on account of non/late filing of Form 26QB, interest, late fees and penalty may be levied on the buyer as follows:

Interest:

Scenario

Interest Payable

Non-deduction of TDS

1% per month for the period from the date on which TDS is deductible/collectable to the date on which TDS/TCS is actually deducted.

Non-remittance of TDS

1.5% per month for the period from the date on which TDS is deducted to the actual date of payment.

Late Fees under Section 234E:

  • In case of default of non-filing or late filing of Form 26QB, a penal fee is applicable under section 234E of the income tax act. Rs. 200 has to be paid for every day during which such failure continues. The buyer would also be liable for defaults of late Deduction, late payment and interest thereon.

Penalty u/s 271H:

  • Assessing Officer may levy penalty under section 271H at his discretion. This section is applicable when a statement as required by the tax laws is not submitted timely.
  • Penalty under this section must be more than Rs 10,000 and can extend to Rs 1lakh.
  • However, if TDS is deposited with fee & interest and statement is submitted within 1 year of the time prescribed, no penalty shall be levied.

Implications for the Seller:

  • If the buyer does not submit the amount of TDS to the credit of the Government, or fails to provide correct information in Form 26QB, the seller will not be able to claim the TDS Credit.
  • It is very important for a seller to obtain TDS Certificate in Form 16B from the buyer and verify the details thoroughly. If any discrepancies found in the Form 16B, inform the buyer immediately for necessary corrections.
  • Also keep a check on Form 26AS to see whether TDS credits are received or not.

 

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