Jigar M. Patel
International Tax Attorney
TDS on High Value Property Transactions
Finance Act 2013 introduced the provisions of Section 194-IA in the Income-tax Act, in respect of tax deduction at source (TDS) on property transactions. Prior to this section, the tax department had to largely rely on information submitted by the registration authorities and on voluntary compliance by sellers, in order to track property transactions. Bringing in the TDS provisions on property transactions helped in widening the tax base, ensuring better compliance and tackling the issue of black money.
What is Section 194-IA?
The provisions of this section are applicable when any person purchases immovable property (other than agricultural land), from a resident seller, for a consideration of Rs. 50 lakhs or more. The buyer must deduct 1% TDS on the entire sale consideration, not merely on the amount exceeding Rs. 50 lakhs. The deduction is required at the time of payment or credit, whichever is earlier. The meaning and interpretation of what constitutes exempt agricultural land, shall be the same as that assigned for capital gains tax purposes.
TDS on Actual or Deemed Consideration
At times, the Jantri Value or the Stamp Duty Value of the immovable property may be higher than the actual consideration paid or payable. It is pertinent to note that the TDS under this section is to be done on the higher of the two, i.e., actual consideration or the Jantri Value.
Simplified Procedure for Tax Deduction and Reporting
The buyer must deduct 1% TDS at the time of payment or credit, whichever is earlier. In case the payment is to be made in instalments, TDS must be deducted on each such instalment.
The simplified procedure requires the buyer to use Form 26QB, which acts as both a challan and a statement for the transaction. This form is filed online on the e-filing portal of the Income Tax Department. The buyer must provide the Permanent Account Numbers (PAN) of both him and the seller. It is pertinent to note that the buyer does not need to obtain Tax Deduction Account Number (TAN), for complying with the provisions of section 194-IA. The buyer must file Form 26QB and deposit the TDS amount within 30 days from the end of the month in which the deduction is made. Non-compliance or delay may attract interest, late fees and penalty under the Income-tax Act.
Amendment in regard to Aggregate Consideration
Based on the language of the TDS provision, as introduced, there were several judicial precedents, wherein, it was held that the threshold of Rs. 50 lakhs consideration was to be applied per payer / payee. Accordingly, in cases where there were either multiple sellers or multiple buyers, as long an individual person’s share in the consideration did not exceed Rs. 50 lakhs, liability for TDS was not attracted.
With effect from October 1, 2024, a significant amendment was introduced providing that where there is more than one transferor or transferee, the consideration shall be the aggregate of the amounts to be paid to all transferors or transferees, in connection with the transfer of such immovable property.
TDS when Purchasing from a Non-Resident?
It is pertinent to note that the provisions of this section are applicable only in the case of a resident seller. If the seller of the property is a Non-Resident, the provision for TDS would be applicable in accordance with Section 195, which requires the buyer to deduct TDS on the income chargeable to tax, arising from the sale of the immovable property. The applicable rate and amount of TDS would thus depend on the nature of the gain, i.e., long-term or short-term.
Moreover, the buyer would be required to obtain TAN for deducting tax under section 195 and subsequently file the TDS statement in the prescribed Form 27Q.
