1% TDS On Purchase Of Immovable Property must be deducted

tax1By Accommodation Times Bureau

Under Section 195, on transfer of immoveable property by a non-resident, tax is required to be
deducted at source by the transferee. However, there is no such requirement on transfer of
immoveable property by a resident except in case of compulsory acquisition of certain
immoveable properties (section 194LA).
The Finance Act, 2013 inserted new section 194-IA to introduce TDS on consideration on
transfer of immoveable properties.
The objects of this have been explained by Explanatory Memorandum as under:
“There is a statutory requirement under section 139A of the Income Tax Act read with rule 114B
of the Income Tax Rules 1961 to quote Permanent Account Number (PAN) in documents
pertaining to purchase or sale of immoveable property for value of Rs.5 lakh or more. However,
the information furnished to the department in Annual Information Returns by the Registrar or
Sub-Registrar indicate that a majority of the purchasers or sellers of immoveable properties,
valued at Rs.30 lakhs or more, during the financial years 2011-2012 did not quite or quoted
invalid PAN in the documents relating to transfer of property. In order to have a reporting
mechanism of transaction in the real estate sector and also to collect tax at the earliest point of
time, it is proposed to insert a new section 194-IA…”

The Finance Minister in his speech explained the objects of the new section 194-IA as under:
“145. Transactions in immoveable properties are usually under valued and under reported. One-
half of the transactions do not carry the PAN of the parties concerned. With a view to improve
the reporting of such transactions and the taxation of capital gains, I propose to apply TDS at
the rate of one percent on the value of transfer of immoveable property where the consideration
exceeds Rs.50 lakhs. However, agricultural land will be exempt.”
Section 194-IA provides that every transferee (purchaser or buyer), at the time of making
payment or crediting of any sum as consideration for transfer of immoveable property (other
than agricultural land) to a resident transferor, shall deduct tax, at the rate of 1% of such sum. In
order to reduce the compliance burden on small taxpayers, no deduction of tax shall be made
where the total amount of consideration for the transfer of an immoveable property is less than
Rs.50,00,000. The provisions of section 203A [regarding obligation of deductors to obtaining tax
deduction and collection account number (i.e. TAN) shall not apply in respect of tax deducted
under this section. This amendment will take effect from 01.06.2013.

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