TDS on Purchase of Immovable Property

tax1By Accommodation Times Bureau

Under Section 195, on transfer of immovable 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 immovable property by a resident except in case of compulsory acquisition of certain immovable properties (section 194LA).
The Finance Act, 2013 inserted new section 194-IA to introduce TDS on consideration on transfer of immovable 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 immovable 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 immovable 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 immovable 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 immovable 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 immovable 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 immovable 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 is with take effect from 01.06.2013.

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