TDS on transfer of certain immovable property other than agricultural land (Section 194-IA)
Authors: CA. Dr. RajendraKumar Jain & CA. Dhansukh Jain
Tax Deducted at Source (TDS) is the easiest and biggest source of tax collection for the government. Government keeps on finding new avenues to bring more and more transactions under TDS net. “TDS on immovable properties “is new invention in the series.
This section is applicable from 1st June 2013 for the property transactions above Rs. Fifty Lacs.
This section has raised so many practical and legal issues, which are discussed here.
The section 194 IA reads as under,
1. “Any persons, being a transferee responsible for paying (other than the person referred to in sec 194-LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or any other mode, which ever is earlier, deduct an amount equal to one per cent of such sum as income tax thereon ”
2. no deduction under subsection (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.
3. Provisions of section 203 A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
Explanation – for the purpose of this section –
a. “agricultural land” means agricultural land in India , not being a land situated in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14 ) of section 2
b. “immovable property “ means any land (other than agricultural land) or any building or part of a building.
on the analysis of section we will find that, section clearly states that when seller is a “Resident” then this section will be applicable, this raises few questions
Q. What will happen if seller is non-resident?
The seller is a resident but the property is situated out of India then how will this section be executed on foreign resident?
Further in case if India has tax treaty with the country where property is situated in such situation whether treaty will supersede to sec 194 IA?
A. If the seller is non-resident then sec 195 of the income tax act will be in operation and accordingly tax will be deducted.
In case where buyer is foreign national and property is also situated at abroad then how provisions of this section will be imposed on them , but in my humble opinion in case the property and buyer both are of foreign soil then this section will not be operative since the preamble of income tax sec 1 says that The Indian Income Tax act will be applicable to whole of India .
Where as in case the buyer is Indian and property is located out of India then this section can be entrusted on buyer (and of course being a seller is also an Indian resident)
In case when property is situated out of India and the buyer and seller both are Indian resident and India has DTAA with the country where land will be situated yet the buyer cant take the benefit of treaty since this section has casted duty on buyer to deduct the tax when seller is Indian resident. The buyer needs not to look into the taxability of the transaction.
Q. Whether transfer of immovable property includes any right like developmental right /exchange / relinquishment ……….. in immovable property ??
A. On plane reading it seems that it covers every type of transfer. Further sec 2 (47) income tax act define what is transfer. It says “transfer in relation to capital assets includes (i) sale, exchange or relinquishment of the assets or
(ii) extinguishment of any rights there in …… this definition is inclusive definition and covers exchange and relinquishment, considering this analogy for this section “transfer” will include any exchange, relinquishment of rights in immovable property
Q. What is meant by payment of any sum for transfer of immovable property?
What will be position of transaction like exchange of assets, family arrangement, and gift of property where actual cash or cheque is not exchanged?
A. Since the section clearly says that “cash, draft or any other mode….. ….” That means in addition to transactions made though cash/ cheque transactions made through book entries will be also covered under this section.
As far as exchange of assets are concerned since one asset is transferred in lieu of assets, that being mode of payment it will be subject to TDS. In such transactions at a same time both parties are playing the role of buyer and sellers as well. In my opinion both seller and purchaser will need to deduct tax of each other.
In case of family arrangement there is no sale neither any consideration is been given the assets are transferred for “peace in family” hence in my opinion in that case this section will be not applicable
Since gift is transfer without consideration and this section speak about “any sum by way of consideration.” Hence gifts of the property will be not covered under this section.
Section 194IA has excluded “agricultural land” what does mean by agricultural land?
A. There are two conditions to make land an agricultural land
i. in government records the use of lad must be for agricultural purpose
ii. and criteria of distance from a town as per the sec 2 (14) iii (a) and (b) the land in question must be must be situated away from certain distance from any municipality or cantonment board the distance is depend on population of the town.
Interestingly if the land is situated within periphery of gram panchayat having population above the limit of population prescribed in sec 2 (14) iii (a) and (b) yet it will treated as agricultural land. Section 2 (14) refers to distance from “municipal town and not from panchayat “though both municipality and panchayat are human habitant but The difference between panchayat and municipality is panchayat is governed by panchayt act and municipality is governed by different act, considering this land situated in proximity of any panchayat irrespective of population will be treated as “agricultural land”
Refer the cases reported in 2 ITD 371 (Mad)
Q. After the sale transaction if there is no tax liability on seller can he apply for lower deduction certificate?
A. in view to save citizens from unwarranted exercise of deduction of tax then claiming refund from the Government Sec 197 was introduced. This section empowers assessee for obtaining lower deduction certificate from the assessing officer. When assessee produces this certificate to the deductor then deductor has to deduct the tax at the rates specified in the certificate. However in section 197 payments made under section 194 IA is not covered, so the seller cannot apply for lower deduction certificate.
Q. What will be situation in case of lump sum sale of business where it is difficult to find out exact price of immovable property?
A. For this no guidance is available in the law , However as per section 2(42C) “slump sale means transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to individual assets & liabilities in such sales”
So in case of slump sale there is transfer of undertaking which includes sale of immovable property but there is not transfer of immovable property directly. Hence in my opinion provision of Section 194IA will not be applicable in case of slump sale.
One may take practical approach by restoring to stamp duty value and deduct tax on that amount considering it as actual value of the property in my opinion it will irrelevant in view of explanation 2 of sec.2 (42 C) which says that “for removal of doubt it is here by declared that, the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities”
Q. What are the consequences for non deduction of tax? Will answer will be different if seller has no tax liability?
A. In case of failure to deduct the tax the buyer will have to pay interest and penalty as per the provisions of the act.
If the seller has fail to pay tax then to the extent of TDS amount can be recovered from the buyer, but if the seller has paid his tax liability then the buyer is liable to pay only interest and penalty for the delayed period.
But very interesting situation will arise when the seller will have no tax liability
Refer a case of “Thomas Muthoot versus Deputy Commissioner of Income-tax”
In the said case the tribunal has decided that when there is no tax is payable by the deductee assessee then there can not be any interest or penalty to be charged to the deductor, but this is very far fetched decision, which may lead to unwarranted litigation.
Q. What will be consequences of cancellation of deal? Who will claim the refund?
A. In case of cancellation of deal there are two situations are possible, either seller will forfeit the advance or he will return the money to the buyer
If he forfeits the amount then it become “ capital receipt “ in the hands of seller, so it will be not offered to tax as per sec 199 rwt rule 37BA(3)(i) of Income Tax Act which specify the procedure of giving credit of TDS states “Credit for tax deducted at source and paid to central government, shall given for the assessment year for which such income is assessable” since amount forfeited by the seller is capital receipt, which being not taxable in hands of seller, will be not offered for tax , in such situation how the seller will get credit of TDS will be big question .
In case the seller decides to return the advance he has to return entire advance money including TDS , since while paying advance the buyer has paid tax on behalf to the seller to the exchequer , and issued the TDS certificate to the seller , so only seller can claim the refund of the TDS .
Q. If seller does not have PAN can sec 206AA will be applicable? And buyer needs to deduct tax at @ 20%?
A. Theoretically we can say provisions od sec 206AA will apply but the form of payment of TDS is 27QB makes it mandatory to write both deductor’s and deductees PAN no. without that Number the assessee will be unable to upload the challan so by default deductee has to obtain the PAN then only the deal can get through.
Q. In case of multiple buyers, the limit of Rs.50 lakh will be considered qua buyer or qua agreement?
In my opinion the limit of 50 lacs will be qua agreement, even multiple buyers are there.
Q. In case of multiple sellers, the limit of 50 lakh will be qua seller or will be qua agreement? And on what basis the consideration will be split amongst the seller?
A. As stated in above question in my opinion transaction should be considered qua agreement , out of total consideration how much amount to be allocated to a particular seller ,this choice has to be left to the seller and preferably to have mention in the agreement
Q. In challan how the consideration of property will be shown? Does total consideration as per agreement or part payment relevant to each buyer and seller?
A. In the challan there is column for total consideration, in which total consideration is to be mentioned and in payment column payment relevant to that particular challan has to be mentioned.
Q. Does it make any difference if property is purchase through builder?
A. It does not make any difference from whom you are purchasing the property; the buyer has to make TDS.
Q. Does the buyer need to give any certificate to the seller?
A. Yes buyer has to give tax deduction certificate to the seller with in 15days in form 16B.
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