Section 194-IA. TDS on Immovable Property

^86a[Payment on transfer of certain immovable property other than agricultural land.

194-IA. (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) 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 by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon.

(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.

(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

Explanation.— For the purposes of this section,—

(a)  "agricultural land" means agricultural land in India, not being a land situate 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.]

86a.  Inserted by the Finance Act, 2013, w.e.f. 1-6-2013.

TDS is to be deducted on total amount: 

TDS on sale of property is required to be deducted on the total amount in case the value of theproperty sold is more than Rs. 50 Lakhs. This can be explained with the help of an example. If the property sold is worth Rs. 90 Lakhs, the TDS would be deducted on Rs. 90 Lakhs and not on Rs. 40 Lakhs (i.e., Rs. 90 Lakhs - Rs. 50 Lakhs). TDS on property in this case @1% would be Rs. 90,000.

In case of more than 1 buyer or seller:

 In case there is more than 1 buyer and the individual purchase price of each buyer is less than Rs. 50 Lakhs, but the aggregate value of the transaction exceeds Rs. 50 Lakhs, section 194-IA of the IT Act would be applicable and the TDS on property would be required to be deducted and deposited with the government before the due date. Similarly, will be the case of seller. Another question that arises is to how. Form 26Q will be submitted in that case and with what amount? In case of more than 1 buyer/1 seller, Form 26Q has to be filled in separately for each buyer-seller combination.

In case of 1 buyer and 2 sellers - 2 forms have to be submitted, and in case of 2 buyers and 2 sellers - 4 forms have to be submitted for their respective share in property. For example: If there is 1 buyer (B) and 2 sellers (S1 and S2 having share 1:1) and the value of property is Rs. 60 Lakhs, then 2 Forms 26Q will be filed between B and S1 and B and S2 amounting to Rs. 30 Lakhs each.

In case of payment in instalments 

 As per Section 194-IA of the IT Act TDS is to be deducted at the time of payment. The date of transfer is not relevant as TDS is not required to be deducted at the time of transfer but is required to be deducted at the time of payment. Therefore, irrespective of the date of transfer, the TDS is required to be deducted at the time of payment. So, even if advance payment is being made, TDS would be required to be deducted. Moreover, in case the payment is being made in Instalments to the seller, the TDS would be deducted at the time of paying each instalment. This section was made applicable from June 1st, 2013 and the people who had to pay instalment for purchase of building were confused as to whether TDS should be deducted and on what amount? TDS should be deducted on the said amount, but only for value/instalments after the date of applicability of this section.

For example: If value of a property is Rs. 60 lakhs, out of which Rs.40 Lakhs was paid before 1st June 2013 (before this section became applicable) and Rs. 20 Lakhs will be paid after that. TDS should be deducted on Rs. 20 Lakhs only.

 Provisions for Non-Resident Indian 

 If payment is made to a Non-Resident then section 194-IA of IT Act will not be applicable, rather section 195 of the IT Act will be attracted. Surcharge @ 10% will be applicable if amount paid exceeds Rs. 1 crore. The limit of Rs. 50,00,000/- is not applicable to case of payments made to NRIs.

Cases of Gift 

Section 194-IA of the IT Act is applicable to all including relatives, minors, senior citizens, etc. However, if transfer is made without payment of any consideration like in case of gift, then this section will not apply.

In case PAN/TAN not available 

Purchaser is not required to obtain a TAN for deduction. But furnishing PAN is important. In case the PAN is not given by the seller to the buyer, TDS would be required to be deducted @ 20% under Section 206AA of the IT Act.

In case of non-compliance

In case of failure to comply with the provisions, interest and penalty would be imposed on the purchaser.

♦		Interest will be charged @ 1% p.m. or part of the month for failure to deduct tax or short deduction of tax from the date the tax was deductible till the date the same is deducted.
♦		Interest will be charged @ 1.5% p.m. or part of the month for tax deducted but not paid to the government from the date of deduction till the date of actual payment.

Property under construction 

Whenever someone buys a property from a developer, the payments are normally made over the construction period which may run into several years. Now it has been felt by many individuals that no TDS is required to be deducted during the construction period and the same will be deducted on the full value once registry to that effect is affected. However, section 194-IA of the IT Act nowhere makes a distinction between property under construction and property which has been constructed. TDS will be applicable and deductable on even the first instalment which is being paid for the purchase of an immovable property.

 Property acquired through loan 

 In this case three parties get involved-buyer, seller and loan provider. There can be a number of transactions through which a loan is afforded to buyer but the provision of TDS is applicable between buyer and seller, rather than between loan provider and seller, thereby TDS provisions will have to be owned by the buyer only and not loan provider. In order to safeguard their own interest it would be best for a loan provider to transfer the amount of loan in the name of buyer himself rather than transferring it directly to the seller.