Tax Deduction at Source when Purchasing and Buying Immovable Property

Section 194-IA states that any person, being a transferee, responsible for paying 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. However, no deduction is required to be made where the consideration for the transfer of an immovable property is less than rupees 50 lakh.

An analysis of the section will explain that the objective to have a reporting mechanism of transactions in the real estate sector and also to collect tax at an early point of transaction. The section has introduced with effect from 01 June 2013. The obligation to deduct the tax at source rests with the purchaser of the immovable property. The purchaser can be an individual, Hindu Undivided Family, firm, limited liability partnership, company, association of persons/body of individuals or cooperative society. The buyer can also be a developer or a builder. However, where the purchaser is a Government then this section does not apply as Government is not a person.

Residential status of the purchaser is immaterial. Provisions of the section apply to non-resident buyers also and to agriculturist and or farmers. In case of joint transferee each co-owner is liable. The purchaser/transferee should be responsible for paying to the seller /transferee any sum by way of consideration for transfer of immovable property other than agricultural land.

Immovable property in reference could be land, agricultural land even outside India, urban agricultural land, office building, flat, shop, godown, theatre, hotel building, hospital building. Immovable property could be located in India or outside India. Immovable property could be stock-in-trade of the developer. Immovable property could be held as either stock-in-trade or as capital asset. Tax is required to be deducted at the time of payment or the credit of such sum to the account of the transferor whichever is earlier. This is the triggering event. Tax is required to be deducted at the rate of 1% of such sum. However, if the consideration for transfer of immovable property is less than fifty lakh rupees then deduction is not required. If the seller / transferor does not provide PAN the rate of tax could be 20% by virtue of provisions of S. 206AA of the Act. The threshold for trigger is rupees fifty lakhs. The threshold is the same irrespective of the location or nature of immovable property.

Once the conditions are satisfied the transferee is required to deduct tax and pay it to the credit of Central Government in accordance with the provisions of the Act. There is no provision for either the purchaser / transferor giving a declaration to the buyer for non deduction or for his obtaining an order from the Assessing Officer authorizing the buyer / transferee not to deduct tax / deduct tax at a lower rate.

Failure to deduct tax will attract interest and penalty. The transferee is not required to obtain TAN as required. Having deducted tax in accordance with this section the transferee is required to pay it within 7 days from the end of the month in which the deduction is made. TDS payment shall be accompanied by a challan-cum-statement in Form 26QB. Payment is to be made by remitting it electronically to RBI or SBI or any authorized bank or by paying it physically in any authorized bank. Payer is required to issue TDS certificate in Form 16B, to be generated online from the web portal. The TDS certificate is to be issued within 15 days from the due date for furnishing challan-cum-statement in Form 26QB.