Transfer of Immovable Property is going to Attract TDS

New section inserted:

A new section has been inserted and numbered as section 194-IA of the Income-tax Act.

When the consideration amount shall be credited into the account of the vendor or at the time of making the payment which is either made in cash or by issue of a cheque or draft an amount will be deducted as income tax.

This new amendment is going to be effective from 1.6.2013. It was supposed to be introduced through the Finance Bill, 2013.

The new section is likely to have huge impact on the property transactions to be carried out during the financial year 2013-2014 as well as the following years.

Effects of the insertion of the new section:

The new provision is going to impose tax upon the income of the real estate developers and investors. From June this year transfer of an immovable property except an agricultural land by any person who is a resident of India where consideration is more than Rs. 50, 00, 000/- will have to pay TDS. It will be payable under section 194 IA of the Income Tax Act.

The person is liable to pay tax and Tax Deduction Account Number is not required in such cases. But giving of PAN is compulsory which is going to be verified by the Income Tax Department.

It is also absolutely necessary to provide the address of the vendor and purchaser and that of the property which is transferred.

The Central Board of Direct Taxes has provided an online form regarding this type of TDS payment in case of property transfer.

Rate of tax to be paid:

TDS shall be payable at the rate of 1 % on the consideration amount.

Exception to the rule:

No deduction under the new section shall be made in case the consideration amount is less than Rs. 50, 00, 000/- Thus TDS is exempted on sale of any agricultural property.

But one should remember that all agricultural lands are not excluded and that falls within the jurisdiction of a municipality having a population of more than 10,000 and land stretching to over 8 Kilometers of the local limits of a municipality is not exempted.

Meaning of the term “agricultural land”:

The expression “Agricultural land” has the same meaning as provided in Section 2 of the Income Tax Act.

Meaning of the term “immovable property”:

 The expression means any land except any agricultural land or any building or any of its parts.

Reasons for no requirement of quoting TAN:

 As the new provision deals with the deduction of tax by the transferee, it is assumed that the transferee has a TAN. It might put burden upon transferees not possessing a TAN. Again it would create pressure upon them to make an application for and obtaining a TAN for only one transfer of property.

Object of the new section:

 The reason for inserting the new provision is to collect tax from transfer of immovable properties at the earliest opportunity.