TDS – Sale of all Immovable property above sale consideration value of Rs50 lakhs and above is now subject to TDS !!!

The Finance Minister in Finance Bill 2013 has proposed withholding tax at 1% to be deducted by every buyer from any sum payable to the resident seller if the sale consideration for transfer of immovable property, (EXCEPT)/other than agricultural land, is Rs.50 lacs or more.

the Finance Minister has introduced this new TDS provision by inserting section 194IA with the current TDS provisions contained under the Income Tax Act, 1961 (the ITA).

The proposed TDS provision is to be applied to transferor of immovable property, wherein the ‘immovable property’ means:

  • any land (other than agricultural land) or
  • any building; or
  • part of a building.

The proposed amendment will be applicable from 1 June 2013.

similar provisions were also proposed by the Finance Bill, 2012; however the said provisions were not incorporated when the final Bill was passed by the parliament. The current TDS provision which is applicable to sale of immovable property is different than proposed vide Finance Bill, 2012.

Finance Bill, 2012

Finance Bill, 2013

TDS applicable only if

  • Sale consideration equal to or more than INR 5,000,000 for immovable property in specified areas
  • Sale consideration equal to or more than INR 2,000,000 for immovable property in other areas

TDS applicable only if consideration equal to or more than INR 5,000,000

Stamp duty value has to be considered for withholding of taxes where the consideration for transfer is less than the stamp duty value

No such provisions

Proof of withholding of taxes to be furnished to the authority registering the document of transfer of immovable property, failing which the property will not be registered

No such provisions

Purchaser of property is not required obtain Tax Deduction Account Number (TAN) to comply with the above provisions

No such provisions

The limit of Rs.50 lacs will certainly give some respite to buyers in rural areas or non-metro cities.

Further, not linking the sale consideration with stamp duty value for applicability of this TDS provision also relieves a buyer from undue litigation.

This is possibly in line with the intent behind insertion of this provision, to track the transactions at first and then probe further if required.

However, the difficult part is the implementation of this TDS provision that a buyer may have to face which could be as under:

  • Now, every buyer will have to obtain TAN number for complying with the provisions;
  • Deposit the taxes deducted within the specified time limit with the Government;
  • File the quarterly TDS returns and mention the Permanent Account Number (PAN) of seller;
  • Issue TDS certificate to the seller; and
  • May be subjected to scrutiny by the TDS officer

It may also be mentioned that the above rate of 1% may increase to 20% if seller does not provide PAN due to overriding provision of section 206AA of ITA.