Startup Taxation

194-IA – Read About TDS on Immovable Property

TDS on Immovable Property

Section 194-IA is effective from 1st June 2013 on the sale/ purchase of immovable property. A buyer of immovable property at the time of making payment of contribution has to deduct the TDS (Tax deducted at source) from the amount. This section applies to every transaction of INR 50 Lakhs or more.

TDS Return Forms

Depending upon the purpose of deduction, the following forms are filed for TDS return:

  1. TDS on salary: Form 24Q
  2. TDS in case of a foreign company: Form 27Q
  3. TDS for transfer of immovable property: Form 26QB
  4. TDS for other cases: Form 26Q

Applicability of Section 194-IA of TDS on Immovable Property

Section 194-IA applies in the following case:

  • When any person purchases an immovable property from the transferor, an amount of consideration is paid for such transfer by the transferee to the transferor. A person who purchases the property is known as transferee and transferor is the person who is selling his immovable property for the amount termed as consideration.  The transferee has to deduct the amount of 1% of consideration as an Income tax from such amount at the time of making the payment through cash, bank transfer, cheque, draft or any other mode.
  • This section is applicable if the amount of consideration involved is INR 5000000 (Rupees Fifty Lakhs) or more.
  • Union budget of 2019 has introduced the definition of “consideration.” It includes all forms of other charges such as maintenance fees, electricity fees, water facility fees, advance fees, etc.
  • This section applies to the transfer of all the immovable property other than agricultural land.

Exception for Applicability of Section 194 IA

Section 194-IA does not apply to the following:

  • In cases of compulsory acquisition
  • When the seller is NRI and TDS is to be deducted based on Capital gains.
  • For construction properties, TDS will be deducted on the installments paid before 1st June 2013. This section was applicable from 1st June 2013.
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Exception for Agricultural Land

The land shall not be treated as agricultural land for this section & shall be considered as immovable property if it is situated within the following range of area:

  • If the population of the municipality is more than 10000 but up to 100000, land should be located within the distance of 2Km from Municipal limit
  • If the population of the municipality is more than 100000 but up 1000000, land should be located within the distance of 6Km from Municipal limit
  • If the population exceeds 1000000, land should be located within the distance of 8Km from the Municipal limit.
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Key Points for Understanding Section 194-IA

Following are the key points for better understanding about section 194-IA

  • TDS is paid on the entire sale consideration. For example, a property worth INR 60 Lakhs is sold. And transferee has paid electricity fee of INR 1 Lakhs and maintenance fees of INR 2 Lakhs. The total amount of consideration will be 60+1+2= INR 63 Lakhs, and TDS is deducted at the rate of 1% of INR 63 Lakhs that is INR 63000.
  • Buyer of the immovable property who deducts the TAN needs not to have Tax deduction account Number, though permanent account number (PAN) is sufficient.
  • TDS is submitted and paid in the form of 26QB. After the tax is deposited with the Government, the buyer has to give a TDS certificate in form 16B to the seller. This has to be issued within 15 days.
  • Form 26QB is to be filed for each buyer-seller separately. For example: if there is one buyer & 2 sellers, the total amount of 26QB to be filled will be two.

The Requirement of PAN of the Seller of an Immovable Property

  • It is compulsory for the seller of the property whose receipt of consideration for the transfer is subject to TDS has to furnish his PAN to the transferee
  • If the PAN is not provided, TDS will be deducted at the rate of 20% of consideration instead of 1% of the consideration.
  • It is deemed that PAN is not furnished in case the PAN provided is invalid or does not belong to the transferor.
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The Due Date for Deducting and Payment of TDS

  • Payment: TDS on the immovable property has to be paid within 30 days from the end of the month in which TDS is deducted. For example, TDS is deducted on 06/09/2019, TDS becomes payable within 31/10/2019.
  • Deduction: The transferee has to deduct the amount of 1% of consideration as an Income tax from such amount at the time of making the payment through cash, bank transfer, cheque, draft or any other mode. The transferee has to deduct the TDS right from the beginning of the first installment. Transferee doesn’t have to wait for the final installment or amount to exceed INR 50 Lakhs for deducting TDS from installment.

Steps of Payment of TDS through 26QB and Downloading of Form 16B

Following are the complete procedure for payment and filing of 26QB and furnishing of form 16B:

  • Go to the online website[1] and click on the form 26QB.
  • Once the form is opened first, most corporate payers need to select 0020 and non-company has to select 0021.
  • Fill the complete details of the form
  • After completing the form, select the mode of payment. The payment can be made in two ways, online & offline. An amount can be paid online through net banking or offline by visiting any bank branch for payment.
  • After the payment is completed, registration with TRACES has to be done. In the case of a new user, registration as a new user can be done using PAN number and completing the details.
  • Once the payment is made it is reflected within seven days in form 26AS of the transferee under the head of details of TDS on Sale of Immovable Property.
  • Once the registration is completed, and payment is reflected in form 26AS, the TDS payer can download approved form 16B for issuing it to the seller.
  • 16B can be downloaded by login to TRACES & click on the download tab and select Form 16B.
  • Complete the details and fill the PAN of the seller and click on proceed.
  • After verification of complete details, click on the option “submit a request,” and the request will be generated within a few hours.
  • One can see the status of the form 16B. If it is available, it can be downloaded.
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Penalty & Interest on Non-payment and Non-filing of TDS.

Following are the penalty & interest depending upon the case of failure:

  • No TDS deducted: Interest at the rate of 1% per month has to be deducted for the period of TDS liable to be deducted to the date it is deducted 
  • TDS deducted but not paid: Interest at the rate of 1.5% per month has to be deducted from the date TDS deducted to the date TDS paid.
  • Late filing of 26QB: The penalty is also payable at the rate of 200 per day for the days of defaults continued.  The maximum amount of penalty is subject to the number of TDS to be deducted.

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