Withholding Tax on Purchase of Immovable Property

by Neha Raheja

Partner, Direct Tax

TDS @ 1% is applicable on the purchase of immovable property under Section 194IA of the Income Tax Act, 1961.

Background and Legislative Intent

s. 194-IA of the Income Tax Act 1961 (the ITA’) was introduced by the Finance Act 2013. By virtue of this section, every transferee of an immovable property, at the time of making payment or crediting any sum as consideration for the transfer of immovable property (other than agricultural land) to a resident transferor, shall deduct tax at the rate of 1% of such sum. The provisions of this section would be applicable only to those cases where the total amount of consideration for the property exceeds INR 50 lakh.

The Memorandum to the Finance Bill 2013 stated that the object behind the introduction of this section was to have a reporting mechanism for transactions in the real estate sector and also to collect tax at the earliest possible point in time.

Accordingly, s. 194-IA was made applicable effective June 1, 2013.

Summary & Procedural Aspects

A. Provisions of Section 194-IA

Applicable when a resident transferor transfers any immovable property other than agricultural land and the immovable property is not being compulsorily acquired under any law by the government.
Applicable when the total value of consideration for the immovable property exceeds INR 50 lakhs.
The transferee is required to deduct TDS at the time of credit to the account of the transferor or at the time of payment of such sum, whichever is earlier, at the rate of 1% if the seller has a PAN. If the seller does not have a PAN, TDS shall be deducted at the rate of 20%.
194-IA states that TDS shall be deducted on consideration for the transfer of immovable property. Consideration for the transfer of immovable property equals all charges in the nature of club membership, car parking fees, electricity or water facility fees, maintenance fees, advance fees, or any other charges of similar nature that are incidental to the transfer of immovable property.

B. When to deduct TDS and how to pay it?

The buyer of the property has to deduct TDS at the time of credit to the account of the seller or at the time of payment of such sum, whichever is earlier. The buyer shall deposit the TDS so deducted within 30 days from the end of the month in which the TDS is deducted. The buyer has to pay the TDS and furnish particulars in Form cum Challan (26QB).

The payment of TDS on immovable property does not require the buyer to have a TAN (tax deduction account number). The buyer is required to furnish the following information:

Name and address of the buyer and seller
Email ID and phone number of the buyer and seller
PAN of the buyer and seller
Complete address of the property
Date of agreement
Total consideration for the transfer of immovable property
Date of payment

The buyer shall fill out Form 26QB using his PAN. It is mandatory for the seller to have a PAN too.

The buyer can choose to deposit the TDS online or offline. After the payment of TDS, the buyer shall issue the seller Form 16B within 15 days.

The buyer of the property is required to register and login on the TRACES using PAN (https://contents.tdscpc.gov.in/) to download Form 16B.

C. Consequences of Non – Deduction of TDS

In case the buyer fails to deduct TDS or late deposits, the TDS fee under s. 234E of the ITA becomes applicable.

Penalties applicable:

Penalty/Interest	Calculation
Non-deduction of TDS	1% per month from the date on which TDS is deductible to the date on which TDS is actually deducted
Late deposit of TDS	1.5% per month from the date of deduction to the date of payment
Late filing fees under s. 234E	In case of non-filing or late filing of Form 26QB, a late filing fee of INR 200 is liable to be paid for every day such failure continues

The provisions of s. 194-IA apply to every buyer (resident or non-resident) when an immovable property is purchased from a resident seller. If the buyer is purchasing an immovable property from a non-resident seller, the provisions of s. 195 are applicable. It is advisable that a buyer adhere to the conditions as prescribed by s. 194-IA and timely deduct the TDS and also make payment of the same. Further, the provisions of s. 194-IA are quite clear, but there are certain instances that may require the assistance of an expert and need interpretation in the light of various case laws. In such cases, it is always advisable to seek guidance to ensure adequate compliance.