'Individuals can consider dividing ownership of properties between related persons to ensure that the sale transactions are below the Rs 50 lakh limit and therefore not subject to TDS.'
In a recent ruling, the Jodhpur bench of the Income Tax Appellate Tribunal (ITAT) clarified that tax deducted at source (TDS) under Section 194IA of the Income-Tax Act is applicable only when the consideration for the transfer of immovable property is more than Rs 50 lakh per buyer.
Introduced by the government in 2013 to curb the use of black money in property transactions, Section 194IA requires the buyer to withhold tax at the rate of 1 per cent of the consideration or the stamp duty value (SDV) of the property, whichever is higher, when a resident transfers an immovable property (other than agricultural land).
'Consideration' here includes the price paid for the immovable property and other charges, such as processing fees and external development charges.
Ending ambiguity
In the case presented to the Jodhpur bench, four individuals had jointly purchased an immovable property for a total consideration of Rs 1.26 crore.
Each individual held one-fourth share of the property, which equated to a consideration of Rs 31.5 lakh per person.
The assessing officer considered the purchase cost to be Rs 1.26 crore and applied Section 194IA.
The assessing officer held the assessee to be in default and imposed fines under various sections of the Act.
However, the bench ruled that in this particular case, Section 194IA of the Act cannot be invoked.
"The judgment is a step in the right direction and reinstates the intended view of the legislature that the threshold limit of Rs 50 lakh is to be evaluated for each assessee. The judgment will remove ambiguity in cases involving co-owners or joint owners of properties," says Keshav Singhania, leader, private client, Singhania & Co. LLP.
When does Section 194IA apply?
Section 194IA applies to transactions involving immovable property, which in this section refers to any land (other than agricultural land), any building, or part of a building.
"The buyer must deduct TDS at the rate of 1 per cent of the total consideration and deposit it with the government," says Ankit Jain, partner, Ved Jain & Associates.
The buyer needs to have a valid PAN.
"The TDS needs to be deducted at the time of making the payment or at the time of giving credit, whichever is earlier," says Maneet Pal Singh, partner, I.P. Pasricha & Co.
Tax needs to be deducted if either the sale price or the SDV, whichever is higher, crosses Rs 50 lakh.
"If the sale price is Rs 45 lakh and SDV is Rs 52 lakh, then Rs 52,000 needs to be deducted while making the payment of Rs 45 lakh," says Archit Gupta, founder and chief executive officer (CEO), Clear.
Jain adds, "TDS must be deposited with the government within 30 days from the end of the month in which TDS was deducted, using Form 26QB."
Resident Indians must deduct TDS.
"The payer could be an individual, Hindu Undivided Family, company, firm, association of persons, body of individuals, local authorities, and every artificial juridical person," says Singhania.
When there are multiple buyers
If there are multiple buyers or joint buyers of a property, the TDS liability is to be borne by all the buyers in proportion to their share in the property.
Each buyer must deduct TDS individually.
The TDS rate of 1 per cent applies to each buyer's share in the property.
Gupta says, "If the property value is Rs 60 lakh and is bought by Mr and Mrs X, then each of them shall deduct tax of Rs 30,000, totalling Rs 60,000 -- 1 per cent of the value of Rs 60 lakh."
The total tax deducted should not exceed 1 per cent of consideration or SDV.
According to Jain, even when there are multiple sellers, and the amount being paid to each seller is less than Rs 50 lakh, TDS won't apply.
Payment made in instalments
Sometimes, payments for properties are made in instalments.
Singh says, "In that case, TDS needs to be deducted at the time of each instalment payment."
Jain adds that the buyer should file Form 26QB for each TDS deduction.
Pay correct amount to builder
When buying a property from a builder, buyers at times make a crucial mistake.
Gupta says, "While making the payment, the buyer needs to give 99 per cent of the consideration to the builder and 1 per cent to the government as TDS. Many people give 100 per cent of the consideration to the builder and an additional 1 per cent to the government. This should be avoided."
Sometimes the builder offers to comply with the TDS norms for the buyer.
Gupta adds, "Since the tax payment has been migrated to the I-T portal, and the NSDL site has been deactivated, the builder may ask for your IT portal login to comply with the TDS norms."
It is not advisable to share your login credentials.
The TDS rate of 1 per cent applies only when the seller is a resident.
"If the seller is a non-resident, Section 195 applies, and the buyer needs to deduct a higher rate of TDS, depending on the nature of the property," says Jain.
Finally, Pallav Pradyumn Narang, partner, CNK suggests: "Individuals can consider dividing ownership of properties between related persons to ensure that the sale transactions are below the Rs 50 lakh limit and therefore not subject to TDS under this section."
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