As per the central
government notification for deducting taxes at source on property transactions,
the buyer or / purchaser is required to
download a TDS certificate in Form 16B, from a yet to be notified web portal.
In addition, there is
no clarity on points like how and when to deduct TDS for property purchased on
installments, or housing loan
This note is being
written in response to various calls have received from clients with respect to
the TDS provision on property transactions.
Effective from 1 June
2013, taxes are to be deducted at source (TDS) on payments for the purchase of
immovable property (including any land other than agricultural land, or any
building or part of a building) at 1 % as per section 194IA.
Taxes would be
required to be deducted at 20 % should the seller not hold a PAN.
Such requirement to
deduct taxes is triggered should the purchased property’s cost exceed Rs. 50
lakh.
The representations
made by the Confederation of Real Estate Developers of India (CREDAI)
requesting a rollback of the Section was not accepted, thus dashing the hopes
of the industry.
As the rules for the
same were not notified, there was the hope of a possible rollback, similar to
the one performed last year when such a proposal was placed in the Finance
Bill, 2012, but not enacted into the Finance Act, 2012.
Unfortunately for the
industry & persons dealing in real estate, the government, vide a
notification released on 31 May 2013, has notified the relevant rules for
deducting such taxes at source.
According to the
rules, the buyer / purchaser of property has to deposit TDS within seven days
by means of Form 26 QB, which is a challan-cum-statement. This tax has to be
deducted as per the provisions related to all withholding taxes - at the time
of payment or credit whichever is earlier.
The buyer / or purchaser is also required to download a TDS
certificate in Form 16B, from a yet to be notified web portal. This certificate
needs to be issued to the seller within 22 days from the end of the month in
which the tax is to be deducted.
There are certain
questions which arise as to the taxability of such a transaction. Generally,
whenever anyone buys a property from a developer, the payments are normally
made in installments over the construction period.
Also, installments
may be paid before as well as after the agreement is made. Further, the
possession of the property is given only after construction is completed and
the full payment is made. In such cases, when does the transfer of property
take place?
On first payment, on
agreement or on possession? From which payment should one deduct the tax - first
payment, all payments, payment before agreement, payment on agreement, payment
before possession or payment on possession? Whether the tax is to be deducted
where the initial payment and / or the agreement is made before 1 June 2013,
for installments payable thereafter?
Further, in case
under-construction property purchased from the developer, service tax is also
payable. Hence, it can be argued that developer is providing a construction
service and not transferring property therefore, TDS provision is not
applicable.
What happens in such
cases?
All these issues need
to clarified otherwise it could lead to unnecessary litigation.
What happens in case
someone has taken a housing loan?
In such cases the
first 20 % is paid by the buyer and then subsequently the bank / housing
finance companies provides the finance & pays the seller / developer. Does
the loan provider have to pay the tax?
This can only become
clear when the question of point of taxability is decided.
If tax is deducted
before the loan disbursement starts, the loan provider will not be liable.
If not, then what
happens?
Will the loan
provider take on this additional administrative burden?
In case the seller
does not have a Permanent Account Number (PAN), then it would be better to wait
for a few days and let the seller obtain a Permanent Account Number so that TDS
by the purchaser is done at the rate of 1 % only as against 20 % TDS for
non-mentioning PAN of the seller.
This Section
specifically states that where such PAN is not submitted, then the rate of TDS
will be at 20 %. The provisions of this Section 206AA will also be applicable
in case of TDS by the purchaser of immovable property of Rs. 50 lakh or /
above.
It is important to
note that generally speaking, whenever the formalities relating to TDS are to
be complied with, there is also a requirement of obtaining TAN No. (Tax
Deduction Account Number). But, in respect of TDS relating to purchase of
immovable properties there is no requirement to obtain TAN.
However, what is most
important is to obtain the Permanent Account Number of the seller from whom
such tax is being deducted at source.
It is pertinent to
note that these provisions are not applicable to a NRI seller as he will be
governed by the provisions of Section 195 of the Income Tax Act, 1961.
Some of the important
columns in the new Form No. 26QB which is a challan-cum-statement for deduction
of tax are as under:
1. Full name of the
transferee / payer / buyer
2. Complete address
of the transferee / payer / buyer
3. Full name of the
transferor / payee / seller
4. Complete address
of the transferor / payee / seller
5. Complete address
of the property transferred
6. Date of agreement
/ booking
7. Total value of
consideration rupees
8. Payment in
instalment or / lump sum
9. Amount paid /
credited
10. Date of payment /
credit
11. Rate at which tax
deducted
12. Amount of tax
deducted at source (TDS)
13. Date of deduction
14. Date of payment
of tax deducted at source
15. TDS (Income-tax)
Credit of tax to the deductee shall be given from this amount.
The columns given
above should more be filled up carefully in the challan-cum-statement for
deduction of tax under section 194IA.
Also, once the tax
has been deducted at source, the buyer / purchaser should prepare Form No. 16B
which will be generated electronically on the government’s website and send the
same to the seller.
All those who are
investing in purchase of immovable property other than rural agricultural land
of the value of Rs. 50 lakh or / more
should carefully understand their obligations for deducting income-tax at the
rate of 1 % from the payment made to the seller in respect of purchase of the
properties on or after 1 June 2013.
The TDS certificate
can be downloaded from TRACES (www.tdscpc.gov.in)
Src: Moneylife
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