Understanding tds on purchase of immovable property

Understanding of Notice, Penalty, Late fees and Interest on TDS for Purchase of Immovable Property

As per Finance Act of 2013, TDS is applicable on transfer of Immovable property, wherein the consideration of the property exceeds or is equal to ₹ 50 Lakhs. Sec 194 IA of the Income Tax Act, 1961 read with Rule 30, 31 and 31A of Income Tax Rules states that:

a. For all such transactions with effect from 1st June, 2013 Tax @ 1% should be deducted by the buyer of the property at the time of making payment of sale consideration.

b. Tax so deducted should be deposited to the Government Account trough e-tax Payment option (Net banking) or any of the authorized bank branches. Any sum so deducted under section 194 IA shall be required to be paid to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made.

c. PAN of seller as well as buyer should be mandatorily furnished in an online Form 26QB for furnishing information regarding the property transaction.

d. TDS certificate in Form 16B is required to be issued by the Buyer of property to the Seller, in respect of the taxes deducted and deposited into the Government Account.

Major Points of Section 194 IA

Person responsible for Tax Deduction: Any person responsible for paying any sum to a resident transferor by way of consideration for transfer of an immovable property is liable to deduct tax at source.

Threshold Limit: No tax is deductible where the consideration paid or payable for the transfer of an immovable property is less than Rs. 50 Lakhs. It is deductible only wherein the consideration of the property exceeds or is equal to Rs. 50 Lakhs.

Time of deduction: Tax shall be deducted at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

Rate of TDS: TDS to be deducted @ 1% of the sum paid. Condition of higher rate TDS if the deductee (Seller) does not furnish PAN is not applicable because PAN of buyer as well as seller is mandatorily furnished in Form 26QB.

On transfer of what type of property:  Any immovable property (other than agricultural land in rural area), wherein the consideration of the property exceeds or is equal to wherein the consideration of the property exceeds or is equal to Rs. 50 Lakhs.

Agricultural Land Meaning Under Section 194IA

Agricultural land means agricultural lands in India, It is situated within jurisdiction of Municipality or Cantonment Board which has a population of not less than 10,000; or It is situated in any area within below given distance measured aerially. A land shall not be treated as Agriculture Land, if:

Other Important Points

a. TDS on which amount: If the amount of property is Rs. 70 Lakhs, then buyer doesn’t have to pay tax only on Rs.  20 Lakhs but on the entire amount of sale consideration, here it is on Rs.70 Lakhs.

b. TAN to pay the TDS: Buyer of the property is exempt to procure Tax Deduction Account Number (TAN) for Tax deduction and payment of TDS under this section.

c. TDS on the entire amount or on the payment of each installment: Tax needs to be deducted at the time of payment either it is payment of entire amount or installment. If the payments are being made in installments then at the time every installment payment.

d. If some amounts have paid before 1st June 2013: If some amounts have paid to the seller before 1st June 2013 than TDS will be deducted on balance amount. Either balance amount is less than Rs. 50 Lakhs or more than Rs. 50 Lakhs this rule is applicable if the consideration of the property (Total amount) exceeds or is equal to Rs. 50 Lakhs. No TDS is required to be deducted in respect of installments paid before 1st June, 2013. The provision will also apply in case where the buyer has bought an under construction property prior to this rule coming into effect but the part payment is due after 1st June, 2013. TDS is required to be deducted on all such installments Individually which fall due after 1st June, 2013 but only on principal portion and not on the interest or penalty portion

e. If more than One Buyer or Seller: Challan and Form 26QB will be filled in by all the buyers for respective sellers for their respective share. For example in case of one buyer and two sellers, two challan and Form 26QB have to be filled in and in case two buyers and two sellers, four challan and Form 26QB have to be filled in for the respective property shares.

f. Deposit of tax to the credit of the Central Government: Any sum deducted under section 194-IA shall be paid to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No. 26QB. The sum so deducted shall be deposited to the credit of the Central Government by remitting it electronically to the Reserve Bank of India or the State Bank of India or to any authorized bank.

g. Certificate/statement for tax deducted at source: Every person responsible for deduction of tax under section 194-IA shall furnish the certificate of deduction of tax at source in Form No. 16B to the payee within fifteen days from the due date for furnishing the Challan-cum-statement in Form No. 26QB under Rule 31A after generating and downloading the same from the web portal specified by the Director General of Income-tax (System) or the person authorized by him.

h. Furnishing of statements by tax deductor to department: Every person responsible for deduction of tax under section 194-IA shall furnish to the Director General of Income-tax (System) or the person authorized by him a challan-cum-statement in Form No. 26QB electronically within seven days from the end of the month in which the deduction is made.

Interest on default of TDS payment

If TDS is not paid on time to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made. Interest under section 201 of Income Tax Act,1961 will be payable. This Act expressly states that any person liable to deduct TDS on the income distributed, makes default in deduction and / or payment of TDS shall be treated “assesse in default”. Such interest shall be paid before furnishing the Form 26QB.

i. If TDS has deducted but not paid: In this case one and one-half percent (1.5%) for every month or part of a month on the amount of such TDS from the date on which such TDS was deducted to the date on which such TDS is actually paid.

ii. If TDS is not deducted: In this case one percent (1%) for every month or part of a month on the amount of such tax from the date on which such TDS was deductible to the date on which such TDS is deducted.

Late fee on default in furnishing statement of TDS (26QB)

No filing or late filing of statement of TDS / TDS returns (Form 26QB) shall invite late fees under section 234E. It should be filed with challan within a period of seven days from the end of the month in which the deduction is made. Deductor will be liable to pay by way of fee of Rs 200 per day till the failure to file TDS statement continues. The total fee cannot exceed the amount of TDS deductible for which statement was required to be filed. TDS return cannot be filed without payment of late filing fees. In other words, the late filing fees shall be deposited before filing the TDS return (Form 26QB). It should be noted that Rs. 200 per day is not penalty but it is a late filing fee.

Penalty on default in furnishing statement of TDS (26QB)

No filing or late filing of statement of TDS / TDS returns (Form 26QB) shall invite penalty under section 271H. It should be filed with challan within a period of seven days from the end of the month in which the deduction is made. As section 271H which provides that a deductor shall pay penalty of minimum Rs 10,000/- to Rs 1 lakh for not filing the TDS statement within one year from the specified date within which he was supposed to file the statement. Penalty under section 271H will be in addition to late filing fees prescribed under section 234E. Apart from delay in filing of TDS/TCS return, section 271H also covers cases of filing incorrect TDS/TCS return. Penalty under section 271H can also be levied if the deductor/collector files an incorrect TDS return. In other words, minimum penalty of Rs. 10,000 and maximum penalty of upto Rs. 1,00,000/- can be levied if the deductor/collector files an incorrect TDS/TCS return. TDS return will be filed without payment of Penalty under section 271H. It may be levied on deductor by the assessing officer.

Notice from TDS Reconciliation Analysis and Correction Enabling System

TDS Reconciliation Analysis and Correction Enabling System is sending two types of notice. One for demand of interest payment if TDS is already paid but interest is payable and second for demand of TDS and interest payment if TDS is deducted or not deducted but not paid to the credit of the Central Government and TDS return (Form 26QB) not filed.

The Author is a Certified and authorized Tax Return Preparer of Income Tax Department of India, he is Managing Director and Founder of ARS Solutions and can also be reached at abhishek@arssolutions.co.in

Disclaimer - Before making any decisions do consult the experts. Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on.