In order to ensure that the real estate transactions come within the tax net, the Finance Bill presented along with the Budget 2012 proposes to insert new section 194LAA with effect from 01.10.2012 providing for TDS on transactions in immovable property (being land, building or any part of the building).
As per the proposed section purchaser (or transferee) of an immovable property will be required to deduct TDS @1% on the consideration paid or payable to resident transferor for transfer of immovable property, i.e. land or building or part of a building. The provisions do not apply if total value of the consideration does not exceed Rs. 50 lakhs if the immovable property is situated in specified area and Rs. 20 lakhs in other cases.
Specified area for this purpose means urban agglomeration of Greater Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bengaluru, Ahmedabad and districts of Faridabad, Gurgaon, Gautam Budh Nagar (NOIDA), Gaziabad, Gandhinagar and City of Secunderabad.
Purchase of Agricultural Land is excluded from the application of this provision, provided such agricultural land is situated beyond the specified distance from city limits as provided for in section 2(14) of the Act. Therefore, agricultural lands situated within such limits are covered by the TDS. It is also mentioned that purchase and sale of land as part of stock in trade are also included for TDS.
The Bill also proposes that in case where stamp duty value adopted by the stamp duty valuation authority is more than the apparent consideration the TDS is to be calculated with reference to the stamp duty valuation.
Further it is also provided that no registering officer shall register any such document, unless the transferee furnishes a proof of deduction of tax and its payment.
The TDS is required to be made either at the time of payment or credit of the seller whichever is earlier. Advance payment of land is therefore also covered by the TDS provisions.
While this increase substantial compliance requirement for each of the purchaser of the immovable properties, it is provided that a purchaser of property which otherwise does not have a Tax Deduction Number, need not to obtain the TAN only for deduction/payment of tax under this provision.
The new provision will be applicable w.e.f 1st October 2012.
The above provisions not only will increase the revenue of the Government but will also help the income tax department to collect the data with respect to sale and purchase of the immovable properties. Seller of the said immovable property will be required to comply with all the provisions of capital gains tax and also declare the relevant information in the annual income tax return failing which the same may be treated suppression of income and non-disclosure of the facts. Purchaser need to be extra cautious and must keep ready papers justifying source of income used for the purchase of such immovable property and its disclosure in the annual income tax return. Since proof of deduction of tax has to be submitted at the time of mutation with the registrar thus to avoid tax deduction at source is impossible. Invisible impact of this section is more than its visible impact.
DILIP K RAINA –Chartered Accountant
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