TDS Applicable on Lease Hold Land Purchase

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This discussion explores whether Tax Deducted at Source (TDS) under Section 194-IA applies to the purchase of leasehold land. While a Rs. 2 crore purchase might seem subject to TDS, arguments suggest that a long-term lease premium for land usage rights, rather than asset ownership transfer, may exempt it. The parties' contractual intent, clearly stating the lessor retains ownership, is crucial. The applicability of TDS on future lease rent payments is also raised, with advice to consult SIDCUL's practices.

Ashish Kumar Pandey

Ashish Kumar Pandey (Querist)

10 February 2024 If we have purchase a Leasehold Land of Rs. 2,00,00,000/- from SIDCUL for setup a factory. and Lease Rent paid to the SIDCUL Authority in future.

TDS applicable or Not u/s 194IA on Leasehold Land Purchase of Rs. 2,00,00,000/-@1%.

Kindly confirm for TDS deduct or not on above transaction.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

11 February 2024 TDS not applicable.
It is possible to argue that lease premium paid for leasing land and/or building for long period (say 99 years) does not result in withholding tax liability u/s 194-IA. However, care must be taken to draft the agreement between the lessor and the lessee substantiating the intention of the parties to the contract. The ownership in substance, if retained with the lessor throughout the tenure of the lease clearly indicates that what is transferred is the rights of usage of land and/or building and not the asset itself.

Ashish Kumar Pandey

Ashish Kumar Pandey (Querist)

17 February 2024 Thanks sir,
one more point is if Lease Rent not paid in future then TDS liability arise or not.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

18 February 2024 Check with SIDCUL what has been done by other lease holders.

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