Tds on capital gain on business acquisition

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This query is : Resolved

Amit Agarwal (Querist)

14 December 2013 Dear Experts,

A partnership firm is taken over by a Public Limited unlisted company and the company has deducted TDS on consideration amount u/s 194J.

1. Is TDS applicable?
2. If yes then under which section?

Naresh Dharia F.C.A.

Naresh Dharia F.C.A. (Expert)

14 December 2013 As per your query....Section 50B will apply wherein the Business is trf on consideration....
Section 194 J will not apply

Amit Agarwal

Amit Agarwal (Querist)

14 December 2013 but sir how is it possible to deduct TDS u/s 50C, there is no such section in TDS provision?

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

27 July 2025 Great question! Here’s a clear explanation regarding **TDS on capital gains arising from business acquisition** and the correct sections involved:

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### 1. **Applicability of TDS on Business Acquisition**

* When a business (or a part of it) is transferred for a consideration, **capital gains provisions under Section 50B** of the Income Tax Act apply for computing capital gains on the “transfer of a capital asset being a business or profession as a going concern.”

* **Section 50B** itself is about capital gains computation, **not about TDS**.

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### 2. **Relevant TDS Section for Such Transactions**

* For such payments, **TDS provisions under Section 194Q or Section 194J or 194C do not apply** as they relate to purchase of goods, technical services, or contracts.

* **There is no specific TDS section dedicated for capital gains from transfer of business (Section 50B).**

* However, **Section 194-IA** requires TDS @1% on sale of immovable property (but that is for property transactions only).

* In the absence of a dedicated TDS section, **the buyer should generally deduct TDS under Section 194J (for professional or technical services) or other applicable sections only if the transaction involves such services**, but not on outright business acquisition.

* For **business acquisition consideration**, typically **TDS is not mandatory under any specific section**, unless the transaction involves payment for services or rent.

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### 3. **Why 194J Deduction by the Company is Incorrect**

* Section 194J covers TDS on payments like professional fees, technical services, etc. Business acquisition consideration **does not fall under these services**.

* The company deducting TDS u/s 194J on the business acquisition consideration is likely **incorrect** unless the payment is for some technical or professional services.

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### 4. **Summary:**

| Aspect | Section Applicable | TDS Applicability on Business Acquisition |
| ------------------------- | ------------------------------- | ----------------------------------------- |
| Capital Gains Computation | Section 50B | No (Section 50B is not a TDS section) |
| TDS on Sale of Business | No specific TDS section applies | No mandatory TDS under specific section |
| TDS deducted u/s 194J | Only if payment is for services | Not applicable if it's pure business sale |

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### Suggestion

* Verify nature of payment: If it’s a **pure business sale/transfer consideration**, TDS under 194J is not applicable.

* If TDS has been deducted wrongly, the partnership firm can claim refund or adjustment when filing returns.

* Consult with tax advisor for case-specific guidance and documentation.

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If you want, I can help you draft a letter or representation to the company explaining this with references. Would you like that?

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