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TDS on property transactions: Some unanswered questions

As per the 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 home loan

This note is being written in response to various calls I 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) @1% as per section 194IA. Taxes would be required to be deducted @20% should the seller not hold a PAN. Such requirement to deduct taxes is triggered should the purchased property’s cost exceed Rs50 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 and 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 26QB, 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/ 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 home loan? In such cases the first 20% is paid by the buyer and then subsequently the bank/Institution provides the finance and 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 Rs50 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
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 Rs50 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).

User

COMMENTS

cardinalpointwealth

1 year ago

good article, its an informative article.TDS should be applicable. Its good rule.

sasmita

1 year ago

Hi, I bought a property(house) for 93L and deducted 1%of the sale consideration andpaid 1% TDS at the time of registration and got the property registered. Unfortunately, the seller had occupied the house at the time of registration and he requested to continue to stay in the house for 2 months . now 2 months got over and when I asked the seller to vacate the house, he is asking me to return 1% TDS amount on sale of property and then he will vacate the house. He alsoi knew that he can claim that amount from TAX department. But he says ,I can't wait for that amount as I dont know when I get back it ,so you must pay the amount as to vacate the house. How can I resolve this issue . please help. Thanks
Sashmita

Vivek

2 years ago

Hi,

I am holding a Collaborative Residential Flat in Gurgaon. I have bought this in resale. As this is a Collaborative unit (unit issued by Builder to owner of the land) hence total price mentioned in the BBA agreement is Rs-1.

Actual value of the flat is more than 50 lcs. This is a Join property (with my wife).

Please let me know if I need to pay TDS under section 194-1A?

thanks,
Vivek

Vivek

2 years ago

Hi,

I am holding a Collaborative Residential Flat in Gurgaon. I have bought this in resale. As this is a Collaborative unit (unit issued by Builder to owner of the land) hence total price mentioned in the BBA agreement is Rs-1.

Actual value of the flat is more than 50 lcs. This is a Join property (with my wife).

Please let me know if I need to pay TDS under section 194-1A?

thanks,
Vivek

Sumanth Sv

2 years ago

Hi, I had booked an apartment in Nov 2013. I had paid 20% booking amount without deducting TDS amount. There was some project approval problem with the builder. Now, the approvals are in place. Now, the installments have started. i decided to pay the TDS amount for 20% booking amount. What "date of Tax deduction" i need to enter while paying TDS ?

devina mishra

2 years ago

I have purchased a flat in Pune in March 2013 and got possession in July 2013. In March 2014 I got a property tax of 67000 Rs which I had to pay. What should I do to get it corrected n get my refund?

SIVARAMAN VISWANATHAN

2 years ago

Form-26QB does not refer to any section as compared with ITNS-0281, but only refers "Type of Payment*" as "(800) TDS ON SALE OF PROPERTY".
Further going thru the process of getting TAN and allied process for one single transaction in a life time is a punishment. In fact that is why 26QB was introduced in first place.
If TAN route is to be followed for purchase from NRI why not for Residents also.
Considering the Form-26QB & 16B does not distinguish between NRI and others there is not need to take TAN route.

SIVARAMAN VISWANATHAN

2 years ago

The challan 26QB states "Type of Payment*" as "(800)TDS ON SALE OF PROPERTY". No reference to any section is given in the chalan.
Further complying TAN provisions just for once in a life time transaction is questionable. That is why 26QB was introduced in comparison to other sections. Hence I opine that 26QB applies for NRI also in the case of Purchase of Property.
Regards. Sivaraman [[email protected]]

Sameer Sunkle

2 years ago

Dear Sir,
Good day. I am buying a property worth 7100000 at Pune in resale. The price fixed for agreement is 7100000.
When I pay the seller what amount I am suppose to pay, is it 7100000 less 1% TDS or is it 1% plus 7100000.
What is that the law states .
Sameer Sunkle
Pune

REPLY

Sucheta Dalal

In Reply to Sameer Sunkle 2 years ago


If this is a genuine query that you want a response to, then please send it on Moneylife Foundation's legal research centre, not here.
it is lrc.moneylife.in and you need to submit the query in the form on the website!

Vijay Chougule

3 years ago

Hi,

I have purchase pieces and parcels of Non-Agricultural Land in No Development Zone can i deduct TDS on same.

Vijay

Arihant

3 years ago

Agreement Value is 5,00,00,000/-
payment to the seller is jointly.
Like 4,70,00,000/-is paid by construction company and balance amount 30,00,000/- is paid by buyer. which amount is dedutable for TDS.

Pawan Jain

3 years ago

Hi,
I have purchased an under-construction residential flat in resale in August 2013. The original buyer had purchased this property in 2011. At the time of transfer (Aug-2013), the property was valued at 90L. Since the property is under-construction with CLP active, the transfer was executed for a sum of 27L. The remaining amount will now be paid by me directly to the builder as per the demands raised in future.
Do I need to pay 1% tax on this transaction (as per IT194-IA) as the transfer was done for an amount of 27L (less than 50L) even though at the time of transaction (Aug-2013) the property was valued at 90L?
I am confused and would appreciate your help on this.
Thanks

REPLY

Gaurav Sharma

In Reply to Pawan Jain 3 years ago

Dear Pawan Ji,

I have the same query, have you made the TDS payment on the above query?

rgds,
Gaurav

Pawan Jain

3 years ago

Hi,
I have purchased an under-construction residential flat in resale in August 2013. The original buyer had purchased this property in 2011. At the time of transfer (Aug-2013), the property was valued at 90L. Since the property is under-construction with CLP active, the transfer was executed for a sum of 27L. The remaining amount will now be paid by me directly to the builder as per the demands raised in future.
Do I need to pay 1% tax on this transaction (as per IT194-IA) as the transfer was done for an amount of 27L (less than 50L) even though at the time of transaction (Aug-2013) the property was valued at 90L?
I am confused and would appreciate your help on this.
Thanks

Rajesh Modi

3 years ago

Hi

This is with reference to your link -

http://www.moneylife.in/article/tds-paym...

Please I need to know that If I am selling the flat for 51 Lac & against that I am also buying a flat for the same amount ( 51 Lac ) can I not fill a form & show the form to the buyer so that he does not deduct the TDS & pay the full amount to me w/o deducting against the form which i submitted to the buyer , since this TDS is finally refundable , so is there no provision for that..

Thanks
Mr. Modi

Raja

3 years ago

Extremely relevant article Mr. Borkar. Now that we are in Oct 2013, have you got clarity on some of the questions? If yes, it will be a great help to know from you. Specially,

1. How do we treat installment payments and where some of the payments have taken place in FY12-13
2. Form26QB is poorly designed. e.g., I am making an installment payment tomorrow based on a demand note from the builder. Will I pay the TDS today and deduct that from the builder's demand note amount and pay him tomorrow accordingly? The form asks for Payment date. It will be a future date in this case.

The Emergency of 1975 and role played by the judiciary

The apex court accepted the Attorney General’s argument that if a policeman under orders of his superior was to shoot a person or even arrest a Supreme Court judge, it would be legal and no relief available. If only this view had been rejected, Emergency would have collapsed then and there

Nations, which do not remember their immediate past, are in danger of repeating the same tragedy. This thought came to me on 26 June 2013 (the Emergency day of 1975) when on random questioning of youth around 35 years old in the country (who are said to make up about half the population of the country) overwhelmingly of them did not know of any particular significance of the day—and more tragic, fairly large number of people above the age of 35 fared no better.

 

The reason was obvious. Most of the population in this age group got its information from newspapers, which with commercial angle in view never fail to remind us of Valentine’s Day. But on 26 June, the newspapers did not even have a small news item in their paper—leave apart on the front page. Even many opposition parties, which were the victims of Emergency, chose to keep low key. Even though PUCL and other civil liberties organizations, as usual held protest meetings, but TV and newspapers viciously avoided any mention, overwhelmed as they are with the government’s neo liberal policies. Or is it a sense of fear because the perpetrator of Emergency is the ruling party—so much for freedom of press. And yet tragically it was a day when India lost its democracy and the US president sarcastically boasted that America was now the largest democracy. It is a different matter that thankfully because of the sacrifices made by Indian people under the inspiring leadership of Jai Prakash Narain (JP), the boast of US president was to end, but only after 18 months.

 

But the wounds have remained—the danger of it being repeated in the same manner may have been eliminated but a clearly concealed kind of version by the governments in using the various security legislations against human right activists, trade unionists continue to haunt us.

 

Question often asked is why Emergency could have happened notwithstanding our Constitution giving us all the fundamental rights and democracy being a basic feature of the Constitution as so refreshingly held in the Kesavananda Bharati case as far back in 1973 by our Supreme Court.

 

It is not that there was no resistance to the Emergency. Thousands went to jail, which included ex- central ministers, ex-chief ministers, governors, lawyers, legislators and few brave journalists. Many human right activists went underground but there is a limit beyond which unarmed people can fight an intolerant and a near fascist state that India had become those days. A total fear had enveloped the country. And all this because rule of law had completely been eliminated by the Supreme Court ruling in the ADM Jabalpur case (April 1976), which overruled the view of nine high courts that the legality of detaining order passed by the governments could still be examined—in fact in some cases the high courts had ordered release of detenues. Had this view been upheld, Emergency would have collapsed. But to our shame the Supreme Court by a majority of four judges against one honourable exception (Khanna J) laid down a proposition of law, which forever will remain a hallmark of shame thus;

 

“In view of the Presidential Order dated 27 June 1975 no person has any locus standi to move any writ petition under Article 226 before a high court for habeas corpus or any other writ or order or direction to challenge the legality of an order of detention on the round that the order is not under or in compliance with the Act or is illegal or is vitiated by mala fides factual or legal or is based on extraneous considerations.”

 

Is it not obvious that Emergency could not be fought in a legal and democratic manner because the Supreme Court accepted the Attorney General’s argument that if a policeman under orders of his superior was to shoot a person or even arrest a Supreme Court judge, it would be legal and no relief available. Naturally in this situation, no peaceful opposition to Emergency could continue. I am shocked how the majority decision could rely on Liversidge Vs Anderson given during wartime in 1942 by House of Lords, but with a (memorable dissent by Lord Atkin) when English courts subsequently felt so ashamed of that decision that a conscious effort was made to throw that decision in to a dung heap.

 

Lord Akin caustically remarked about judges who “show themselves more executive minded than the executive” and commented that such arguments which might have been addressed acceptably to the court of King’s Bench in the time of Charies-I. In fact justice Stable, a judge of the London High Court was so upset to say that the status of judiciary had been reduced “to mice squeaking under a chair in the Home office”.

 

In 1963 Lord Radcliff (HL) referred dismissively to the very peculiar case in Liversidge Vs Anderson and said “it should be confined apparently to a war time context and that it is already clear that the decision was regarded as an aberration”.

 

All this trenchant criticism of Liversidge judgment was available in various law quarterly reviews since the beginning. Law quarterly Review (1970) clearly spelled out how embarrassing the decision in Liversidge was becoming for English judiciary.

 

That is why Lord Diplock (HL) in 1979 was constrained to rule, “For my part I think the time has come to acknowledge openly that the majority view in Liversidge Vs Anderson were expediently and, at that time, wrong and the dissenting judgment right”.

 

And Lord Scarman laid final demise by saying that “the ghost of that decision need no longer haunt the law”.

 

Some commentators have ironically described majority in Liversidge case as the court’s contribution to the war effort of England—similarly many in this country are inclined to describe majority in the Jabalpur case as the Supreme Court’s contribution to the continuance of 1975 Emergency. Had the Supreme Court taken the same view as the nine high courts, the Emergency would have collapsed immediately, because no court could possibly have upheld the detention of stalwarts and patriots like Jayaprakash Narayan Ji, Morarji Desai, Raj Narain, George Fernandes, Madhu Limaye and thousands of others on the ground that they were a danger to the security of the country. The inevitable result would have been the immediate release of these leaders leading to an overwhelming opposition movement which would have swept away the Indira Gandhi government by mid 1976. Alas, how sometime fate of nations can be influenced by the pusillanimity of a few individuals—in this case embarrassingly by the highest judiciary which it can never live down.

 

(The writer is the former chief justice of the Delhi High Court)

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COMMENTS

sonia

3 years ago

Very interesting article. Justice Sachar is right: one must know about the Emergency to understand what is going on right now, in fact, because history seems to be repeating itself. I highly recommend the public read Era Sezhian’s Shah Commission Report Lost and Regained, and two of Kuldip Nayar’s books, Emergency Retold, and Beyond the Lines.

SuchindranathAiyerS

3 years ago

Without being egregious thereafter, India's judiciary has adhered to the precept of "balance of convenience" as the lode star of jurisprudence. Procrastination is even more convenient than finding the law too trivial to enforce..

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