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).
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)
Nomura expects high food inflation and external sector risks to force the RBI to stay on hold at the 30th July policy meeting
India’s industrial output growth fell -1.6% y-o-y in May from 1.9% in April, way below consensus expectations (1.5% y-o-y). Continued contraction in mining and manufacturing sectors offset the pickup in electricity output growth. While base effects were adverse, clearly domestic demand remains very sluggish with both consumption and investment demand slowing. Meanwhile, CPI (consumer price index) inflation surged to 9.9% y-o-y in June from 9.3% in May, above expectations (9.3%) led by a surge in seasonal food prices (vegetables), even as core CPI inflation moderated marginally.
Overall, even as demand remains very weak, Nomura expects high food inflation and external sector risks to force the central bank to stay on hold (at the 30th July policy meeting). As such, the brokerage expects growth to remain weak. It is below consensus on
FY14 growth at 5.6% y-o-y (Consensus: 5.9%) and sees downside risks to its forecast.