Section 194-IA: TDS on Purchase of Immovable Property in India
Transaction of Purchase of immovable property comes under the purview of TDS and attracts TDS @ 1%, if value of property exceeds Rs.50 lakhs, which should be deducted either at the time of payment or credit, whichever is earlier.
Similar to other TDS provisions, if deductee/seller does not furnish PAN to deductor/buyer, TDS is to be deducted at 20% instead of 1%.
The threshold limit of Rs.50 lakhs is applicable to each and every immovable property separately irrespective of property being commercial or of residential purpose.
This section embraces all persons such as a dealer, user of the property or a salaried employee.
TDS certificate (Form 16B) must be issued to the seller by buyer within 15 days from the due date of deposit of TDS and the seller shall be entitled to avail credit for the entire amount of TDS deducted during the financial year in its Return of Income. For example, if TDS is deducted in July 2013, tax credit can be taken in filing return for FY 2013-14 aka AY 2014-15.
It is universal rule of TDS that TDS is to be deducted earlier of payment or credit. Thus TDS is to be deducted if the transaction takes place before 1st June, 2013 but the payment is made after 1st June, 2013 because. However, if credit to the account of the seller has been given prior to 1st June, 2013 then provisions of section 194-IA will not apply and no TDS is to be deducted, even if payment has been made after 1st June, 2013. (Payment or credit whichever is earlier)
In case of under construction properties, TDS is to be deducted on installments paid on or after 1st June, 2013, if the aggregate purchase consideration is more than Rs. 50 Lacs. Thus, no TDS is required to be deducted in respect of installments paid before 1st June, 2013. For example, if aggregate purchase value of property is Rs.1 crore and installments of Rs.10 lakhs starts from April 2013, then TDS is to be deducted only on the installments credited and paid after 31st May, 2013.
However, if any installment becomes due prior to 1st June, 2013 but payment is made after 1st June, 2013, provided that the buyer has not credited the same to the account of the seller before 1st June, 2013, then provisions of section 194-IA shall apply and TDS is be deducted on the amount paid after 1st June, 2013.
Point to remember in case of installment system of payment is that TDS is required to be deducted only on the principal portion not on interest or penalty portion.
Where the property is partly financed by bank or any financial institutions then TDS is to be deducted by the buyer on the entire amount of consideration.
More than One Seller or One Buyer
In case the transaction involves more than one buyer having share less than Rs.50 lakhs each but the aggregate value of property exceeds Rs.50 lakhs, then the provisions of section 194-IA will be applicable and TDS is to be deducted by each buyer in respect of their respective share in the property and deposited within the time period framed by Government.
Similarly, in case of a property transaction involving more than one seller where each seller has share in property less than Rs.50 lakhs but aggregate value of property exceeds Rs.50 lakhs then TDS is to be deducted in respect of amount paid to each seller and their respective PAN will be quoted while making payment through Form 26QB.