ARTICLE ON SECTION 194IA OF THE INCOME TAX ACT 1961

Article on Section 194IA of the Income Tax Act 1961

Hello everyone, I am presenting my first article on Section 194IA of Income Tax Act, 1961 (TDS Payment on transfer of Immovable property). I have explained here the provisions of the said section with suitable examples and a case law for clear interpretation. I hope this article will be helpful to you all. Any suggestion from you are always welcomed.

As per Section 194IA, any person being a Transferee (the person who buys the property) responsible for paying any sum by way of consideration for transfer of immovable property to a Resident transferor (the person who sells the property) shall deduct tax at the rate of 1% if the total amount of consideration for the same if exceeds Rs. 50 Lakhs.

The time for Deducting Tax shall be earliest of :-

  1. Time of credit of such sum to account of transferor or
  2. At time of payment of such sum in cash, by cheque, draft or any other mode.

For the purpose of this Section :-

  1. Immovable property means any land (other than agricultural land) or any building or part of a building.
  2. Consideration for transfer of any immovable property shall include all charges like Electricity fee, car parking fee, maintenance fee, or any other charges which are incidental to transfer of Immovable property.
  3. Agricultural land means agricultural land in India, not being  a land situated in an area referred to Section 2(14)(iii)(a) and (b)

Let say, Mr. A (Resident Transferor) has entered in an agreement with Mr. B for sale of a land (not an agricultural land) for a total consideration of Rs.72.50 Lakhs. Is Mr. B while making the payment to Mr. A is required to Deduct TDS?

Solution :-

  1. Mr. B is making payment to Mr. A who is a resident Transferor.
  2. There is a transfer of land which is not an agricultural land which meets the definition of Immovable Property.
  3. The total amount of consideration for such transfer exceed Rs.50 Lakhs.

Since, all the conditions mentioned above trigger the provisions of Section 194IA. Mr. B while making payment to Mr. A shall deduct tax at the rate of 1% i.e. Rs.72,500.

What if, in the above example Agreement specifies that payment should be made in Installments?

InstallmentsAmount Paid to Mr. ADeduct Tax @ 1%Net Amount Payable
1Rs. 15,00,000Rs. 15,000Rs. 14,85,000
2Rs. 18,00,000Rs. 18,000Rs. 17,82,000
3Rs. 17,00,000Rs. 17,000Rs. 16,83,000
4Rs. 22,50,000Rs. 22,500Rs. 22,27,500

A question arises, if transferee makes payment to a resident transferor for compulsory acquisition of immovable property (other than agricultural land) and consideration exceeds Rs. 50 Lakhs. Whether such nature of payment is covered under Section 194IA.

Hence, it is to be noted that payment made by the transferee in nature of compensation/ Enhanced compensation/ consideration/ enhanced consideration on account of compulsory Acquisition of immovable property (other than agricultural land) is not covered here. Such nature of payments are separately covered under Section 194LA.

Let us Consider, a situation where there is a Joint acquisition of immovable property and the total consideration for the same exceed Rs.50 Lakhs, but the consideration paid by each of the joint buyers does not exceed Rs.50 Lakhs. For this situation, I will give reference to a case law as given below.

Case law: – Bhikhabhai Hirabhai Patel, vs. Dcit, (Ghaziabad) on 31 January, 2020

Fact of the case: – There were four assessees who had purchased 1/4th undivided equal Shares in Immovable house property in a single registered sale deed for Rs.1,50,00,000/- . The share of consideration pertaining to each assessee is Rs.37,50,000/- and the payment was made by each of them from their individual bank account.

The Assessing Officer (AO) held that the value of property under single deed exceeds Rs. 50,00,000/- therefore, as per section 194 IA (2), the assesses was required to deduct TDS @1%. The AO thus held that all the four assessees as defaulter u/s. 201(1) and created a total liability @ 1% i.e. Rs. 1,50,000/- by a common order u/s. 201(1) of the Act and Commissioner of Income-Tax (Appeals) [CIT(A)] confirmed the findings of the AO by dismissing the appeals of Tax Payers.

The Aggrieved assessees filed an appeal before the Tribunal. The Tribunal observed that transferee has an equal share in property and payment of individual was made by the tax payer from their respective Bank account. It was held that each transferee is as separate individual and hence the purchase consideration by each transferee shall be the determining factor for applicability of Section 194-IA of the Act. Whether a single purchase deed was executed by four joint payers or four separate purchase deeds were executed separately by four tax payers, does not change the nature of transaction. The law cannot be interpreted and applied in two different ways for same transaction.

Accordingly, TDS provisions will not applicable on purchase consideration paid by each tax payer, which was less than Rs.50,00,000/-.

Is it mandatory to obtain TAN for making payment of TDS on Immovable property?

As per Section 203A (Provisions pertaining to Tax deduction and collection account number), every person deducting tax is required to obtain Tax Deduction and Collection Account Number (TAN). However, Section 203A provides relaxation that transferee/Buyer need not obtain a TAN for making payment of the TDS on immovable property. He can make the payment using his PAN.

For the purpose of making payment of TDS on immovable property, the transferee/buyer has to obtain the PAN of the Transferor/seller, else TDS will be deducted at 20% instead of 1%.

When to deposit the tax to the credit of Central Government (CG):-

Any sum deducted under Section 194IA, shall be paid to the credit of CG within a period of thirty Days from the end of the month in which deduction was made and shall accompanied by a challan cum statement in Form No. 26QB.

For Example: – if Mr. A has deducted the tax under Section 194IA on 14th July, he should deposit the same to the credit of CG on or before 30th August i.e. within a period of thirty days from end of the month in which deduction was made.

Certificate for tax Deducted at Source

The buyer/Transferee is required to furnish the TDS certificate in Form 16B to the Seller/Transferor within fifteen days from the Due date of Furnishing the challan cum statement.

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AUTHOR : SAIKRISHNA GUNTUKU (CLICK HERE TO VIEW PROFILE)

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