1. Who is liable to deduct tax at source under section 194-IA
If you are buying an immovable property (except agricultural land) from a resident in India and you are the one paying for it, you need to deduct tax from the payment. This rule does not apply if the payment is related to compulsory acquisition of property, which is covered under a different section (Section 194LA). In short, buyer is liable to deduct TDS if immovable property is purchased from a person resident in India.
2. What is Immovable Property?
“Immovable property” refers to things like land or buildings that cannot be moved. However, it does not include agricultural land. So, when the term “immovable property” is mentioned, it usually means a piece of land (that is not used for farming) or any structure like a house or an office building.
Example:
If you own a piece of land where you want to build a house, or if you already have a house or a shop, these are examples of immovable property. On the other hand, farmland is not considered “immovable property” under this definition.
3. Meaning of Agricultural Land
Agricultural land refers to land used for farming in India, but not all land used for farming qualifies as agricultural land under this rule. Here’s how it breaks down:
- Urban Areas: If the land is within the boundaries of a town or city that has a population of 10,000 people or more, it is not considered agricultural land for tax purposes.
Example: If you own a piece of land within a town that has 15,000 residents, this land is not considered agricultural land under this rule. - Nearby Areas: Even if the land is located outside the main city or town, it might still not be considered agricultural land if it is too close to a populated area. Here’s how the distance works:
- Within 2 kilometers: If the land is within 2 kilometers of a town with a population between 10,000 and 1 lakh, it doesn’t qualify as agricultural land.
Example: If you have a farm 1.5 kilometers away from a small town that has 20,000 people, it isn’t considered agricultural land under this rule. - Within 6 kilometers: If the land is within 6 kilometers of a town that has a population between 1 lakh and 10 lakh, it isn’t treated as agricultural land.
Example: If your farm is 5 kilometers away from a town with 2 lakh residents, it won’t be treated as agricultural land. - Within 8 kilometers: If the land is within 8 kilometers of a city that has a population of more than 10 lakh, it doesn’t qualify as agricultural land.
Example: If your farm is 7 kilometers away from a big city that has 12 lakh residents, it isn’t considered agricultural land.
- Within 2 kilometers: If the land is within 2 kilometers of a town with a population between 10,000 and 1 lakh, it doesn’t qualify as agricultural land.
- Population Counts: The population is counted based on the most recent census figures available before the start of the financial year.
Example: If the latest census data shows that a town’s population was 11,000, land within 2 kilometers of this town won’t be considered agricultural land.
4. Meaning of Consideration for Transfer of Any Immovable Property
When transferring ownership of any property, the consideration amount should include all related costs, such as:
(i) Club membership fees,
(ii) Fees for car parking,
(iii) Charges for electricity or water facilities,
(iv) Maintenance fees,
(v) Advance payments,
(vi) Any other similar charges that are part of the property transfer process.
Note: TDS will not be deducted on the GST value.
5. When is the Tax to be Deducted under Section 194-IA
Tax needs to be deducted:
(a) When the amount is credited to the transferor’s account, or
(b) When the payment is made, whether in cash, by cheque, draft, or any other method, whichever happens first.
6. Rate of TDS
For the financial years 2024-25, if you’re buying or selling property, you need to know about TDS (Tax Deducted at Source). Here’s a simple breakdown:
- TDS Rate: When you transfer property, 1% of the amount you pay or the stamp duty value of the property, whichever is higher, will be deducted as TDS.
- No Extra Charges: There won’t be any additional charges like surcharge or health and education cess. The TDS is deducted at a basic rate of 1%.
- Without PAN: If you don’t provide your PAN (Permanent Account Number), the TDS rate jumps to 20%, which is significantly higher.
- Additional Information: You might also want to check out Section 206AB for more details related to TDS.
7. Tax Not to Be Deducted in the Case of Transfer of Certain Immovable Property
In the following situations, no tax needs to be deducted when buying or selling property under Section 194-IA:
- If the property being sold is rural agricultural land.
- If the property has been taken by the government or any authority through compulsory acquisition.
- If the total sale price of the property is less than ₹50,00,000.
8. Procedure for Deposit of Tax Deducted at Source under Section 194-IA
According to Notification No. 39/2013, issued on May 31, 2013, there is a specific process you need to follow when paying tax that has been deducted at source.
If you deduct tax under section 194-IA, you must pay it to the Central Government within 30 days from the end of the month in which you made the deduction (this changed from 7 days to 30 days starting from June 1, 2016). You need to submit this payment along with a form called Form No. 26QB, which acts as both a challan (payment slip) and a statement.
The tax payment must be made online within 30 days from the end of the month in which the deduction was made. This can be done through the Reserve Bank of India, the State Bank of India, or any other authorized bank.
The Principal Director General of Income Tax (Systems) or the Director General of Income Tax (Systems) will provide the guidelines on how to make this electronic payment. They are also in charge of overseeing the day-to-day management of the electronic payment process.
It is important to note that paying TDS (Tax Deducted at Source) online is mandatory. You can make the payment through the TIN NSDL website.
Both the buyer and seller in the transaction must have a Permanent Account Number (PAN). The buyer (referred to as the transferee) must include their PAN in Form 26QB.
9. Form, Time Limit and Procedure for Issue of TDS Certificate of Deduction of Tax under Section 194-IA [Rule 31A(3A)]
The person who needs to deduct tax under Section 194-IA must give a certificate of tax deduction (Form 16B) to the person receiving the payment within 15 days after the due date for filing the challan-cum-statement (Form 26QB). This certificate should be generated and downloaded from the official web portal specified by the Principal Director General of Income-tax (Systems), Director General of Income-tax (Systems), or their authorized representative.
The Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems) will set the rules, formats, and guidelines for creating and downloading certificates. They are also in charge of the daily operations related to generating and downloading these certificates from the specific web portal they control or through someone they authorize.
(10) Form-26QB Statement to be Filed in Case of Deduction of Tax at Source
Every person who is responsible for deducting tax under section 194-IA must submit a form called 26QB electronically. This form serves as both a payment receipt and a statement, and it must be submitted to the Principal Director General of Income-tax (Systems) or an authorized person within 30 days from the end of the month in which the tax was deducted. This rule has been in effect since June 1, 2016 (before that, the deadline was 7 days).
Amendment of Provisions of TDS on Sale of Immovable Property [Section 194-IA] [w.e.f. 01.10.2024]
Reasons for Making Amendment
- Section 194-IA of the Income Tax Act requires that when you buy certain types of property (other than agricultural land), you must deduct a portion of the payment as tax before paying the seller. This means a small percentage of the property’s purchase price must be paid to the government as tax, and the rest can be given to the seller.
- When you buy any property (like a house or land) from someone who lives in India, the law says that you must deduct 1% of the property’s value as tax before making the payment. You need to deduct this amount based on the higher value between the actual payment or the stamp duty value (the value the government uses to calculate taxes). However, if the property’s value and the stamp duty value are both less than ₹50 lakh, then you don’t need to deduct any tax.
- Some taxpayers are mistakenly thinking that the payment mentioned refers to what each buyer pays separately, rather than the total amount paid for the entire immovable property.
- If a buyer pays less than ₹50 lakh for a property, no tax is deducted, even if the property’s actual value, including stamp duty, is more than ₹50 lakh. This goes against what the lawmakers intended.
Amendment Made
The Finance (No. 2) Bill, 2024 has made changes to section 194-IA(2) of the Act to make it clear that when there are multiple buyers or sellers involved in the transfer of an immovable property (like land or a building), the total amount considered for taxation will be the combined total of all the payments made by the buyers to the sellers. This means that whether one person or several people are involved in the transaction, the tax will be calculated based on the full amount paid for the property.
FAQs
When buying a property, the price you pay (consideration) is for the transfer of that property. However, the GST (Goods and Services Tax) added is a separate legal requirement during the construction of the property and is not part of the property’s actual price.
The tax authorities (CBDT) have clarified through various circulars that no TDS needs to be deducted on the GST portion of the payment. For example, if you buy a flat for ₹50 lakhs and the GST on it is ₹5 lakhs, tax needs to be deducted only on the ₹50 lakhs, not the ₹5 lakhs GST. The Rajasthan High Court also supports this view.
So, as long as the property price and GST are shown separately on the invoice, you don’t need to deduct tax on the GST amount.