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July 27, 2020

TDS on transfer of certain immovable property other than agricultural land as per section 194IA

TDS on transfer of certain immovable property other than agricultural land as per section 194IA

Tax deduction at source is a means of collecting tax on income, dividends or asset sales, by requiring the payer to deduct tax due before paying the balance to the payee. In India, under the Indian Income Tax Act of 1961, income tax must be deducted at source as per the provisions of the Income Tax Act, 1961. In this article we will discuss Tax deducted at source on transfer of certain immovable property. Section 194IA deals with the scheme of deduction of tax at source on transfer of certain immovable property other than agricultural land.

When does section 194IA TDS on transfer of certain immovable property other than agricultural land applies?

Every transferee responsible for paying any sum as consideration for transfer of immovable property (land, other than agricultural land, or building or part of building) to a resident transfer shall deduct tax.

When does section 194IA TDS on transfer of certain immovable property other than agricultural land does not applies?

Section 194IA does not applies in case of compulsory acquisition of immovable property. Since tax deduction at source for compulsory acquisition of immovable property is covered under section 194LA, the provisions of section 194-IA do not get attracted in the hands of the transferee in such cases.

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What is the Meaning of consideration for transfer of any immovable property?

Consideration for transfer of any immovable property includes all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property.

What are the manner and rate of deduction of TDS under section 194IA?

A. Manner of deduction of TDS:

The deduction is to be made at the time of credit of such sum to the account of the resident transferor or at the time of payment of such sum to a resident transferor, whichever is earlier. Tax is not required to be deducted at source where the total amount of consideration for the transfer of immovable property is less than Rs. 50 Lakh.

The provisions of section 203A containing the requirement of obtaining Tax  deduction account number (TAN) shall not apply to the person required to deduct tax in accordance with the provisions of section 194-IA.

B. Rate of TDS

In case the immovable property is sold before 14th May 2020 than TDS under section 194IA is to be deducted at the rate of 1%. Where, immovable property is sold after 14th May 2020 than TDS under section 194IA is to be deducted at the rate of 0.75%. The reduced rate is applicable only for the period from 14th May 2020 to 31st March 2021.

For more information on Change in TDS rates for FY 2020-21 Click here

What is the time and mode of payment of TDS u/s 194IA to the central government?

Time and mode of payment of tax deducted at source under section 194-IA to the credit of Central Government, furnishing challan-cum-statement and TDS Certificate [Rules 30, 31A & 31]:

  • Such sum deducted under section 194-IA shall be paid  to the credit of the Central Government within a period of 30 days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No.26QB [Rule 30].
  • The amount so deducted has to be deposited to the credit of the Central Government by electronic remittance within the above mentioned time limit, into RBI, SBI or any authorized bank [Rule 30].
  • (iii)  Every person responsible for deduction of tax under section 194-IA shall also furnish to the DGIT (Systems) or any person authorized by him, a challan-cum-statement in Form No.26QB electronically within 30 days from the end of the month in which the deduction is made [Rule 31A].
  • (iv) Every person responsible for deduction of tax under section 194-IA shall furnish the TDS certificate in Form No.16B to the payee within 15 days from the due date for furnishing the challan-cum-statement in Form No.26QB under Rule 31A, after generating and downloading the same from the web portal specified by the DGIT (Systems) or the person authorized by him [Rule 31].

Understanding with examples:

Mr. X sold his house property in Bangalore for a consideration of Rs. 60 lakh and Rs. 15 lakh, respectively, to Mr. Y on 1.8.2020.

Since the sale consideration of house property exceeds Rs. 50 lakh, Mr. Y is required to deduct tax at source under section 194-IA. The tax to be deducted under section 194- IA would be Rs. 60,000, being 1% of Rs. 60 lakh.

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