27 April, 2016

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TDS on sale of Immovable Property – Section 194IA

TDS on sale of Immovable Property – Section 194IA

If you are selling or buying any immovable property , meaning any plot , land , building, etc., please pay attention here.This is because this article will explain in detail about Tax Deducted at source (TDS) on such real asset sale or purchase transaction. We will explain the section 194IA , its applicability , its non applicability , procedure to deposit TDS under this section and conclusion.We wll also dicuss some peculiar issues in this respect.

What is Section 194IA ?

Section 194IA came into effect from June 2013.This section requires that the payer , who is required to pay the resident seller compensation for the land , building , plot , shop , penthouse or any other immovable property sold to him , is required to deduct the tax from such consideration.


Applicability of Section 194IA

- This section is applicable to sale agreements made after 1st June 2013 even if the date of receipt of consideration.

- This section is applicable to the transactions relating to sale or purchase of immovable property ,where the amount paid or payable as consideration exceeds Rs 50 lakhs .

- This section requires the buyer or the person purchasing the property to deduct the tax at source from the consideration paid or payable to the seller @ 1%.

- Rate of TDS under section 194IA is 1% where PAN is submitted, however this rate is escalated to 20% if PAN of the seller is not furnished.

- Time limit for depositing TDS into government treasury within 7 days from the end of the month in which TDS is deducted.Where the sale consideration is paid in instalments , TDS under section 194IA to be deducted for every such instalment at the time of payment of such instalment and deposited after this.

- TDS under section 194IA to be deducted at the time of payment of consideration or at the time of credit in the books , whichever comes first.

- The section also presents filing of certain documents which is Form 26QB, which is challan cum statement.This form is to be filed online where the consideration for real estate transaction exceeds Rs 50 lakhs.This form will contain amount of consideration paid or payable , address of the seller , address of the buyer , address of the immovable property under consideration, PAN , date of deduction , amount of TDS etc.

- Always remember that threshold for tax deduction of Rs 50 lakhs is set for overall consideration.Hence where the consideration is Rs 65 lakhs , you need to deduct and deposit TDS on whole of Rs 65 lakhs and not on the differential amount of Rs 15 lakhs.

- Buyer is required to deduct tax , however he wont be required to obtain TAN (Tax deduction Account Number)

- Once the TDS is deposited into government treasury , the deductor i.e. buyer needs to furnish TDS certificate which will enable the seller to claim the tax deducted in his tax return.This certificate i.e. Form 16B usually takes 10 -15 days to generate after TDS is deposited and form 26QB is filed.

- For all these formalities , it is required that the buyer shall have an access to net banking for payment of tax for depositing.

- In the case , where the immovable property is owned by more than one owners jointly, the threshold for TDS shall be determined on the basis of all the shares combined together.For e.g. if a land is owned by 3 owners for each Rs 40 lakhs , which collectively stands at Rs 1 crore 20 lakhs .This mean that this transaction will be considered for TDs under section 194IA.


Non Applicability of Section 194IA


- Section 194IA is not applicable where the immovable property sold or purchased is rural agricultural land.(refer to agricultural land definition as per Income Tax Act)


- Point to be noted is that agreements entered into before June 1st 2013 wont have to be considered for TDS under section 194IA.


- Immovable property which is sold or bought without any consideration (transferred due to inheritance or under trust etc) is exempted from section 194IA deduction .


- Section 194IA is not applicable where the sale or purchase transaction with respect to immovable property do not exceed Rs 50 lakhs.


- The immovable property which is compulsorily acquired by the government , then in such case TDS is not required to be deducted under section 194IA.



Real estate is the matter of big money and to some extent black money. This section is hence introduced to curb the fraudulent activities , which goes on to reducing the considertion on paper, which wll reduce the stamp duty , thereby causing decrease in government revenues.By putting the onus on the buyer , the government has been successful in securing its revnue and encouraging good practices in real estate market.

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