The Central Board of Direct Taxes has notified the new provision of Tax Deducted at Source [“TDS”] on immovable property. The Finance Act 2013 had imposed that purchaser of an immovable property (any land or building other than agricultural land) costing Rs. 50 lakh or more is required to pay a withholding tax. The rate at which the tax is to be deducted is 1%. The amendment is effective from June 1, 2013. The new provision has been introduced by adding Section 194IA. The major objective behind the introduction of the new section is to track real estate transactions that are not being registered.
The threshold limit for application of TDS is Rs. 50 lakh. In cases where the transaction is less than Rs. 50 lakh, the liability to TDS will not be applicable. If you have bought or sold a property that costs Rs.50 lakh or more, then the following facts regarding the deposit of TDS will be helpful:
Who will deduct the TDS?
The responsibility of deducting TDS on immovable property lies with the buyer. For example, if A buys a property costing Rs.50 lakh from B, then A will have to deduct tax at 1% and deposit it. Besides making the payment, the buyer will also have to obtain a “challan” for the payment and issue Form 16B to the seller.
How to make the payment?
There is an online form for making TDS payments on property transactions: Form 26QB or “TDS on sale of property” form. The form has to be filled with PAN and complete address of the buyer and the seller; address of the subject immovable property; date of sale agreement and the value of the subject property that is for consideration. After filling up the details, the payment can be made immediately or on a subsequent date. A “challan” will be generated after the payment is made.
How important is PAN?
The importance of PAN is such that if the seller of an immovable property has not disclosed his/her PAN then tax will be deducted up to as high as 20%.
Is TAN required?
Once a buyer makes a payment, he/she will be responsible to give the certificate of TDS in Form 16B to the seller within 15 days from the due date of submission of the “challan”. The seller will be thus enabled to claim credit for such TDS against tax liability. Therefore, the government has clarified that the Tax Deduction Account Number (TAN) is not required for TDS process. Earlier, any person who was required to deduct tax at source had to obtain TAN. With the new development, the process of TDS on immovable property has become simpler and uncomplicated.
The Finance Minister has proposed that in order to have a reporting mechanism of transactions in the real estate sector and to collect tax at the earliest point of time, TDS should be applicable. This will widen the tax base and check tax avoidance measures.