Liability of TDS payment cannot be shifted by Mutual Agreement

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Liability of TDS payment cannot be shifted by Mutual Agreement

 

Query 1]

I had purchased a flat last year in Oct 2021. Purchase consideration was Rs. 52 Lakh (which is inclusive of the TDS of 1% as per our mutual oral agreement) & the entire amount of Rs. 52 Lacs was paid to the builder. But the builder did not deposit TDS of 1% as on date. Property was purchased in the joint name of me and my wife. 26AS for FY 2021-22 shows Rs. 26 Lacs in my name and the same amount in my wife’s account. After continuously following up with the Builder, they have now assured me to pay TDS in my account but told me that we will have to bear the penalty on late payment. What to do in this case? Please guide. [pravin_ja*******@yahoo.co.in]

Opinion:

  1. By mutual agreement, one cannot shift the statutory obligation imposed by the law. The liability to do the Tax Deduction at Source (TDS) @ 1% in case of purchase of property of value exceeding Rs. 50 Lakh is on the purchaser. The purchaser is duty bound to do the TDS and pay the same to the Government Treasury within a period of 30 days from the end of the month in which the TDS is done.
  2. In your case, you have paid the entire amount of Rs. 52 Lakh to the builder. In fact, you should have paid only Rs. 51.48 Lakh to the builder and Rs. 52,000/- was required to be deposited by you & your wife in the Government Treasury as TDS on or before 30th November 2021.
  3. Consequence for Non Payment of the TDS & non filing of the TDS Return:
    The consequences for non compliance with any of the TDS provisions is very detrimental. The same is summarized as under:
    a) The non-deduction or non-payment of the TDS amount results in the treating the purchaser as “Assessee in Default” and the amount of TDS can be recovered from the purchaser. In your case, the amount of Rs. 52,000/- can be recovered from you & your wife.
    b) The purchaser is also liable for payment of interest in such a case. Interest rate is 1.50% p.m. in case the purchaser has done the TDS. However, in case the purchaser has not done the TDS then the interest shall be chargeable @ 1% p.m. In your case, you have paid the entire amount to the builder without TDS and so interest @1% p.m. shall be applicable.
    c) After doing TDS, purchaser is required to make the payment of TDS by filing return cum challan Form (Form No. 26QB). Non filing of the TDS return results within the due date results in a late fee of Rs. 200/- per day subject to the maximum of the amount of TDS.
  1. In your case, you have the following two options.

Option 1:
a) You can recover back the amount of Rs. 52,000/- from the builder and can deposit it with the Government Treasury along with interest @ 1% p.m plus late fee of Rs. 200/- per day. [The late fee in your case would be a maximum of Rs. 52,000/-.]
b) In this case, another issue would be there with the builder with regard to the TDS credit in his hands. The builder might have already filed his income tax return and so he may not be able to get the credit of the TDS.
c) As such, this option may not be a recommended option for either side.

Option 2:
Income tax law provides that the person (payer) may not be treated as “Assessee in default” if the recipient payee,
(i) has furnished his return of income U/s 139
(ii) has taken into account such sum for computing income in such return of income
(iii) has paid the tax due on the income declared by him in such return of income, and
(iv) has furnished the certificate in Form  No. 26A duly certified from his CA about the compliance with above 3 conditions.

In short, if the person (i.e. seller builder in your case) has filed the return of income with above transaction in his return of income then the amount of Rs. 52,000/- cannot be recovered from you & your wife provided that builder furnishes you the certificate in Form No. 26A from his CA with respect to all above.

If the 2nd Option is used, it will be a win-win situation for either side for the following reasons:
a) The late fee of Rs. 200/- per day would not be there. Late fee could be avoided with 2nd option.
b) The interest @1% p.m could also be reduced. The interest in the 2nd option would be chargeable only till the month of filing of the income tax return of the builder. In the first option, it would have been recoverable till the date of payment by you.
c) The issue of TDS credit to the builder would not be there as was there under the first option.

 

Words of Caution for the Purchaser:

The liability to do the TDS & payment thereafter is on the purchaser and not on the seller. Buyer must ensure the compliance with the TDS. Paying the amount to the seller with an assurance that they will comply with the TDS provision would not absolve them from their liability.

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