ALL ABOUT TDS PROVISION ON SALE OF IMMOVEABLE PROPERTY

ALL ABOUT TDS PROVISION ON SALE OF IMMOVEABLE PROPERTY

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Query 1]

I am writing this on behalf of one of my friend who is a silent partner in a trading firm. The said firm has not filed the income-tax return since its inception 5 years ago. It is told that the firm is not making any profit and the turnover have never crossed Rs. 8 Lacs per annum except in one financial year and during the current year, it is even less than Rs. 3 Lacs. Among all the 3 partners, none of them is having any activity other than this and are drawing a salary of Rs. 8,000/- per month from the revenue accrued.  They are paying the sales tax and other local taxes regularly. Whether they need to file Income tax return on yearly basis and what are the consequences if not filed even though they are not earning anything as profit? [krishnakumarnayanar@gmail.com]

Opinion:

  1. It is mandatory for the partnership firm & companies to file the return of income even if they don’t have any taxable income or turnover. [Section 139(1)]
  2. Penalty of Rs. 5,000/- can be levied if any person who is mandatorily required to file the income tax return fails to file it before the end of the relevant assessment year.
  3. It may be noted that the Salary/ Remuneration to the partner is not deductible merely on the basis of the actual payment or provision by the firm to the partners. It is subject to the clauses incorporated in the partnership deed & is subject to the ceiling & precincts imposed in section 40(b) of the Income Tax Act-1961.

 

Query 2]

My query is related to Provision of Section 194 IA (TDS on Purchase of Immovable Property). I had purchased one property for Rs. 85 Lacs in last Financial Year i.e. 2012-2013 & Agreement to Sale is made on September-2012. With Agreement to sale, I had also paid Rs. 65 Lacs in Cheque. Now I am executing Sale Deed in December 2013 & also make the balance payment of Rs. 20 Lacs. I would like to know whether I have to deduct TDS on whole Value of Rs. 85 Lacs or on balance payment of Rs. 20 Lacs in current Period at the time of executing Sale Deed.  Whether provision of Section 194 IA is applicable or not? [ca**********07@gmail.com]

Opinion:

We are flooded with number of queries about the applicability of newly introduced provision regarding Tax deduction at source (TDS) on transactions of immoveable property. For the mass benefit, we are elaborating the TDS provision U/s 194-IA & its applicability under varied situation in immoveable property transactions of Rs. 50 Lacs & above.

  1. Applicability:
    Obligation to deduct tax at source is on the purchaser. Any person responsible for paying any amount to a resident seller for transfer of any immoveable property (land and/or building) is liable to deduct tax at source (TDS). Tax is deductible only if the sale consideration against transfer of immoveable property, whether residential or commercial, is Rs. 50 Lacs or more. Tax would be deductible even if the seller is a builder/Developer. Tax is deductible with reference to the actual sale consideration and not with reference to Stamp Duty Valuation. Section 194-IA is applicable to all including transaction by relatives, minor, senior citizens etc also.
    However, this TDS provision is not applicable on transfer of agricultural if the agricultural land is not situated in any area within the distance (measured aerially) of not more than:
    a] 2 kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but not exceeding 1,00,000; or
    b] 6 kms, from the local limits of any municipality or cantonment board and which has a population of more than 1,00,000 but not exceeding 10,00,000; or
    c] 8 kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000.
    If the agricultural land is situated outside the applicable radius of 2/6/8 Kms, then no tax at source u/s 194IA would be deductible even if the sale consideration is Rs. 50 Lacs or more.
  2. Timing:
    Tax at source is deductible either at the time of payment or at the time of crediting the account of the seller, whichever is earlier. If advance payment is being made then TDS would be required at the time of advance payment also. The tax deducted shall be paid to the credit of Central Government within a period of seven days from the end of the month in which deduction is done
  3. Rate of Tax Deduction:
    Tax is deductible @ 1%. [If however the seller fails to furnish his PAN to the buyer, tax @ 20% would be deductible]
  4. Tax Deduction Account Number (TAN):
    Buyer is neither required to apply/obtain TAN nor required to quote TAN in the payment challan.
  5. Credit of TDS to the transferor:
    The deductee / seller can avail credit of the entire amount of TDS at the time of filing income tax return for that relevant financial year.
  6. Whether transferor have any tax liability or not is not at all relevant:
    Tax is deductible even if the seller is exempt from tax / has exempt capital gains / incurs loss on sale of immovable property.
    Whether the seller is liable to income tax or not, is immaterial & buyer is duty bound to deduct the tax at source.
  7. Whether Gift would also attract TDS Provision:
    If transfer is made without payment/consideration, like in case of gift/will etc, then the section would not be applicable.
  8. Whether installment would attract TDS Provision:
    If a buyer pays for the property in installments, tax has to be deducted at the time of payment of each installment.
  9. Whether TDS Provision would be applicable if the agreement to sale is done before 01.06.2013:
    TDS provision u/s 194-IA is applicable even if the agreement took place prior to 01.06.2013 and the payment is made on or after 01.06.2013. If some part payment is made before 01.06.2013 then the payments made on or after 01.06.2013 will be subject to TDS.
    [In your specific case, you would be required to deduct tax on the payment of Rs. 20 Lacs only.]
  10. Whether transfer of property via transfer of shares/ membership would also attract TDS Provision:
    Section 194-IA would be applicable on all the transaction which has the effect of transferring, or enabling the enjoyment of, any immovable property as it is considered as transfer of immovable property. Effectively, transaction involving transfer of shares in a co-operative society / company or other association of persons which has an indirect effect of transferring an ownership in a property would be subject to TDS provision u/s 194-IA.
  11. How TDS Payment to be done & certificate be issued:
    TDS payment has to be done online only and the tax should be deposited on challan-cum-statement on Form No.26QB. After payment, Form No 16B (TDS Certificate) is to be issued by the Deductor within fifteen days from the due date of depositing tax.
  12. Penalty for Non Compliance:
    In case of failure to comply with the provisions, interest and penalty would be imposed on the purchaser. Interest will be charged @ 1% p.m. or part of the month for failure to deduct tax or short deduction of tax from the date the tax was deductible till the date the same is deducted. Interest will be charged @ 1.5% p.m. or part of the month for tax deducted but not paid to the Government from the date of deduction till the date of actual payment.
  13. Joint ownership – whether immunity available from TDS Provision:
    In case of joint owners, the threshold limit of Rs. 50 Lacs is to be determined property-wise and not each transferee-wise. The number of buyer or seller would not matter at all. If the value of property is Rs 50 Lacs or more, TDS provision would be applicable.
  14. 194-IA applicable only if the transferor is resident assessee. What if the transferor is a Non Resident:
    If payment is made to a Non-Resident, then section 194-IA will not be applicable. Rather, in such case, section 195 will be attracted and TDS is required to be deducted @ 20% + EC & SHEC on the sale consideration.


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