Section 194-IA was inserted in the Income-tax Act,1961 vide Finance Act 2013, w.e.f. 1st day of June, 2013.
Thereafter it was amended vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-09-2019 at one place and again vide Finance Act, 2022 w.e.f. 01-04-2022 at three places.
The section provide for tax deduction at source by transferee of property, however, it will practically apply to a buyer of property for consideration and not in case of transfer without consideration. However, disputes can arise in this regard.
There are many aspects, which can be considered in different ways and disputes can arise.
Section is within Chapter: XVII relating to Collection and recovery of tax and is in Part: B relating to “Deduction at source”
he section is reproduced in table below in left column with highlights added for analysis, and catch words for easy understanding and memorizing. In right column further observations are provided by author, where considered necessary.
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From provisions with highlights for analysis, and reference of amendments:
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Further observations.
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Statutory Provisions
Income-tax Act, 1961
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1[194-IA. Payment on transfer of certain immovable property other than agricultural land.-
{1.The section was inserted vide Finance Act 2013, w.e.f. 1st day of June, 2013.}
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The provision will apply in a case where a payment by transferee is involved. For transfer of immovable property ,other than agricultural land. (of some specified category- see Explanation (a))
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(1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum 3[or the stamp duty value of such property, whichever is higher,] as income-tax thereon.
{3. Inserted vide Finance Act, 2022 w.e.f. 01-04-2022}
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Transferred should also be responsible for paying.
Payee should be a resident transferor.
‘by way of consideration’ , and ‘payment of such sum’ - a possible view is that it will apply to final payment and not advance payments. At time of final payment entire consideration, including advance payments made earlier shall be subject to TDS.
If the stamp duty value is higher than consideration, then TDS is required to be made on amount of stamp duty valuation w.e.f. 01.04.2022.
If entire consideration is credited , for transfer, even without payment, then also TDS will apply, because credit in books of account of transferor is considered as accrual of income by transferee. However, transfer of property seems a precondition to attract TDS.
Transactions covered by S.194LA are excluded.
Payments to nonresidents are covered under other provisions.
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(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an 4[immovable property and the stamp duty value of such property, are both,] less than fifty lakh rupees.
{4. Substituted vide Finance Act, 2022 w.e.f. 01-04-2022 before it was read as, "immovable property is"}
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No TDS if consideration is less than Rs. 50 Lakh. From 01.04.2022 TDS will apply if stamp duty value is Rs.50 lakh or more, even if consideration is less than Rs.50 lakh.
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(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
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Tax deduction and collection account number are not applicable. Transferee will deposit TDS and make other compliances with his PAN even if he has TAN
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Explanation.- For the purposes of this section,-
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(a) “agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;
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“agricultural lands’ not within specified limits from municipal limits are only exempted. See referred provisions and notifications relating to the same.
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2[(aa) “consideration for transfer of any immovable property” shall include 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;]
{2. Inserted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-09-2019 }
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WEF 01.09.2019 all facility charges, will be covered if payment is made to transferor of property.
However, payments made to other parties like club, or owners association, for membership, electricity and water supply deposits or advances, or car parking deposits etc. with service providers will not be covered.
Payment for proportionate share in land can also fall in this category because proportionate share in land is incidental to transfer of immovable property being building or part of building like flats, apartments, shops etc. in a larger building or complex.
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(b) “immovable property” means any land (other than agricultural land) or any building or part of a building.]
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A definite meaning is given by use of word ‘means’. Non-agricultural rural land is exempted.
Any building or part of building is covered.
Therefore, a possible view is that land must be complete and any proportionate share in land is not covered. In other words land must mean entire (100%) plot of land.
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5[(c) "stamp duty value" shall have the same meaning as assigned to it in clause (f) of the Explanation to clause (vii) of sub-section (2) of section 56.]
5. Inserted vide Finance Act, 2022 w.e.f. 01-04-2022
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Meaning of “Stamp duty value’” is as per stated provision. This is w.e.f. 01.04.2022 and before that it did not apply.
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As per discussion above we find that in spite of several amendments, there are still many area of contentious issues about TDS by transferee of immovable property.
Practical aspects and difficulties:
As discussed above in right column, there are many contentious issues. On strict interpretation and also on purpose seeking approach there can be many situations in which TDS is not warranted. For example,
Advance payments should not be subject to TDS, because it is not consideration for transfer and there will be no income in hands of transferor until property is transferred. TDS on advance payment will pose difficulties in claiming credit for TDS and allowing credit for the same. There can be mismatch of TDS and income in many years, if it takes more than one year over which payments are made and when property is not transferred due to any reason and payments made become refundable.
Land, entire plot of land and entire plot of land with building or part of building definitely falls within meaning of immovable property. However, proportionate share in land cannot be called ‘land’ and is not within meaning of ‘immovable property’.
Value or consideration of proportionate share in land can be considered within scope of ‘consideration for immovable property’, as incidental to transfer of building or part of building.
Difficulty may arise when agreed consideration is paid before registration of property and registration takes place later on and stamp authority determine higher amount as valuation for stamp duty levy. If any part of consideration is not payable, how tax will be deducted for the differential amount?
Ground realities:
Ground reality is that TDS is in nature of payment of tax in advance, and it becomes refundable if actual tax liability is less. The transferee find hardly difference if amount is paid to transferor or deposited as TDS. Therefore, if provision of TDS is considered applicable. Amount of TDS does not matter to transferee who is liable to deduct and deposit TDS.
When document is registered, the stamp authority, who register the property also insist that TDS on entire consideration should have been deposited before hand.
Therefore, many times, knowing higher amount of tax is deducted and deposited without going into intricate aspects to reduce amount of TDS.
