Payment on transfer of certain immovable property other than agricultural land  [Section 194-IA]

Applicability and Rate

Every transferee responsible for paying any sum as consideration for transfer of immovable property (land, other than agricultural land, or building or part of building) to a reside transfer shall deduct tax, at the rate of 1% of such sum.

“Agricultural land” 

For the purpose of this section, it means rural agricultural land. In other words, transfer of urban agricultural land, will attract the provision of section 194-IA, if the consideration is ₹50 lakhs or more.

ILLUSTRATION

Mr. Vishal, non-resident, sold his building situated at Bhatinda, Punjab to Mr. Rahul for a total consideration of 1.45 crore?

In such a case, Mr. Rahul will make the payment to Mr. Vishal after deduction of tax @20% plus surcharge and Health & Education Cess @ 4% (on the LTCG computed) under Section 195. Section 194-IA does not apply where the payment is made to a non-resident.

ILLUSTRATION

Mr. Kumar, resident in India, sold his house situated in Rajasthan, to Mr. Gupta who is resident of USA for a total consideration of 2 crores?

In such a case, Mr. Gupta is required to deduct TDS @ 1% under section 194-IA while making payment to Mr. Kumar.

Time of deduction

The deduction is to be made at the time of credit of such sum to the account of the resident transferor or at the time of payment of such sum to a resident transferor, whichever is earlier.

Threshold limit

Tax is not required to be deducted at source where the total amount of consideration for the transfer of immovable property is less than ₹ 50 lakhs.

Non-applicability of TDS under section 194-IA

Since tax deduction at source for compulsory acquisition of immovable property is covered under section 194LA, the provisions of section 194-IA do not get attracted in the hands of the transferee in such cases.

No requirement to obtain TAN

The provisions of section 203A containing the requirement of obtaining Tax deduction account number (TAN) shall not apply to the person required to deduct tax in accordance with the provisions of section 194-IA.

Meaning of consideration for transfer of any immovable property

Consideration for transfer of any immovable property includes 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.

While the builder allotted a Flat, the consideration includes payment for Car Parking, Permanent Membership of Club, Electricity meter & line laying charges and other incidental charges. Whether the consideration includes above payment for TDS? [Applicable from September 1, 2019] TDS is applicable on these payments, since these payments are part of consideration and condition for transfer of immovable property. 

However if any refundable deposit is made for maintenance of Flat / club and other facilities, the same cannot be considered for TDS. TDS is applicable on these payments, since these payments are part of consideration and condition for or transfer of immovable property. However if any refundable deposit is made for maintenance of Flat / club  and other facilities, the same cannot be considered for TDS.

ILLUSTRATION

Mr. Y Purchased a residential house property for 2 crores, which comprised of following consideration

1. Towards purchase of immovable property 160 lakhs
2. Towards car parking 20 lakhs
3. Towards water and electricity facility 20 lakhs. The tax shall deducted on total consideration of 200 lakhs i.e. 2,00,000.

Case Law - Pushkar Prabhat Chandra Jain vs. UOI [2019] 262 Taxman 118 (Bom): If payer, after deducting tax, fails to deposit it in Government revenue, measures can always be initiated against such payers once seller of property suffers TDS at hands of payer purchaser; seller could not again be asked to pay same again 

Immovable Property is partly financed by Bank/Lender

In case the immovable property is partly financed by bank/lender then TDS will be required to be deducted by the transferee on the entire amount of consideration irrespective of the amount of financing. As per section 194IA “any person, being a transferee…” is liable to deduct tax at source. When any loan availed from bank, the Bank can’t be said to be transferee even if it is providing funds to the buyer. Therefore, the whole TDS will be deducted by the buyer from the amount paid by him to seller and the bank will not be held responsible to deduct TDS on payment made by him on buyer’s behalf.

ILLUSTRATION

If M purchased an immovable property of 60 lakh which is financed by bank for 40 lakhs and he has contributed 20.00 lakh. The TDS is to be deducted and deposited by Mr M is 60 lakhs @ 1% = 60,000/-. So Bank will pay to the transferor 40 lakhs and Mr M will pay 19.40 lakhs (20 lakhs – 0.60 lakhs). If the payment is made in installments then the amount shall be deductible in proportionate to the installment paid.

Whether provision will apply in case of transfer of Share in a society resulting in transfer of rights in the property?

On reasonable interpretation of the provision, it should apply on transfer of share. Transfer of share in the society effectively results in transfer of immovable property and such transfer for a consideration shall be interpreted and all the provisions of section 194IA are applicable.

Whether purchase of property in auction by a bank or financial institution pursuant to default in payment of loan by the owner of the property wil be subject to TDS under Section 194IA?

This is a situation where, the sale of immovable property by the bank or financial institutions will be on behalf of the defaulter and the defaulter is the transferor. Under provisions of income tax act, such auction sale, the defaulter borrower shall be liable to pay capital gain tax on sale of the property. Therefore the provisions of section 194IA for deduction of tax shall be applicable.

Transferee 

The section applies even to a non-resident buyer or even to a buyer who is an agriculturist. Other conditions being satisfied, the section will apply even when the purchase/transferee is a family member/relative of the seller/transferor. However, the purchaser/transferee should not be a person referred to in section 194LA. If the purchaser/transferee is a person referred to in section 194LA, such a person is not required to deduct tax under this section.

Scenario where the Provision is not applicable

In the following cases tax is not to be deducted at source under section 194-IA:

• The immovable property transferred is a rural agricultural land.
• The immovable property has been compulsory acquired under any law.
• The total amount of consideration for the transfer of immovable property is less than Rs.50,00,000/-
• Where the transferor is a Non-Resident. In this case section 195 will be attracted.

One Seller and Multiple Buyers

Honourable Delhi ITAT in the case of Vinod Soni v ITO (2019) 101 taxmann.com 190 (Del – Trib) has held that where assessee purchased an immovable property alongwith three other members of family for Rs.1.50 crores, in view of fact that share of each co-owner came to Rs. 37.50 lakhs which was under threshold limit prescribed by section 194-IA, assessee was not required to deduct tax at source while making payment in question. In this case, the Honourable tribunal Observed that provisions of section 194-IA (2) of the Act state that “no deduction under sub-section(1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees”. 

The Tribunal further observed as under-The law cannot be interpreted and applied differently for the same transaction, if carried out in different ways. The point to be made is that, the law cannot be read as that in case of four separate purchase deeds for four persons separately, section 194-IA was not applicable, and in case of a single purchase deed for four persons section 194-IA will be applicable.”Finally the tribunal gave its verdict in favour of the Assessee.

One Buyer and Multiple Sellers

Honorable Jodhpur ITAT in the case of M/s. Oxcia Enterprises Private Limited, ITA No.291/Jodh/2018 has held that the sale consideration has to be divided equally into two by virtue of sec. 46 of the Transfer of Property Act which prescribed that where immovable property is transferred for a consideration by persons having distinct interest therein, the transferors are, in the absence of a contract to the contrary, entitled to share in the consideration equally.

So, in this case, since there is no contract to the contrary could be pointed out by the Ld. DR for Revenue, in this case consideration for each transferor comes to Rs.30,06,000/- each, which is below the prescribed limit of Rs.50 lacs given by the statute as aforesaid and, therefore, in the light of the same, we are of the opinion in the facts as discussed, supra, that the provisions of sec. 194- IA of the Act are not applicable in the instant case and, therefore, provisions of section 194-IA of the Act are not attracted.

In case of more than 1 buyer/1 seller, Form 26Q has to be filled in separately for each buyer-seller combination.

In case of 1 buyer and 2 sellers – 2 forms have to be submitted, and in case of 2 buyers and 2 sellers – 4 forms have to be submitted for their respective share in property. For example: If there is 1 buyer (B) and 2 sellers (S1 and S2 having share 1:1) and the value of property is Rs. 60 Lakhs, then 2 Forms 26Q will be filed between B and S1 and B and S2 amounting to Rs. 30 Lakhs each.

Acquisition through Loan

Where the lender makes the payment of the loan amount directly to the seller, he may remit 99% of the loan amount directly to the lender and balance 1% can be given to the buyer who will deposit the TDS. Alternatively, the lender may make the entire payment of the loan to the seller and the TDS may be deposited by the buyer himself.

Payment in Installments

The provision of Section 194-IA would apply even to payment of consideration in installments. The argument that the Seller and Buyer do not have the status of a “Transferor” and “Transferee” till the point of transfer, is not tenable and may not hold before judicial authorities. The credit for the TDS on installments will be taken by the Transferor only in the year in which the income on which tax was deducted at source would be offered to tax as per Section 197 r.w. Rule 37 BA(3).

Exchange

It is significant to note that Section 194-IA refers to “any sum by way of consideration” and further refers to “credit of such sum to account of the transferor” or “at the time of payment of such sum”. The qualifying word appears to be “sum”. It is to be noted that the Supreme Court has in the case of H. H. Sri Rama Verma v CIT (1990) 187 ITR 308 has held that the word “sum” refers to the amount of money paid taking the above analogy into consideration it could be well argued that payment of consideration in any other mode other than through a sum of money would be outside the purview of Sec 194-IA.

Does Consideration include GST?

Consideration for the purpose of section 194-IA should be for the transfer of an immovable property and amounts charged towards GST are statutory obligations mandated by law which arise in the course of construction of the immovable property and are not in any way a part of the consideration for transfer of immovable property.

The CBDT has clarified by issuing Circulars from time to time that tax is not required to be deducted on Service tax/GST component [Circular No. 4/2008, dated 28-4-2008, Circular No. 1/2014, dated 13- 1-2014, Circular No.23/2017 dated 19-7-2017]. Rajasthan High Court has held that tax is not required to be deducted in such cases [CIT (TDS) Jaipur v. Rajasthan Urban Infrastructure [2013] 37 taxmann.com 154/218 Taxman 10 (Mag.) (Raj.)]. Hence, it can be said that tax is not required to be deducted on GST component, if the amount of consideration and GST are separately reflected in the Tax invoice.