Real estate is one of the few sectors which hogs the maximum limelight and has gone through a series of regulatory changes. The rationale has been to bring transparency and to ensure the buyers and sellers get a fair deal. While a lot has been done to increase the tax base and efforts has been put in to increase the number of buyers and sellers in the tax net since the introduction of circle rate, PAN card disclosure in all real estate transactions, banning power of attorney transactions, streamlining record keeping, still there is a long way to go.
And in its endeavor to widen the tax base and better reporting, TDS –Tax deduction at source on real estate was introduced w.e.f. 1st June 2013 which is governed by Section 194-IA of the Income Tax Act.
This section covers all persons being a transferee (buyer of real estate) and responsible for paying to a resident transferor (seller of real estate) any sum by way of consideration for transferring any immovable property (other than agricultural land), shall, at the time of payment of such sum in cash/cheque/draft or any other mode of such sum to the transferor, deduct an amount equal to 1% of the consideration i.e. sale proceeds as income-tax thereon.
However this section will not be applicable and hence no deduction shall be made where the consideration for the transfer of an immovable property is less than Rs.50Lakhs.
Further, to make this convenient and easy to do, TIN No. has been done away with for this Section.
In case the payment is being made in installments, then the TDS is to be deducted for every installment separately (deductor cannot say that we will deduct in the final installment).
Non-deduction or delay in deduction as well as non-deposit or delay in deposit of TDS will attract a heavy penalty.
A land shall not be treated as Agriculture Land, if:
a) It is situated within jurisdiction of Municipality or Cantonment Board which has a population of not less than 10,000; or
b) It is situated in any area within below given distance measured aerially:
And immovable property will mean any land (other than agricultural land) or any building or part of building.
Another section i.e. Sec. 206AA which becomes relevant and is to be read along with the above is the “Effect of non-furnishing of PAN on rate of tax” This section becomes applicable for every person whose receipts are subject to deduction tax at source (i.e., the deductee) as he has to furnish his PAN to the deductor.
If such person does not furnish PAN to the deductor, the deductor will deduct tax at source (TDS) @ of 20%.
Any sum deducted under Section 194-IA shall be paid to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No. 26QB.
The TDS can be deposited online through the following link- https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp
The sum so deducted shall be deposited to the credit of the Central Government by remitting it electronically to any authorized bank.
Post deposit of tax, the payer shall furnish the certificate of deduction of tax at source in Form No. 16B to the payee within fifteen days from the due date for furnishing the Challan-cum-statement in Form No. 26QB under Rule 31A. The same can be generated from www.tdscpc.gov.in after generating and downloading the same from the web portal specified by the Director General of Income-tax (System).
Lastly, a challan-cum-statement in Form No. 26QB is to be submitted electronically within seven days from the end of the month in which the deduction is made.
CPC-TDS has also enabled the online functionality for correction in Form 26QB.
Sec. 201(1A) governs penalties in case of non-deduction or short deduction of TDS. Interest @ 1% will be levied for every month or part of the month from the date on which the tax was deductible to the date on which the same is deducted. In case of failure to deposit wholly or partly tax, interest @ 1.5% will be levied for every month or part of the month from the date of deduction till the date of actual payment.
The key take way for this section is the widening of tax base and it could be even better if the basic exemption slab was reduced from the current 50Lacs to further increase the base. At the same time is has put assessee to more hardship as this requires compliance and a time line to adhere with penal provisions. Efforts can be made to make it more simplified for both buyers and sellers.