The buyer of the property is obliged to deduct TDS at the time of payment
When buying immovable property, individuals may be under the impression that only the seller should be worried about paying income tax. But it is also imperative that the buyer be aware of the tax implications as any default can lead to adverse consequences under the tax laws.
Duty to deduct TDS
Until May 31, 2013, according to the provisions of the Income Tax Act, tax was required to be deducted at source by the buyer only in case of transfer of immovable property by a ‘non-resident’ seller.
There was no such requirement on a transaction with a ‘resident’ seller. But in order to have a reporting mechanism for all transactions in the real estate sector and to collect tax at the earliest point in time, a new section (Section 194-IA) was introduced with effect from June 1, 2013.
According to this section, the buyer of an immovable property (except agricultural land) needs to deduct TDS at 1 per cent even if the seller is a resident and the value of the property is ₹50 lakh or more. Tax is required to be deducted at the time of credit to the seller or at the time of payment, whichever is earlier.
In case of advance payment or payment by instalments, tax is required to be deducted at the time of each payment.
Besides, the taxes so deducted will need to be deposited with the Central Government within seven days from the end of the month in which such TDS is deducted. Such taxes can be deposited online or in any of the authorised bank branches.
For this purpose, the buyer need not obtain a Tax Deduction Account Number (TAN) but can use his PAN instead (unlike other TDS provisions in the Act).
Hence, to ensure tracking of transactions, a Form 26QB has been introduced, which is a challan-cum-statement. Form 26QB requires various details such as PAN of parties, name, address, date of agreement, number of parties, payment type (lumpsum/instalment), property value, payment amount, mode of tax payment, etc.
The buyer has to submit the form online within seven days from the end of the month in which the TDS is deducted.
As there is no online process currently for rectification of errors in Form 26QB, the buyer should be meticulous while submitting the details.
On submitting Form 26QB and depositing the necessary tax, the buyer has to also issue Form 16B (certificate of deduction of tax at source) to the seller within 15 days from the date of furnishing Form 26QB. Form 16B is available for download from the website of Centralized Processing Cell of TDS (CPC-TDS – www.tdscpc.gov.in).
Consequences of default
In case of default in ensuring compliance with these provisions, the buyer will be regarded as ‘assessee in default’. Consequently, he will be liable to interest and penal consequences.
According to the relevant provisions of the Act, interest will be levied at 1 per cent per month or part of the month, if the buyer fails to deduct the whole or any part of tax, from the date tax was deductible.
Further, interest will be charged at1.5 per cent per month or part of the month, if the buyer fails to deposit the tax deducted with the government treasury, from the date of deduction till the date of actual payment.
In addition to the interest, a mandatory fee (penal in nature) is also applicable @₹200 per day (not exceeding the total amount of tax) for late filing of Form 26QB. Also, the tax authorities may levy penalty (equal to the amount of tax which was failed to be deducted or paid) on account of non-compliance in respect of TDS provisions, at a later stage.
The above provisions are applicable only in case of payment to resident seller. Thus, in the case of a non-resident seller, different provisions of the Act (Section 195) are applicable.
Here, TDS is to be deducted as per applicable rates; there is no specific limit of ₹50 lakh either. Thus, the buyer has to ensure further caution while purchasing an immovable property from a non-resident seller.
Also, if the seller does not furnish his PAN, the buyer will be obliged to deduct tax at the rate of 20 per cent or applicable rate, whichever is higher. There will be penal consequences on the seller for not furnishing the PAN.
In view of the serious implications, it is imperative to exercise diligence while buying a property.
This article was originally published on www.thehindu.com dated September 13, 2015
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