Section 194IA of the Income Tax Act: TDS on Sale of Immovable Property

Section 194IA of the Income Tax Act, 1961, is a crucial provision mandating Tax Deducted at Source (TDS) on the sale of certain immovable properties. Introduced to enhance transparency and curb black money transactions in the real estate sector, this section places the responsibility of deducting and depositing TDS squarely on the **buyer (transferee)** of the property.

Applicability of Section 194IA

Section 194IA applies when any person, being a transferee (buyer), is responsible for paying to a resident transferor (seller) any sum by way of consideration for the transfer of any **immovable property (other than agricultural land)**.

Key Conditions for Applicability:

• Nature of Property: Covers any immovable property, including land (other than agricultural land), building, or part of a building. It explicitly excludes agricultural land.
• Seller's Status: The seller must be a **resident of India**. If the seller is a Non-Resident Indian (NRI), Section 195 of the Income Tax Act applies, which has different TDS rates and compliance procedures.
• Buyer's Status: Any person who is buying the property is liable to deduct TDS. Unlike many other TDS sections, there is **no requirement for the buyer to have a TAN (Tax Deduction and Collection Account Number)** for this section. The buyer's PAN is sufficient.

TDS Rate and Threshold Limit

TDS Rate: The rate of TDS under Section 194IA is **1%** of the total sale consideration.

Threshold Limit: TDS is required only if the consideration for the transfer of the immovable property is **₹50 lakh (Rupees Fifty Lakh) or more**.

• Important Note on Threshold: If the consideration is ₹50 lakh or more, TDS is applicable on the **entire sale consideration**, not just the amount exceeding ₹50 lakh. For example, if a property is sold for ₹60 lakh, TDS of ₹60,000 (1% of ₹60 lakh) must be deducted.
• Inclusion of Other Charges: For transactions entered into on or after September 1, 2019, "consideration for 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 the transfer of the immovable property.
• Higher Rate for Non-PAN: If the seller (transferor) does not furnish a valid Permanent Account Number (PAN), TDS will be deducted at a higher rate of **20%**, as per Section 206AA. It is therefore crucial for the buyer to obtain the seller's PAN.
• No Surcharge or Health & Education Cess is applicable on this TDS rate.

Time of Tax Deduction

The buyer must deduct TDS under Section 194IA at the earliest of the following two events:

• At the time of credit of such sum to the account of the seller (transferor).
• At the time of payment of such sum in cash, by cheque, draft, or by any other mode.

If the payment is made in installments, TDS must be deducted on each installment. The overall threshold of ₹50 lakh applies to the total consideration, not each installment.

Exemptions from TDS under Section 194IA

TDS is not required in the following cases:

• If the consideration for the transfer of the immovable property is **less than ₹50 lakh**.
• The transfer involves **agricultural land**. (Agricultural land, for this purpose, is defined as per Section 2(14)(iii) of the Income Tax Act, which specifies areas not considered urban for this purpose).
• When the seller is a Non-Resident Indian (NRI). In such cases, Section 195 applies.

Responsibilities of the Buyer (Deductor)

The buyer, being the deductor under Section 194IA, has specific compliance obligations:

• Obtain Seller's PAN: Crucially, the buyer must obtain the PAN of the seller. Without it, TDS must be deducted at 20%.
• Deduction of Tax: Deduct TDS at 1% (or 20%) at the correct time (credit or payment, whichever is earlier).
• Deposit of Tax (Form 26QB): The deducted TDS must be deposited to the credit of the Central Government using **Form 26QB**. This is a Challan-cum-Statement form for payment of TDS on property.
  • Due Date: The TDS must be deposited within **30 days from the end of the month in which the deduction was made**.
  • Online Payment: Form 26QB can be filled and payment made online through the Income Tax e-filing portal.
  • Multiple Parties: If there are multiple buyers or sellers, separate Form 26QB must be filed for each unique buyer-seller combination.
• Issuance of TDS Certificate (Form 16B): After depositing the TDS, the buyer is required to issue a TDS certificate in Form 16B to the seller. This certificate confirms the deduction and deposit of tax.
  • Form 16B can be downloaded from the TRACES website (TDS Reconciliation Analysis and Correction Enabling System).
  • Due Date: Form 16B must be issued to the seller within **15 days** from the date of uploading Form 26QB on the TRACES portal.

Penalties for Non-Compliance: Failure to comply with the provisions of Section 194IA can lead to significant penalties and interest for the buyer:

• Interest for Non-Deduction: 1% per month or part of a month from the date on which TDS was deductible until the date it is actually deducted.
• Interest for Non-Deposit: 1.5% per month or part of a month from the date TDS was deducted until the date it is actually deposited to the government.
• Late Filing Fee (Section 234E): ₹200 per day for delay in filing Form 26QB, subject to a maximum of the TDS amount.
• Penalty for Non-Filing or Incorrect Information (Section 271H): A penalty ranging from ₹10,000 to ₹1,00,000 may be levied for failure to file Form 26QB or for furnishing incorrect information in it.
• Disallowance of Expense (Section 40(a)(ia)): Although typically applicable to business expenses, failure to deduct TDS could lead to other adverse actions from the Income Tax Department, affecting the buyer.

Taxability for the Seller (Transferor)

The sale consideration received, even after TDS deduction, remains taxable income for the seller. This income is generally treated as Capital Gains. The seller must report the full sale consideration and calculate their capital gains (long-term or short-term) when filing their Income Tax Return (ITR).

The TDS deducted by the buyer can be claimed as a credit against the seller's final tax liability. The seller can verify the TDS credit in their Form 26AS (Annual Tax Statement) and reconcile it with the Form 16B provided by the buyer. This credit helps offset the final tax payable or may lead to a tax refund.

Conclusion

Section 194IA is a crucial measure by the Income Tax Department to track high-value property transactions and ensure tax compliance. For any individual or entity purchasing an immovable property for ₹50 lakh or more from a resident, understanding and meticulously following the provisions of this section, including obtaining the seller's PAN, timely deduction, payment through Form 26QB, and issuance of Form 16B, is paramount. Diligent compliance ensures a smooth transaction and helps avoid significant penalties and legal complications for both the buyer and the seller.