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Indians have a close relationship with immovable properties throughout their lives. Purchasing or selling flats, land, etc, holds a remarkable value for an individual. As per the current pace of the Indian real estate market, it may touch the mark of US $ 1 trillion by 2030.
Any transactions regarding an immovable property attract TDS. Although this tax rate is low, it accounts for a crucial value in the transaction. Let’s explore in detail the intricacies of Section 194IA of the Income Tax Act.
What is Section 194IA?
The immovable property ownership is an important aspect for every individual. However, any transaction such as the purchase, transfer or sale of such immovable property attracts tax. Section 194IA instructs the buyer to deduct the TDS in the transaction of the immovable property and pay it to the government. The definition of immovable property includes buildings, land, part of the building such as a flat, etc, and excludes agricultural land.
When an immovable property is sold, the buyer of the transaction pays TDS to the government as per the prescribed limits and rates. This TDS can be claimed by the resident seller against the income tax return.
Must read: Section 206AB of the Income Tax Act – TDS for Taxpayers Not Filing of ITRs.
Rates and threshold
The section 194IA TDS rate is deducted on transactions of an immovable property with a value of more than ₹50 lakh. The rates are:
- For all the transactions – 1%
- If the seller does not hold a PAN card – 20%
- No surcharge or cess is applied, so apply the basic rate only.
- If this TDS is not paid or paid at a lower rate, the Income Tax department sends the notice to the buyer. Penalty, interest, prosecution, etc, for the default, are decided as per the extent of offence for both parties.
TDS payment done by the transferee (buyer) is first credited to the government and deducted from the proceeds to the transferor (seller). Later, the seller can claim it. The buyer is not restricted to being a resident of India. However, the conditions for the seller are as follows:
- If an Indian resident seller – Consider the transaction under Section 194IA.
- If a non-resident seller – Consider the transaction under Section 194IB.
Understand in detail about TDS: What is TDS? A complete overview of TDS in income tax.
Let us understand with an example.
The transaction is between Mr Kush and Ms Mukti for selling a flat worth ₹60 lakh in Chennai.
| Case | Treatment |
| Mr Kush: resident of India Ms Mukti: resident of India. | TDS is applicable. (above ₹50 lakh)TDS = ₹60,00,000 * 1% = ₹60,000/-Paid by Ms. Mukti. |
| Mr Kush: non-resident of India Ms Mukti: resident of India. | TDS on immovable property under Section 195. |
| Mr Kush: resident of India Ms Mukti: non-resident of India. | TDS is applicable. (above ₹50 lakh)TDS = ₹60,00,000*1% = ₹60,000/-Paid by Ms. Mukti. |
| Mr Kush: resident of India Ms Mukti: non-resident of India.Sell of Flat worth ₹35 lakh. | TDS is not applicable as the flat is worth less than ₹50 lakh. |
Also, read: Section 194IB – TDS on rent under Section 194IB of Income Tax Act.
Prerequisites
Some of the prerequisites that should be duly checked while claiming the TDS under Section 194IA on transaction of immovable property are as follows:
- The buyer and seller are not required to have a Tax deduction/collection Account Number (TAN).
- The transaction must be more than ₹50 lakh, and the TDS should be charged at 1%.
- TDS should be paid while making the full payment/instalment or while giving the credit amount for the transaction.
- Using Form 26QB – TDS should be paid within 30 days of the month in which the transaction is done.
- The instalments of the sale process should be paid accordingly with TDS.
Bottomline
The TDS on immovable property is an important factor for the buyer and the seller. The rate of 1% and the limit of ₹50 lakh should be duly checked while proceeding with the transaction. Defaulting in TDS under section 194IA would attract a legal measure against both parties of this transaction.
FAQ
The transaction of immovable property, such as purchase, sale or transfer, of more than ₹50 lakh attracts the tax. This treatment is under section 194IA of the Income Tax Act of 1961. According to the section, the buyer pays 1% TDS on the value of the transaction to the government. The seller can claim this against the tax liability. Non-compliance can result in legal action against both parties.
Section 194IA of the Income Tax Act, 1961 applies TDS of 1% on the transaction related to ownership of immovable property such as purchase, sale or transfer. Section 194IB deals with charging TDS on the rent that exceeds the monthly limit of ₹50000/-. In this section, a wide horizon of the term rent is given. It includes rent on land, buildings, machinery, plant, furniture, etc.
This section applies TDS on the rent on different assets such as land, buildings, machinery, plants, furniture, etc. The TDS is charged at 5% on rent, which exceeds the monthly limit of ₹50000/-. Individuals/HUF who are not liable for audit and are paying the rent have to pay TDS to the resident owner of this asset. However, people without a PAN card have to pay 20% TDS with the same threshold.
This section imposes the TDS on the rent paid by the resident Indian or domestic company. It mainly has two parts with different asset classes and rates as follows:
Section 194I(a) deals with plant machinery rent. It charges TDS of 2% for rent more than ₹2.4 lakh per month.
Section 194(b) deals with land, building, furniture or fitting rent. It charges 10% TDS for rent more than ₹2.4 lakh per month.
The 5% TDS on rent should be deducted by the person paying the rent from the transaction. It should be paid to the government. This should be rented on immovable property such as land, buildings, machinery, plants, furniture, etc. The threshold for this rent is ₹50000/- per month. Moreover, people without a PAN card have to pay 20% TDS with the same threshold.