Payment on transfer of certain immovable property other than agricultural land [Section 194-IA] under Deduction of Tax at Source :

(1) Chapter XVII-B of the Income-tax Act, 1961 requires tax to be deducted at source on certain specified payments made to residents by way of salary, interest, rent, commission, brokerage, fees for professional and technical services, royalty etc.

In case of transfer of immovable property by a non-resident, the TDS provisions under section 195 are attracted in the hands of the transferee. However, in case of transfer of immovable property by residents, there is no requirement to deduct tax at source, the only exception being a case of compulsory acquisition of immovable property (other than agricultural land) in respect of which tax deduction is required under section 194LA.

(2) For the twin purposes of having a reporting mechanism of transactions in the real estate sector and also collecting tax at the earliest point of time, section 194-IA was inserted by the Finance Act, 2013. It requires 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 deduct tax, at the rate of 1% of such sum, 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.

(3) However, tax is not required to be deducted at source where the total amount of consideration for the transfer of immovable property is less than Rs 50 lakh.

(4) Further, 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.

(5) 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.

Time and mode of payment of tax deducted at source under section 194-IA to the credit of Central Government, furnishing challan-cum-statement and TDS Certificate [Rules 30, 31A & 31] Such 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 [Rule 30]. (i) The amount so deducted has to be deposited to the credit of the Central Government by electronic remittance within the above mentioned time limit, into RBI, SBI or any authorized bank [Rule 30]. (ii) Every person responsible for deduction of tax under section 194-IA shall also furnish to the DGIT (Systems) or any person authorized by him, a challan-cum-statement in Form No.26QB electronically within seven days from the end of the month in which the deduction is made [Rule 31A]. (iii) Every person responsible for deduction of tax under section 194-IA shall furnish the TDS certificate in Form No.16B to the payee within 15 days from the due date for furnishing the challan-cum-statement in Form No.26QB under Rule 31A, after generating and downloading the same from the web portal specified by the DGIT (Systems) or the person authorized by him [Rule 31].

 Illustration

Mr. X sold his house property in Bangalore as well as his rural agricultural land for a consideration of Rs 60 lakh and Rs 15 lakh, respectively, to Mr. Y on 1.8.2015. He has purchased the house property and the land in the year 2013 for Rs 40 lakh and Rs 10 lakh, respectively. The stamp duty value on the date of transfer, i.e., 1.8.2015, is Rs 85 lakh and Rs 20 lakh for the house property and rural agricultural land, respectively. Determine the tax implications in the hands of Mr. X and Mr. Y and the TDS implications, if any, in the hands of Mr. Y, assuming that both Mr. X and Mr. Y are resident Indians.

Solution

(i)	Tax implications in the hands of Mr.X
	As per section 50C, the stamp duty value of house property (i.e. Rs 85 lakh) would be deemed to be the full value of consideration arising on transfer of property. Therefore, Rs 45 lakh (i.e., Rs 85 lakh – Rs 40 lakh, being the purchase price) would be taxable as short-term capital gains in the A.Y.2016-17. Since rural agricultural land is not a capital asset, the gains arising on sale of such land is not taxable in the hands of Mr. X.
(ii)	Tax implications in the hands of Mr.Y
	In case immovable property is received for inadequate consideration, the difference between the stamp value and actual consideration would be taxable under section 56(2)(vii), if such difference exceeds Rs 50,000. Therefore, in this case Rs 25 lakh (Rs 85 lakh – Rs 60 lakh) would be taxable in the hands of Mr.Y under section 56(2)(vii). Since agricultural land is not a capital asset, the provisions of section 56(2)(vii) are not attracted in respect of receipt of agricultural land for inadequate consideration, since the definition of  “property” under section 56(2)(vii) includes only capital assets specified thereunder.
(iii)	TDS implications in the hands of Mr.Y
	Since the sale consideration of house property exceeds Rs 50 lakh, Mr.Y is required to deduct tax at source under section 194-IA. The tax to be deducted under section 194-IA would be Rs 60,000, being 1% of Rs 60 lakh. TDS provisions under section 194-IA are not attracted in respect of transfer of rural agricultural land.