Income Tax Deduction at Source (TDS) on transfer of certain immovable properties other than agricultural land.
Finance Bill 2012 has proposed to introduce new section 194LAA for TDS on transfer of certain immovable properties other than agricultural land on and after 1st October 2012.
On transfer of immovable property by a non-resident, tax is required to be deducted at source by the transferee u/s.195. However, new provision has been proposed in Finance Bill 2012 to deduct tax at source on transfer of immovable property by any person(including individual, firms) being a resident except in the case of compulsory acquisition of certain immovable properties.
This is in order to collect tax at the earliest point of time and also to create a reporting mechanism of transactions in the real estate sector, it is proposed to insert a new provision to provide that every transferee, at the time of making payment or crediting any sum by way of consideration for transfer of immovable property (other than agricultural land), shall deduct tax, at the rate of 1% of such sum, if the consideration paid or payable for the transfer of such property exceeds –
(a) fifty lakh rupees in case such property is situated in a specified urban agglomeration; or
(b) twenty lakh rupees in case such property is situated in any other area.
Where the consideration paid or payable for the transfer of such property is less than the value adopted or assessed or assessable by any authority of a State Government for the purposes of payment of stamp duty, the value so adopted or assessed or assessable shall be deemed as consideration paid or payable for the transfer of such immovable property.
Registering officer appointed under the Indian Registration Act, 1908 (Registrar) will not register the transfer of any immovable property where taxes are required to be deducted unless the transferee furnishes proof of deduction and payment of TDS.
On plain reading the provisions of the finance bill, one can conclude that even when flat is purchased from the builder/developer, the purchaser has to deduct income tax even on first time sale. That the purchaser has to deduct 1% while making payment to builder who is in business of building and selling flats/commercial premises,etc. However builders association would like to have clarification if TDS is for all transfer or on second sale.
However there is no corresponding amendment for allowing deduction of tax at lower rate u/s197.
It also seems that if the seller does not have PAN no than the purchaser will have to deduct tax @ 20% u/s.206AA.
Immovable property means land (other than agricultural land) or building or part of the building.
Specified are shall mean an area comprising:
- Greater Mumbai Urban agglomeration,
- Dehli Urban agglomeration,
- Kolkata Urban agglomeration,
- Chennai Urban agglomeration,
- Hyderabad Urban agglomeration,
- Bangaluru Urban agglomeration,
- Ahmedabad Urban agglomeration,
- District of Faridabad,
- District of Gurgoan,
- District of Gautam Budh Nagar,
- District of Gaziabad,
- District of Gandhinagar and
- City of Secundrabad.
Area comprising Urban agglomeration shall be included in Urban agglomeration on the basis of 2001 Census.
For reducing the compliance burden on the transferee, it is also proposed that a simple one page challan for payment of TDS would be prescribed containing details (including PAN) of transferor and transferee and also certain details of the property. The transferee would not be required to obtain any Tax Deduction and Collection Account Number (TAN) or to furnish any TDS statement as this would be mostly a one time transaction. The transferor would get credit of TDS like any other pre-paid taxes on the basis of information furnished by the transferee in the challan of payment of TDS.
