TDS on immovable property can sort out tax leakage

Buying a home is a dream for a lot of. It is a rollercoaster experience stuffed with feelings and happiness proper from the reserving till the ultimate possession of a dream home coupled with the stress of tax implications.There are many tax implications in shopping for a home with the introduction of Section 194IA of Income-tax Act, 1961, which was inserted by Finance Act, 2013 with impact from 1 June 2013. Prior to this modification, there have been obligations on the payer to deduct tax at supply on sure funds made to residents by means of wage, curiosity, fee, brokerage, {and professional} companies, and so forth. When a non-resident transferred any immovable property, the transferee was required to withhold tax on such transaction by advantage of Section 195, which was relevant on every kind of funds to non-residents within the nature of earnings. However, there was no requirement to deduct tax on the switch of immovable property by a resident besides within the case of obligatory acquisition of sure immovable properties.

The insertion of Section 194IA within the Act, the place any resident transfers of any immovable property, apart from agricultural land, whose sale consideration is ₹50 lakh or extra, made it necessary that the transferee can be required to withhold tax on the charge of 1% of such consideration. Immovable property for the aim of this part means any land (apart from agricultural land) or any constructing or a part of a constructing.The Union Budget 2022 has proposed amendments on this part, which gives that the transferee shall be required to deduct tax on the charge of 1% of the consideration (sale worth) or stamp obligation worth (SDV) of the immovable property, whichever is greater. Further, no deduction of tax shall be made by the transferee the place the consideration and the SDV of such property are each lower than ₹50 lakh.

This was proposed to be able to align the provisions of capital beneficial properties with TDS provisions. Section 50C of the act considers SDV adopted by the Stamp Valuation Authority (SVA) for the aim of levying stamp obligation on properties and in case the sale consideration acquired from the customer on sale of land or constructing or each is lower than worth adopted by stamp valuation authority, such worth adopted by SVA would develop into precise sale consideration. However, the precise consideration shall be deemed to be the complete worth of consideration the place the stamp obligation valuation doesn’t exceed 110 % of the particular consideration.

Example 1: Suppose A bought his property to B for the sale consideration of ₹49 lakh, and the SDV of the property was ₹60 lakh. Prior to the proposed modification, B wouldn’t be required to deduct tax at supply because the sale consideration of the property is lower than the brink restrict of ₹50 lakh prescribed in part 194IA. However, submit modification in part 194IA, B shall be required to deduct tax at supply as it’s now required by the regulation to test sale consideration acquired in addition to SDV of the property, individually. Though the sale consideration is lower than the brink restrict, the SDV exceeds the brink restrict of ₹50 lakh. Hence, B shall be required to deduct tax on the charge of 1% of SDV, i.e., ₹60 lakh.

Example 2: In instance 1, suppose the sale consideration is ₹52 lakh. Prior to the proposed modification, B would deduct tax on the charge of 1% of sale consideration. However, whereas computing capital beneficial properties, A was required to take ₹60 lakh as the complete worth of consideration because the distinction between SDV and consideration exceeds 10% of the consideration. In order to deliver parity between Section 50C of the act and the supply of deduction of TDS, part 194IA has been proposed to be amended, and consequently, B shall now be required to withhold tax at supply on the upper of SDV and sale consideration.

Example 3: In instance 1, suppose the sale consideration is ₹52 lakh, and the SDV of the property is ₹55 lakh. Earlier, B can be required to deduct tax at supply on ₹52 lakh and even Some time computing capital beneficial properties might take sale consideration as the complete worth of consideration. However, submit modification, B shall be required to contemplate greater of SDV and sale consideration for the aim of deducting tax. The goal of this modification is to assist in lowering the tax leakages and black cash in any form of immovable property transactions .

Amit Maheshwari is tax accomplice and AKM Global, a tax and consulting agency with inputs from Yeeshu Sehgal, Tax Expert, AKM Global.

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