Property transactions valued at 50Lakhs and above add to the burden of the buyers as they have to deduct tax (TDS) from sellers and remit the same to the Government, before getting the property registered from 1st June 2013. As per Sec.194-IA of the Income Tax Act, for property transactions particularly Land and Buildings valued 50 Lakhs or more, the buyers have to deduct 1% tax from the sellers and remit the same to the Government. This provision was introduced to the Income Tax Act, in the Finance Bill for the year 2013 – 2014 in the Union Budget to garner more funds to reduce fiscal deficit. This move was taken by the central government with the intention of tracking property transactions; bring transparency in the real estate sector, curb black money and to generate funds to the Government.
Though the Government move is laudable, the retail buyer is burdened with additional cost, responsibility and paper work on the following points –:
· As per the new Sec 194IA, the onus lies with the buyer to deduct 1% Tax for Sale Consideration of Rs.50 Lakhs and above, and remit the same to the Government. Non compliance of the provision or delay attracts interest on delayed payment and also penalty.
· For Tax Deduction at Source (TDS) the buyer has to obtain TAN number from the concerned authority which is mandatory. However, this hurdle has been cleared by the Income Tax Dept by insertion of sub-section (3) in section 194-IA to provide that provisions of section 203A containing the requirement of obtaining TAN, shall not apply to a person required to deduct tax in accordance with the provisions of section 194-IA.
· Further, in case the Seller does not provide PAN Card details tax has to be deducted at the rate of 20% instead of 1%.
· The buyer has to pay more for the property since the seller is likely to pass on the additional tax burden to the buyer.
Further, there is lot of ambiguity in this provision as to how the amount is to be deducted since property dealings takes place in many stages from Sale Agreement to Registration and possession. In the absence of clear interpretation and implementation of the provision the buyer will be put to lot of confusion and difficulties in complying with the said provisions under new Section 194IA.
Normally, while buying a new property from a developer the buyer enters into an Agreement of Sale with the developer by paying part of the sale consideration. As the project progresses additional payments will be made at different stages, as per the terms of the contract with the developer. The sale transaction concludes on payment of final Sale consideration to the developer on completion of the project and getting possession of the property. The provision does not clarify from which amount the TDS has to be done, whether in part or in full and how and when the payment has to be made. Similarly, there is no clarity as to the effect of the provisions in case the property transaction does not conclude and aborted in the middle.
The purchase of the property from secondary sellers also involves many stages. In this case also the provisions are ambiguous as it is not made clear as to when TDS has to be effected and paid, what are the implications on the buyer if the sale transactions are cancelled after entering into an agreement.
Most of the retail buyers especially salaried employees depend on long term housing loans from financial institutions and Banks to buy properties. They are the major property buyers and a decent property costs not less than 50 Lakhs in most of the major cities and they will be the worst sufferers of this additional burden and cost. Most of the real estate projects are currently concentrated in major cities of the country. In case of purchase through Home Loans the provisions does not clarify – whether the borrower has to deduct TDS or the lending institution, in whose name equitable mortgage will be created while borrowing funds.
Overall the provision is full of ambiguity and very difficult at the level of implementation. The authorities must clear all confusion and come out with a clear, practicable solution for implementation of the provision without causing unnecessary trouble to the buyers hurting their sentiments, which in turn have an effect on the already beaten down real estate sector.