CVOCA Gyaan Ganga– 24

TDS Payments by Certain Individuals

It is commonly believed that TDS is only applicable to Businesses. But in reality, even individuals (not covered by Tax Audits) can be liable for deducting TDS on certain payments covered under Section 194-IA, 194M, 194-IB of Income Tax Act, 1961. In this publication we have tried to cover Section 194-IA which is applicable. Any person being transferee (Buyer) making payment to a resident transferor (seller) for purchase of immovable property. In cases where transferor (seller) is a non resident, then Section 195 will apply and tax is required to be deducted under that section.

So let us try to understand Section 194-IA and answer the questions related to it:

Section 194 IA: TDS on Purchase of Property

Q 1. Who needs to deduct TDS under Section 194-IA?

Ans. Any person making payments to a resident transferor (seller) for purchasing an immovable property (like a house, commercial building, or plot of land).

Q 2. Does Section 194-IA apply for all payments?

Ans. It applies only if the total value / reckoner value of the immovable property (not being agricultural land) being transferred (sold) is ₹50 lakh or more. This includes the main sale consideration and other related charges like club membership fees, car parking fees, electricity or water facility fees, maintenance fees, and advance fees.

Q 3. What constitutes Agricultural Land as per Indian Income Tax Act, 1961?

Ans. Agricultural land means land that is situated in India, which is used for agricultural purposes, and which is not situated:

a. Within the jurisdiction of a municipality or cantonment board having a population of not less than 10,000, or

b. Within the specified distance (aerially measured) from such municipality or cantonment board as given below:

Population of Municipality / Cantonment Board Aerial Distance from limits of municipality Nature of Land
More than 10,000 but up to 1 lakh Within 2 km Non-Agricultural Land
More than 1 lakh but up to 10 lakhs Within 6 km Non-Agricultural Land
More than 10 lakhs Within 8 km Non-Agricultural Land
Any population (but beyond these distances) Outside specified limits Agricultural Land
Q 4. Is the ₹50 lakh limit per person or aggregate in case of joint buyers/sellers

Ans. The ₹50 lakh limit applies to the aggregate consideration of the immovable property. Even if there are multiple buyers or sellers and their individual shares are less than ₹50 lakh, TDS is applicable if the total property value is ₹50 lakh or more. For example, if a property is sold for ₹90 lakh by two sellers, even if each seller's share is ₹45 lakh (below ₹50 lakh), TDS will still be applicable on the total value.

Note:- Under Section 194-IA, if the Stamp Duty Reckoner Value of the Property exceeds the agreement Value, then TDS has to be deducted on value which is higher i.e Stamp Duty Reckoner Value.

Q 5. What is the rate of TDS under Section 194-IA?

Ans. The TDS rate under section 194-IA is 1% of the total sale consideration. However, when payment is being made to non-resident seller, TDS section 195 shall be 12.5% + surcharge + cess of the total sale consideration.

Q 6. When should an individual deduct the TDS?

Ans. You need to deduct TDS at the earlier of these two times:

  • When you actually pay the money to the seller (whether in cash, cheque, draft, or any other mode).
  • When you credit the amount to the account of the seller (meaning, when you record the payment as due in your books).
Q 7. Is there a need to have a TAN (Tax Deduction and Collection Account Number) to deduct TDS under Section 194-IA?

Ans. No, the buyer deducting TDS under Section 194-IA does not need to obtain a TAN and you can deposit the TDS using your PAN. If tax is to be deducted on payment made to non resident person (seller) then buyer is required to obtain TAN.

Q 8. How does an individual deposit the deducted TDS with the government?

Ans. You need to deposit the TDS u/s 194-IA with the government using Form 26QB, which is a challan-cum-statement and for Tax deducted u/s 195 it is to be deposited online in Challan 281 along with quarterly return to be filed in Form 27Q. This can generally be done online through the Income Tax e-filing portal.

Q 9. What is the deadline for depositing the TDS?

Ans. You must deposit the TDS u/s 194-IA with the government within 30 days from the end of the month in which you deducted the tax. For example, if you deduct TDS in July, you must deposit it by August 30th.

For Section 195, you have to deposit TDS within 7 days from the end of the month in which TDS is deducted. For example, if you deduct TDS in July, you have to deposit it by 7 August.

Q 10. What if an individual fails to deduct or deposit TDS?

Ans. If you fail to deduct TDS or deposit it on time, you may have to pay interest. The interest rate is typically 1% per month or part of month on the TDS amount that was not deducted or deposited. In addition to interest, late filing of Form 26QB or 27Q may attract a late fee of ₹200 per day u/s 234E, and penalty u/s 271H for non-filing or incorrect filing.

Q 11. Does an individual need to provide any certificate to the seller?

Ans. Yes, after depositing the TDS with the government, you (the buyer) need to furnish a TDS certificate in Form 16B to the seller as proof of the deduction. This certificate is usually available on the TRACES portal approximately 10-15 days after the TDS deposit.

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This publication is intended to create awareness. Please consult your CA or financial advisor before taking any decision.

Team CVOCA