In the Budget 2013-14, Finance Minister P Chidambaram had introduced a new provision, Section 194-IA which provides for deduction of tax at 1% of the price being paid by the purchaser (on behalf of the seller) of an immovable property, if the sale price of the property is equal to or more than Rs. 50 lakh. The tax needs to be deducted irrespective of the quantum of capital gains of the seller. According to the Finance Ministry, seller or buyer doesn’t quote his PAN number in most of the property transactions which as a result go unreported. To curb this practice the government has come out with this new provision.

Whether the Finance Minister will be successful in achieving his objective? “No. On the contrary, it is giving an opportunity for black money infusion to bring down the cost below 50 lakhs” says Abhay Kumar, CMD Grihapravesh Buildteck Pvt Ltd.

Fortunately for the buyer deducting the withholding tax, the government has done away with the cumbersome process of obtaining a Tax Deduction Account Number, filing a TDS return, issuing a TDS certificate, etc. However, tax deducted by the buyer at the time of making payment to the seller has to be deposited within a period of 7 days from the end of the month in which deduction has been made. Form 26QB has been prescribed for making such payment.

Further, the new provision may create more problems for both buyers as well as sellers especially in Tier I cities where most of the transactions are above Rs 50 lakh in value. According to Diipesh Bhagtani, Executive Director, Jaycee Homes “The levy of 1% TDS on the property value exceeding Rs 50 lakhs has increased the cost of purchase for the home buyers. We see the tax as an added burden on customers who are already reeling under high pressure. Besides, for the developers, the TDS is to be charged on the gross transaction value rather than net gains, sellers will have a cash-flow impact in situations where the sales are at a loss or at zero/negligible gains.”

Abhay Kumar feels that the new provision will only help to pile up complaints with Income Tax authorities. “Firstly, property buyers are not clear whether they have to deduct on the whole amount or the residual amount. Secondly, he needs to obtain PAN of the developer for depositing the TDS.” According to him there are chances the consumer might miss on any of the step which will result in litigation as the developer won’t be able to get the credit for his advance tax.

It should be noted that date of transfer is not important as the TDS is not required to be deducted at the time of transfer but is required to be deducted while making payment. So even if advance payment is made buyer would have to deduct TDS. The provision will become a nuisance to the buyer when payment is made in installments as TDS will have to be deducted at the time of paying each installment.

The new provision may also result in delayed possession of the property for the home buyer. If developers are not able to get the credit of TDS then they will first file a complaint with TDS commissioner and most importantly they will not give possession to the consumer unless and until the TDS matter is settled resulting in further disputes. “I consider this as one of the most irresponsible step by the government which would confuse more than streamlining the TDS” says Abhay Kumar.

Whether the new provision will help the government to bring more and more people under the tax net is difficult to predict now, but lack of clarity on several issues will see many transactions ending up in courts. “Chidambaram is a great friend of advocates and CAs” said a Chartered Accountant while hinting that the new provision will increase litigations thereby keeping people in the two professions fully occupied in the coming days. At least the Finance Minister has been able to keep some people smiling!


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