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Section 194IA of Income Tax

Section 194IA of the Income Tax Act is a legal provision which mandates the withholding of TDS (Tax Deducted at Source) on immovable property transactions. The provisions of Section 194IA applies to a resident transferee who is indebted to make payments to a resident transferor for the transfer of any immovable property, with the exception of agricultural land. Within the meaning of the Income Tax Act, a particular land is considered as agricultural if it is located within the jurisdiction of a Municipality or Cantonment Board which has a population of at least 10,000, or if it is located in an area within the measures specified for the particular population.

Taxpayers who are governed by the provisions of Section 194IA are obligated to deduct the specified percentage of the value of the transaction prior to the time of making the payment. In this article, we briefly explain the provisions under Section 194IA.

A copy of the section is provided below for reference:

Applicability

A taxpayer qualifies to withhold TDS under this provision on the satisfaction of the following conditions:

• This provision is not applicable for transfer of agricultural land and other transactions, the value of which is less than Rs. 50 lakhs.
• The provisions of Section 203A are not applicable to the taxpayers who are required to deduct tax under this section.
• The payer and payee must match the specifications described above.
• The payment should be connected with a transfer of immovable property (other than agricultural land).
• The value of the transaction should be Rs. 50 lakhs or more.

Timeline of Deduction

TDS-withholding must be performed while crediting the transaction to the account of the transferor or while making payments for the same. Payments can be made through cash or any modes of payment, whichever is earlier.

Furnishing of PAN

Taxpayers, whose receipts are subject to TDS, are required to furnish their PAN to the deductor, or in other words the payer. Not meeting this obligation would necessitate the deductor to enforce the highest of the following rates:

• The prescribed rates as per this section
• The rate specified in the latest Finance Act
• At the rate of 20%

Applicability of TDCAN

Tax deductors covered under this provision are not required to utilize the provisions of Tax Deduction and Collection Account Number (TDCAN).

Deposit of Deducted TDS

The amount deducted from the transaction shall be deposited to the Central Government within seven years from the particular month-end whence the deduction was made. The deposits must be remitted electronically to any of the banks authorized for this purpose. The payment must be supported by a challan-cum-statement in Form 26QB.

Need for TDS Certificate

Deductors of tax are required to furnish the certificate of TDS in Form 16B to the payee within 15 days of the date specified for furnishing the challan-cum-statement in Form 26QB, in line with Rule 31A. The document can be generated and downloaded from the portal specified by the Director-General of Income Tax or the person authorized on the taxpayer’s behalf. The challan-cum-statement must be furnished to the Director-General of Income Tax (System) or the person authorized on the officer’s behalf within working seven days from the particular month-end.

Penal Provisions

Non-deduction of TDS will force the buyer to remit an interest of 1% on the amount not deducted, and non-remittance of the deducted amount to the Government would incur a penalty of 1.5% per month. Delay in filing TDS returns would incur a penalty of Rs.200 for each day of default, which in any case wouldn’t exceed the actual TDS amount.