This site had published a video on section 194-IA when it was introduced in FY 2013-14. If you regsitered any immovable property , be it land or house , during financial year 2013-14 , chances are that you either already received a notice from CPC(TDS) or will recieve the notice by mail with the subject “CPC (TDS) Follow up: 26QB Statement not yet filed for Purchase of Property during FY 2013-14 ” . The notice reads as under :
Date of communication : XXXXXX
Dear Buyer of Immovable Property, PAN (XXXXXXXX),
As per the information received in Annual Information return (AIR) through Registrar/Sub-registrar, you have executed transaction for Purchase of Immovable Property exceeding Rs. 50 Lakhs (Rupees Fifty Lakhs) during Financial Year 2013-14. However TDS Statement in Form 26QB has not yet been filed by you. In this regard, your urgent attention is invited to the following, with respect to filing of TDS Statement in Form 26QB and Issuance of TDS Certificates in Form 16B downloaded from TRACES.
First thing , most of the persons who regsitered flats during FY 2013-14 should not worry too much if you got this notice. This post will explain why ? Further, apart from telling what to do for people who need not worry , the post will also explain who needs to worry and what should be be done by them .
Table of Contents
What is the Law U/s 194-IA ?
Finance Act of 2013, brought in the provision u/s 194-IA under which a buyer of property needed to deduct tax @ 1% of the value of the property . The said provision is as under :
Payment on transfer of certain immovable property other than agricultural land74.
194-IA. (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon.
(2) No deduction under sub-section (1) shall be made where the consi-deration for the transfer of an immovable property is less than fifty lakh rupees.
(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
Explanation.—For the purposes of this section,—
(a) “agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;
(b) “immovable property” means any land (other than agricultural land) or any building or part of a building.
What the provision says is simplified below :
- The provision applies only if the consideration of the property transferred exceeds or is equal to Rs 50 Lakhs.
- Any payment for transfer of proeperty after June 1, 2013, tax @ 1% should be deducted by the purchaser of the property .
- The deduction of 1% must be at the time of making payment or credit of sale consideration.
- The challan for payment is named Form 26QB which must be filled and payment of tax deducted must be done online within 7 days from end of month in which deduction was made.
- TDS certificate in Form 16B should ne downloaded from CPC(TDS) site after registration with it.
What are the consequance of non deduction and non filing of Form 26QB ?
As per the section 234E, if you defaulton account of Non / late filing of Form 26QB, you are liable to pay, by way of fee, a sum of Rs. 200 (two hundred) for every day during which such failure continues.
Further , penalty u/s 271H is also imposable by the assessing officere on the buyer who defaults of late Deduction, late payment of tax deducted .
Who Need Not Worry About CPC(TDS) Notice ?
(i) Person who paid /credited amounts before 01/06/2013
Now usually the registration of the flats or building is done after budiling / home is completed and handed over. The average period of completion of a reasonable project is 2. 5 years or more . It is also true that the developer usually takes all the consideration much before handing over . So , in such cases , the any any buyer who paid the amounts related to cost of the flats paid before 01/06/2013 , but registered in Fy 2013-14 should not be bothered about any typed of non-complaince . The reason is that the tax deduction as per law is at the time of payment or credit and not at the time of registeration . Thus if payment was done before 01/06/2013 , secion 194(1A) will not apply because it wa snot in existence.
For example , say a person applied for the house in Fy 2010-11 . He /she paid all the consideration by Fy 2012-13 and got occupation of the house. In Fy 2013-14 , after June 2013 , his /her flat was registered. So, he/she will get a letter from CPC(TDS) because the Regsitrar filled up the name of buyers in the Anual Information Report. But , since the law required deduction of the tax at source at the time of payment of consideration which was before 01/06/2013, such person has not violated any law .
Nothing will happen in his case.
(ii) Person who bought from another buyer
Let me start with an example. Say , Mr X applied to a builder and paid to builder , maybe 80 % and the building is incomplete. In the meantime, he sells the flat which is still incomeplete , to you. Under law such sale is conidered sale of rights to buy the flat.
Now the provision of section 194-IA uses the term “transferor “and “transferree” in the opening sentence :
194-IA. (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum
In this case , the new buyer is transferor , and the builder is transferree , but the payment is not done to the builder . The payment is done by the trasferree to the first buyer of flat , as such the provision is not applicable in case of such buying .
If anyone was responsible was the first buyer , who paid 80-% to teh buyer. Yes, for 20 of the payment which was done by the second buyr , secion 194-IA should apply .
Readers are cautioned that the provision u/s 194-IA is new and the aforesaid opinion i bested on an interpretation . Therefore , it should be understood with risk of legal fght between you and the department !
Should You Reply to CPC (TDS) ?
The email being sent by the CPC(TDS) has two emails . One is general email@example.com and another at the end of mail stating “In case of any clarification/suggestion, you may write to us on (firstname.lastname@example.org)
It appears that CPC(TDS) is testing tax payers reposnse , and maybe send the database to the A.O TDS for action in case it does not receive any reply . So, in my view the tax payers should send the reply on the email@example.com stating that since payments of the flats were done much earlier than the date from which the law is efefctive , there is no liability .
Keep it as record that you intimated to the CPC(TDS)