Have you done your 194IA compliance? Don't panic when you hear these words. The below chart summarizes your compliance requirements.
While the above chart explains the legislative provisions, the real world throws up some interesting propositions. Some of the practical issues faced by our clients in the past have included:
Section 194IA was introduced in 2012, what if the payment schedule of the property is as follows:
December 31, 2011 - INR 80 lakhs
July 24, 2019 - INR 5 lakhs
May 11, 2020 - INR 5 lakhs
Total - INR 90 lakhs
Should the assessee pay TDS? The assessee paid the major portion before the introduction of the aforesaid provision.
Quite often, developers have split the Purchase Consideration between land and building. What happens if the land is worth INR 40 lakhs and building worth INR 20 lakhs? In aggregate the total amount exceeds INR 50 lakhs, however considering the 2 agreements separately, the provisions of Section 194IA are not triggered. What happens in case of disputes where the tenant does not pay rent but does not vacate the property either?
If you buy a property from an NRI, you have to deduct tax at 20% or 30% (plus surcharge and cess) depending on whether it is short term capital asset or long term capital asset. How would you be able to determine what the seller’s holding period is?
Points to Remember:
Rate of Tax deduction on purchase of property varies depending on whether the Seller is a Resident or Non-Resident.
Interest and penalty may be applicable in case buyer does not deduct tax before making the payment to the Seller.
In case where buyer is purchasing the property from a Resident Indian, he must pay tax and file the challan cum statement (Form 26QB) within 30 days from the end of the month in which the deduction is made.
The aforesaid liability to deduct tax and file TDS returns arises on payment of each installment to the Seller/ Builder.
An NRI may purchase Immovable Property in India in accordance with the provisions of FEMA (refer Acquisition and Transfer of Immovable Property of FEMA for more information).
Frequently asked questions
NRI purchases property on November 1, 2019 from a Resident Indian for a Sale Consideration of INR 70 lakhs. Are there any tax obligations for the NRI at the time of purchasing property?
An assessee purchased a property worth INR 80 lakh from a Resident Indian on February 5, 2012. Is he required to deduct tax before making the payment to the Resident?
Section 194IA of the Act which provides for 1% deduction of tax is applicable w.e.f. June 1, 2013. Accordingly, in the above situation, the assessee is not liable to deduct tax before making the payment.
NRI purchases a property from a Builder in India on installment basis. Is NRI liable to deduct tax on the aforesaid payments to the Builder
Let's assume the below payment schedule