Purchase of Immovable Property

Have you done your 194IA compliance? Don't panic when you hear these words. The below chart summarizes your compliance requirements. 

Practical Considerations:

 

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?


In the above scenario, the sale consideration exceeds INR 50 lakhs. Therefore, as per Section 194IA of the Act, NRI will have to deduct tax @ 1% and deposit the same in the Government Treasury in the form of challan cum statement (Form 26QB) within 30 days from the end of the month of deduction of tax. In addition, he has to produce a certificate of such tax deduction in the prescribed form to the Resident within 15 days from due date of furnishing the challan cum statement as above.




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

July 17, 2016 - INR 20 lakhs Oct 2, 2016 - INR 35 lakhs Feb 5, 2017 - INR 35 lakhs Total - INR 90 lakhs In the above case, aggregate consideration payable by NRI exceeds INR 50 lakh. Therefore, NRI must deduct tax @ 1% on payment of each installment to the Builder (irrespective of the individual installment amounts not exceeding INR 50 lakh).




Will the NRI be required to obtain a Tax Deduction Account Number (TAN) for facilitating the tax deduction?


No, he is not required to obtain a TAN. He can facilitate tax deduction on the basis of his PAN, provided he is selling the property to a Resident Indian. However, in case the NRI is selling the property to another NRI, he will have to obtain a TAN to deposit the amount of tax deducted by him.




What is the procedure for paying such tax deducted into the Government Treasury in the above case?


The assessee shall need to follow the below steps: Step 1: Fill in an online challan cum statement (Form 26QB) through which he can make an online payment. Step 2: A Challan Identification Number shall be generated once the payment has been successfully made. Step 3: Register himself on the TRACES website as a tax payer and generate Form 16B as a certificate for tax deduction. Step 4: Form 16B shall have to be shared with the Seller of the property.





 

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