Currently, the Tax Deduction at Source (TDS) is deducted basis only on the consideration value of the immobile properties
In Budget 2022, the finance minister proposed that at the time of buying a property, one per cent TDS (Tax Deduction at Source) will apply on a non-agriculture immovable property of over ₹50 lakh on the basis of the sale price or the stamp duty value, whichever is higher, after an amendment in the Income Tax Act.
Currently, the TDS is deducted basis only on the consideration value of the immobile properties. Finance Minister Nirmala Sitharaman on Tuesday proposed the amendment to do away with the anomaly in the law.
This amendment will also help the government in identifying such transactions clearly, where any property is bought below its stamp value.
“As per the proposals of Budget 2022, it is proposed to amend section 194-IA and consider the stamp duty value of such property as well for calculating the TDS amount. As per the proposal, TDS of 1% will be calculated on the sale considering or stamp duty value of such property, whichever is higher. Thus, in case the stamp duty value of the property is high as compared to the sale value, TDS is to be deducted on such stamp duty value of the property. For eg., if Mr B has bought a property for a sum of ₹60 Lacs from Mr S, however the stamp duty value of such property is ₹65 Lacs, then as per the new amendment, TDS of 1% will be calculated and deducted on ₹65 Lacs, i.e. ₹65,000/-, the payment of ₹59.35 Lacs will be done to Mr. B,” explained Abhishek Soni, Co-founder and CEO, Tax2win.in.
As per the Finance Bill, 2022, presented in Parliament,” Clause 56 seeks to amend section 194-IA of the Income-tax Act relating to payment on transfer of certain immovable property other than agricultural land. Sub-section (1) of the said section provides for deduction of tax by any person responsible for paying to a resident any sum by way of consideration for transfer of any immovable property (other than agricultural land) shall at the time of credit or payment of such sum to the resident at the rate of one per cent. of such sum as income-tax thereon. Sub-section (2) of the said section provides that no deduction of tax shall be made where the consideration for the transfer of immovable property is less than fifty lakh rupees.”
The bill further stated, “It is proposed to amend sub-section (1) of the said section to provide that the person responsible for paying to a resident any sum by way of consideration for transfer of any immovable property (other than agricultural land) shall at the time of credit or payment of such sum to the resident deduct tax at the rate of one per cent. of such sum or the stamp duty value of such property, whichever is higher, as income-tax thereon. It is further proposed to amend sub-section (2) of the said section to provide that no deduction of tax shall be made where the consideration for the transfer of immovable property and the stamp duty value of such property, are both less than fifty lakh rupees.
Investment experts believe that this move will help contain tax evasion.
“TDS of 1% is applicable on sale of immovable property on the sum paid to the seller ie. 1% is applicable on the consideration paid to the seller. The buyer has to deduct this TDS. Here stamp duty value is not considered. However, where business income is calculated or where capital gains have to be calculated if the transaction value is less than stamp duty value, the higher value is considered. The same has been made applicable to TDS, whereby, stamp duty value if higher shall apply for TDS of 1%. This move has come even though such TDS is adjustable for the taxpayer (seller) against tax payable overall, and where capital gains are invested, such TDS is in fact refunded. However, this will lead to higher tax mop-up – which may be later adjusted against tax dues or refunded if cap gains are claimed as exempt,” said Archit Gupta, Founder and CEO – Clear.
Mumbai-based tax and investment expert Balwant Jain said, “Tweak in TDS norms on sale of immovable property will help contain tax evasion as it would reflect in Form 26AS of both buyers and sellers. If there would be any mismatch, then the income tax department may chip in find out the offender in such case.” said
Pankaj Mathpal, MD & CEO at Optima Money Managers said,” TDS tweak in real estate transactions is to contain evasion of long term capital gain by sellers. Earlier, TDS was charged on the net money exchange or agreement value whereas now it will be decided on the stamp duty paid. So, if the stamp duty paid on a real estate transaction is ₹50 lakh or more whereas the net money exchanged is less than ₹50 lakh, even in that case 1 per cent TDS will be levied.”
This would not only bring transparency but it would also not interfere with the property prices set on the undisclosed amount as it would regard irrelevant.
“The proposal of 1 per cent TDS on the immovable property over 50 lakh is much better than the earlier practised rate on the anonymous price being considered privately which was rather mischievous on the part of citizens. Now it would perform much better on the part government revenue as well as the clear idea of paying TDS by a person irrespective of any value,” said Amit Gupta, MD & Founder, SAG Infotech.
It is also proposed to insert clause (c) to the Explanation to define “stamp duty value”.
In case the consideration paid for the transfer of immovable property and the stamp duty value of such property are both less than ₹50 lakh, then no tax is to be deducted under section 194-IA, it added.
These amendments will take effect from 1st April 2022.
