Buying a house is a dream for many. It is a rollercoaster ride full of emotions and happiness right from the booking until the final possession of a dream house coupled with the stress of tax implications.There are many tax implications in buying a house with the introduction of Section 194IA of Income-tax Act, 1961, which was inserted by Finance Act, 2013 with effect from 1 June 2013. Prior to this amendment, there were obligations on the payer to deduct tax at source on certain payments made to residents by way of salary, interest, commission, brokerage, and professional services, etc. When a non-resident transferred any immovable property, the transferee was required to withhold tax on such transaction by virtue of Section 195, which was applicable on all kinds of payments to non-residents in the nature of income. However, there was no requirement to deduct tax on the transfer of immovable property by a resident except in the case of compulsory acquisition of certain immovable properties.
The insertion of Section 194IA in the Act, where any resident transfers of any immovable property, other than agricultural land, whose sale consideration is ₹50 lakh or more, made it mandatory that the transferee would be required to withhold tax at the rate of 1% of such consideration. Immovable property for the purpose of this section means any land (other than agricultural land) or any building or part of a building.The Union Budget 2022 has proposed amendments in this section, which provides that the transferee shall be required to deduct tax at the rate of 1% of the consideration (sale value) or stamp duty value (SDV) of the immovable property, whichever is higher. Further, no deduction of tax shall be made by the transferee where the consideration and the SDV of such property are both less than ₹50 lakh.
This was proposed in order to align the provisions of capital gains with TDS provisions. Section 50C of the act considers SDV adopted by the Stamp Valuation Authority (SVA) for the purpose of levying stamp duty on properties and in case the sale consideration received from the buyer on sale of land or building or both is less than value adopted by stamp valuation authority, such value adopted by SVA would become actual sale consideration. However, the actual consideration shall be deemed to be the full value of consideration where the stamp duty valuation does not exceed 110 % of the actual consideration.
Example 1: Suppose A sold his property to B for the sale consideration of ₹49 lakh, and the SDV of the property was ₹60 lakh. Prior to the proposed amendment, B would not be required to deduct tax at source as the sale consideration of the property is less than the threshold limit of ₹50 lakh prescribed in section 194IA. However, post amendment in section 194IA, B shall be required to deduct tax at source as it is now required by the law to check sale consideration received as well as SDV of the property, individually. Though the sale consideration is less than the threshold limit, the SDV exceeds the threshold limit of ₹50 lakh. Hence, B shall be required to deduct tax at the rate of 1% of SDV, i.e., ₹60 lakh.
Example 2: In example 1, suppose the sale consideration is ₹52 lakh. Prior to the proposed amendment, B would deduct tax at the rate of 1% of sale consideration. However, while computing capital gains, A was required to take ₹60 lakh as the full value of consideration as the difference between SDV and consideration exceeds 10% of the consideration. In order to bring parity between Section 50C of the act and the provision of deduction of TDS, section 194IA has been proposed to be amended, and consequently, B shall now be required to withhold tax at source on the higher of SDV and sale consideration.
Example 3: In example 1, suppose the sale consideration is ₹52 lakh, and the SDV of the property is ₹55 lakh. Earlier, B would be required to deduct tax at source on ₹52 lakh and even A while computing capital gains could take sale consideration as the full value of consideration. However, post amendment, B shall be required to consider higher of SDV and sale consideration for the purpose of deducting tax. The purpose of this amendment is to help in reducing the tax leakages and black money in any kind of immovable property transactions .
