OWNING a property is a basic need as well as an important investment avenue. These transactions not only require significant quantum of funds, but also involve tax implications and procedural challenges under tax laws. Hence, it is advisable to be conscious of some of the recently introduced tax provisions related to purchase of a property.
Under the Income-Tax Act, 1961, tax deduction requirement was already in place for transfer of immovable property by a non-resident and acquisition of certain immovable properties from a resident seller. A similar requirement was introduced for purchase of any immovable property (other than compulsory acquisition) from a resident seller.
A buyer of an immovable property (excluding agricultural land) is required to deduct tax (TDS) at 1% on the payment made to a resident seller in India, if the sale consideration of such an immovable property is R50 lakh or more. The tax is required to be deducted at the time of payment or at credit to the seller, whichever is earlier. Hence, in case of advance payments or payments in installments, TDS is required to be deducted at the time of payment itself. Further, the tax so deducted has to be deposited with authorities within seven days from the end of the month in which such tax is deducted.
To reduce compliance burden on the buyer, the government has consciously exempted the requirement of obtaining Tax Deduction Account Number (TAN) for such transactions. However, to track such transactions, a new Form 26QB has been introduced, which is a challan-cum-statement, and outlines details such as name, address, date of contract, total value of consideration, date of payment, PAN of the seller and buyer, etc. This form has to be submitted online by the buyer within seven days from the end of the month in which the tax is deducted.
Further, just like other TDS provisions, the buyer is required to issue withholding tax certificate (Form 16B) to the seller within 15 days from the due date of furnishing of Form 26QB. Form 16B can be downloaded from the website of Centralized Processing Cell of TDS (CPC-TDS) www.tdscpc.gov.in.
In case of non-compliance of the above provisions, the buyer would be regarded as an “assessee in default”.
Consequently, interest and penalty would be imposed by the tax authorities. As per the provisions of the I-T Act, interest is levied at 1% per month or part of the month, if the buyer fails to deduct whole or any part of tax — interest will be charged from the date on which tax was deductible till the date of payment of tax.
Further, interest will be charged at 1.5% per month or part of the month, if the buyer fails to deposit the tax deducted with the government treasury — the interest in such a case will be levied from the date of deduction till the date of actual payment. In addition to the interest, a mandatory fee (in the nature of penalty) is also applicable at Rs 200 per day (cannot exceed the total amount of tax) for late filing of Form 26QB. Also, the authorities may initiate penalty proceedings on account of non-compliance in respect of TDS provisions, at a later stage.
At the time of registration of the property, the buyer is required to furnish the proof of deduction and payment of tax (wherever applicable) to the Registration Officer. The buyer should have thorough understanding of the above provisions, while buying a property, as being vigilant can protect him from potential interest and penal consequences.
The writer is partner, Deloitte Haskins & Sells LLP. (Inputs from Shailly Jain, manager, Deloitte Haskins & Sells LLP)