Section 194IA Income Tax : Payment on transfer of certain immovable property other than agricultural land

By | July 6, 2019
(Last Updated On: April 20, 2020)

Section 194IA of Income Tax Act

Section 194IA of Income Tax Act Inserted by the Finance Act, 2013, w.e.f. 1-6-2013

 Commentary on Section 194IA of Income Tax Act

Watch Video on How to Pay TDS on Property Purchase I TDS on Property Sale I Section 194IA I CA Satbir Singh

  • Section 194IA : Effect from 1st June, 2013.
  • TDS Rates : 1% of such sum
  • When TDS will be deducted :  at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident transferor(Seller).provided the consideration for transfer of an immovable property is not less than Rs 50 lakhs.
  • When TDS will not be deducted :
    • No deduction shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.
    • No deduction shall be made where agricultural land is transferred.
  • Who will Deduct :  every transferee ( Buyer)
  •  What is Immovable property:  Immovable property means any land (other than agricultural land) or any building or part of building.
  •  Tax Deduction and Collection Account Number : Provisions of TDCAN are not applicable to section 194-IA cases.
  • Meaning of Transfer : The expression ‘transfer’ is not defined in section 194-IA.. Section 194-IA applies irrespective of whether immovable property is capital asset or not.
  • In Dy. CIT v. Tejinder Singh [2012] Tribunal held that the phrase ‘land or buildings or both’ will not include rights in land or buildings or both such as tenancy rights. In ITO v. Yasin Moosa Godil [2012] , it was held that transfer of ‘booking rights’ in a flat is not transfer of ‘land or buildings or both’.
  • “consideration for immovable property” : “consideration for immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property;’.[Finance Bill 2019 Proposed to change Section 194IA of Income Tax Act with effect from the 1st day of September, 2019:]

Section 194IA of Income Tax Act

Payment on transfer of certain immovable property other than agricultural land

194-IA. (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon.

(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.

(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

Explanation.—For the purposes of this section,—

(a)“agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;
1[(aa)consideration for transfer of any immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property; ]
(b)“immovable property” means any land (other than agricultural land) or any building or part of a building.]

Notes on Section 194IA of Income Tax

1. Inserted by the Finance (No. 2) Act, 2019, w.e.f. 1-9-2019.

Finance Bill 2019 Proposed to change Section 194IA of Income Tax Act with effect from the 1st day of September, 2019:

In section 194-IA of the Income-tax Act, in the Explanation, after clause (a), the following clause shall be inserted with effect from the 1st day of September, 2019,––

‘(aa) “consideration for immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property;’.

Objects of Section 194IA of Income Tax Act

The objects of this have been explained by Explanatory Memorandum as under:

“There is a statutory requirement under section 139A of the Income-tax Act read with rule 114B of the Income-tax Rules, 1962 to quote Permanent Account Number (PAN) in documents pertaining to purchase or sale of immovable property for value of Rs 5 lakh or more. However, the information furnished to the department in Annual Information Returns by the Registrar or Sub-Registrar indicate that a majority of the purchasers or sellers of immovable properties, valued at Rs 30 lakh or more, during the financial year 2011-12 did not quote or quoted invalid PAN in the documents relating to transfer of the property. In order to have a reporting mechanism of transactions in the real estate sector and also to collect tax at the earliest point of time, it is proposed to insert a new section 194-IA ….”.

The Finance Minister in his speech explained the objects of new section 194-IA as under:

“145. Transactions in immovable properties are usually under valued and under reported. One-half of the transactions do not carry the PAN of the parties concerned. With a view to improve the reporting of such transactions and the taxation of capital gains, I propose to apply TDS at the rate of one per cent on the value of the transfer of immovable property where the consideration exceeds Rs 50 lakhs. However, agricultural land will be exempt.”

Section 194-IA provides that every transferee, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident transferor, shall deduct tax, at the rate of 1% of such sum. In order to reduce the compliance burden on the small taxpayers, no deduction of tax under this provision shall be made where the total amount of consideration for the transfer of an immovable property is less than ` 50,00,000. The provisions of section 203A [regarding obligation of deductors to obtaining tax deduction and collection account number (i.e. TAN)] shall not apply in respect of tax deducted under this section. This amendment will take effect from 1st June, 2013.

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