Government Announces 1% Tax Deduction on Sale of Immovable Property Valued at Rs 5 Million or More
In a move to address cases of misinterpretation of tax provisions, the government has clarified that a 1% Tax Deduction at Source (TDS) will be applicable on the sale of immovable property valued at Rs 5 million or more. This announcement was made in the Budget Speech by Finance Minister Nirmala Sitharaman. The clarification aims to bring clarity and ensure the accurate implementation of tax regulations.
Section 194-IA of the Income Tax Act and the Amendment
Section 194-IA of the Income Tax Act mandates TDS on the payment of consideration for transferring certain immovable properties other than agricultural land. However, there was confusion regarding the treatment of transactions involving multiple sellers or buyers. To resolve this, an amendment will be introduced to clarify the provision.
Finance Minister Nirmala Sitharaman highlighted, “Where there is more than one transferor or transferee involved in a property transaction, the total consideration for TDS purposes will be the combined amount paid or payable by all transferees to all transferors.” This means that the 1% TDS will apply if the total consideration in the transaction is Rs 5 million or more, regardless of the number of buyers or sellers involved.
Responsibilities of the Buyers
According to the law, the buyer, or transferee, has the responsibility of deducting tax at source on the amount paid to the seller, or transferor, for transferring the immovable property. Sub-section 1 of Section 194-IA states that any person responsible for paying a resident for the transfer of any immovable property must deduct 1% TDS on the sum paid or the stamp duty value, whichever is higher.
However, sub-section 2 of Section 194-IA clarifies that no TDS is required if both the consideration and the stamp duty value of the property are less than Rs 5 million.
Clarification and Amendment to Address Misinterpretations
The government observed that some taxpayers misinterpreted the law to mean that each individual buyer’s payment must be less than Rs 50 lakh to avoid TDS, even if the total property value exceeded Rs 5 million. This interpretation contradicted the legislative intent.
To eliminate such misinterpretations and ensure a fair tax treatment, the government has decided to amend sub-section 2 of Section 194-IA. The amendment will clarify that for properties involving multiple parties, the total consideration will be calculated as the combined amount paid by all buyers to all sellers. This way, the TDS provisions will now be applied accurately, based on the total transaction value.
Effective Date of the Amendments
The amendments made to Section 194-IA will come into effect from October 1, 2024. This provides sufficient time for taxpayers to understand and comply with the revised regulations.
In conclusion, the government’s announcement regarding the applicability of a 1% TDS on the sale of immovable property valued at Rs 5 million or more aims to address misinterpretations and ensure accurate tax implementation. The amendment to Section 194-IA will clarify that the total consideration for TDS purposes includes the combined amount paid by all buyers to all sellers in the case of multiple parties’ transactions. Taxpayers should be aware of their responsibilities as buyers and comply with the revised regulations to avoid any penalties or legal complications. The amended provisions will be effective from October 1, 2024.
