Buying a home is the dream of many people. It has been a rollercoaster ride full of emotions and joys coupled with the stress of tax implications, from booking to eventual possession of the dream home. There are several tax implications in buying a house with the introduction of Section 194IA of the Income Tax Act. , 1961, which was inserted by the Finance Act, 2013 with effect from 1 June 2013. Prior to this amendment, the payer was liable 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 an immovable property, the transferee was required to withhold tax on such transaction by virtue of section 195, which was applicable to all payments in the nature of income to non-residents. , However, there was no requirement to deduct tax on transfer of immovable property by a resident, except in the case of compulsory acquisition of certain immovable properties.
Insertion of section 194IA in the Act, where a resident transfers any immovable property other than agricultural land, the sale of which is a consideration 50 lakhs or more, mandated that the transferee would have to withhold tax at the rate of 1% of such consideration. For the purposes of this section, immovable property means any land (other than agricultural land) or any building or part of a building. The Union Budget 2022 has proposed amendments to this clause, which provides that the transferee will be required to deduct tax at the rate of 1% of the consideration (sale value) of immovable property or stamp duty value (SDV), whichever is higher. . Further, no tax shall be deducted by the transferee where both the consideration and SDV of such asset are less than 50 lakhs.
This was proposed to align capital gains provisions with TDS provisions. Section 50C of the Act considers the SDV adopted by the Stamp Valuation Authority (SVA) for the purpose of levying stamp duty on the property and if the sale consideration received from the buyer on the sale of land or building or both is less than the value adopted by the stamp valuation Such value adopted by the Authority, SVA shall become the actual sale consideration. However, the actual consideration shall be deemed to be the full value of the consideration where the stamp duty valuation does not exceed 110% of the actual consideration.
Example 1: Let A sell his property to B for consideration of the sale of 49 lakhs, and the SDV of the asset was 60 lakhs. Before the proposed amendment, B would not be required to deduct tax at source as the sale of the asset is below the threshold limit for consideration 50 lakh prescribed in section 194IA. However, after amendment of section 194IA, B would be required to deduct tax at source as it is now required by law to personally examine the SDV of the property along with the sale consideration received. Although the sales return is below the threshold limit, the SDV exceeds the threshold limit 50 lakhs. Therefore, B would be required to deduct tax at the rate of 1% of SDV, i.e., 60 lakhs.
Example 2: In Example 1, suppose the sales consideration is 52 lakhs. Before the proposed amendment, B would deduct tax at the rate of 1% of the sale consideration. However, while computing capital gains, A was required to take 60 lakhs 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 for deduction of TDS, it has been proposed to amend section 194IA, and consequently, B will now have to withhold tax at source on higher of SDV and sale consideration.
Example 3: In Example 1, suppose the sales consideration is 52 lakhs, and the SDV of the asset is 55 lakhs. Before this, B would need to deduct tax at source 52 lakhs and even A can take the sale consideration as the full value of the consideration while computing the capital gain. However, after revision, B will have to consider higher of SDV and sale consideration for the purpose of deduction of tax. The purpose of this amendment is to help in reducing tax leakage and black money in any kind of immovable property transaction.
Amit Maheshwari is Tax Partner and inputs from AKM Global, a tax and consulting firm, Yeshu Sehgal, Tax Expert, AKM Global.
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