Hello! All.
There is a tax amendment started from June 2013. I would need your help in mapping this on the system. Please help!
TDS on transfer of certain Immovable Properties
A new section 194-IA is proposed to be inserted in the Income-tax Act, 1961 as a result of an amendment by the Finance Bill, 2013 which provides for Tax Deduction at Source (TDS) on transfer of certain immovable properties. This proposal is expected to come into operation with effect from 1st June, 2013. It may be recalled that similar provision was introduced in last year but the same was withdrawn later on. As a result of the new proposed amendment greater obligation is now cast on all persons who are purchasing immovable property in excess of Rs.50 Lakhs.
Explaining the logic and reason for introduction of this provision the Explanatory Memorandum to the Finance Bill, 2013 states that under the existing provisions of the Income-tax Act, tax is required to be deducted at source on certain specified payments made to residents by way of salary, interest, commission, brokerage, professional services, etc. On transfer of immovable property by a non-resident, tax is required to be deducted at source by the transferee. However, there is no such requirement on transfer of immovable property by a resident except in the case of compulsory acquisition of certain immovable properties. 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 to provide 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.
It may be noted that the Agricultural Land has been excluded from the ambit of this new provision, however by going through the provisions line by line we find that all agricultural lands are not excluded and that the agricultural land which is comprised within the jurisdiction of a municipality having a population of over 10,000 as well as land which is not more than 8 Kilometres of the local limits of any municipality would come within the purview of making compliance as per the above new proposed section and thus in respect of this category of agricultural land the formalities of TDS are required to be complied with.
Consequent to the requirement of compliance of the formality of deducting tax at source on real estate purchase the tax payers would be required to obtain TAN (Tax Deduction Account Number) Number and also perhaps would be required to file the yearly TDS return. Hence, every person after 1st June, 2013 would have to deduct TDS @ 1 % on payments made to the transferor for real estate. In case the property in excess of Rs.50 Lakhs is purchased then such TDS would be required to be deducted at every part payment of consideration which would cause great harassment specially to investors who are not engaged in day to day business activities.
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