One of the most common questions which is often asked by the taxpayer is regarding the TDS on immovable properties. Whether TDS is required to be done on the actual transaction value or on the stamp duty valuation is one of the most common question often asked by the taxpayers?
For example, a person has purchased a plot for Rs. 1 Cr whereas its stamp duty valuation is Rs. 1.50 Cr. Whether TDS will be applicable on Rs. 1 Cr or Rs. 1.50 Cr in such a case?
Let us first read section 194A which provides for the TDS on Payment on transfer of certain immovable property other than agricultural land. It is reproduced hereunder:
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 [or the stamp duty value of such property, whichever is higher, as income-tax thereon.
(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property and the stamp duty value of such property, are both, 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;
(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;
93[(c) “stamp duty value” shall have the same meaning as assigned to it in clause (f) of the Explanation to clause (vii) of sub-section (2) of section 56.]
It may be noted that section 194A has been amended one year back so as to provide that TDS would be applicable on the higher of the
1. Actual Transaction value
2. Stamp duty value of the property.
In short, the TDS would be required to be done on the stamp duty valuation of the property if it is higher than the actual sale consideration. So, in the above case, the TDS would be required on Rs. 1.50 Cr and not on Rs. 1 Cr.
The next question is what if the difference between stamp duty valuation & the actual sale consideration is not more than 10%?
For example, a person has purchased a plot for Rs. 1 Cr whereas its stamp duty valuation is Rs. 1.07 Cr. Whether TDS will be applicable on Rs. 1 Cr or Rs. 1.07 Cr in such a case?
It may be noted that there is an exception to the rule of taxation of capital gain U/ s 50C as well as U/s 43CA which provides that capital gain tax or business profit shall be computed on actual sale consideration only if the stamp duty valuation is not exceeding the actual sale consideration by 10% difference.
In short, if the difference is less than 10% only then no tax on a notional basis arises. In the above example, there would not be any tax liability on the purchaser as well as seller on the basis of Rs. 1.07 Cr but the full value consideration shall be treated as Rs. 1 Cr only.
The question now emerges is whether TDS in such a case would be on actual sale value or on stamp duty value. Surprisingly, TDS in such a case would also be on the basis mentioned above i.e, that TDS would be applicable on the higher of the
1. Actual Transaction value
2. Stamp duty value of the property.
Thus, the TDS would be applicable on Rs. 1.07 Cr and not Rs. 1 Cr. Even though only Rs. 1 Cr is taxable, still the TDS would be applicable on Rs. 1.07 Cr.
