Budget 2022: For property buyers, right TDS must to avoid interest, penalty

Budget impact may not be palpable, but steer clear of taxman

In the Union Budget for 2022-23, the finance minister proposed that when buying a property, the homebuyer should deduct tax deducted at source (TDS) at the rate of 1 per cent. TDS should be deducted on the amount paid to the seller or the stamp duty value, whichever is higher. This amendment will apply to all non-agricultural, immoveable property, where the selling price or the stamp duty value is above Rs 50 lakh.

Harmonising laws

Section 194IA deals with deduction of TDS on property deals. Vivek Jalan, partner, Tax Connect Advisory Services says, “A few years ago, TDS was made applicable under Section 194IA on property deals of more than Rs 50 lakh. Now, when a homebuyer purchases property of more than Rs 50 lakh, he/she has to deduct TDS and deposit it with the government.”
 

A key goal of the Budget amendment is to bring parity with different Sections of the Income-Tax (I-T) Act, 1961, namely Sections 194-IA, 43CA, and 50C. Until now, under Section 194-IA, TDS was deducted on the sale consideration. Under other Sections like 43CA and 50C of the I-T Act, which deal with computation of income under the head 'profits and gains from business or profession' and 'capital gains', respectively, sale consideration or stamp duty value, whichever is higher, is considered. Now the same will have to be done under Section 194-IA as well.

Curbing tax evasion

 deducting, the homebuyer is required to deposit the TDS amount with the I-T department. This amendment will enable the tax department to identify property transactions that were carried out below stamp value.

 Mukul Chopra, senior partner, Victoriam Legalis-Advocates & Solicitors, says, “It will help the authorities deal with tax evasion since the amount will be specified in Form 26AS of both the seller and buyer.” Adds Sandeep Bajaj, managing partner, PSL Advocates & Solicitors, “If any mismatch is found, the tax department will begin an enquiry to find if tax is being evaded.”

 What if the sale consideration and the stamp duty value are less than Rs 50 lakh in a transaction?

Moiz K Rafique, managing partner, Privy Legal Service LLP, says, “The amendment in the Budget clearly states that no tax needs to be deducted under Section 194-IA in such a case.”

Small impact

According to experts, the actual impact of this change will not be huge. Piyush Bothra, co-founder and chief financial officer, Square Yards, says, “The amount of money that goes into the seller’s pocket will reduce. Let's say you sell a property, whose circle rate is Rs 75 lakh, for Rs 60 lakh. Earlier, the buyer would have deducted Rs 60,000 as TDS. Now he will deduct Rs 75,000. So, the amount that goes to the seller will reduce by Rs 15,000. On a sale consideration of Rs 60 lakh, Rs 15,000 is a small amount.”

In some cases, it will only lead to a higher amount remaining blocked. “Real estate prices have not been appreciating for many years. Often, sellers nowadays incur a loss on the sale of property. In such cases, the deduction of a higher TDS amount will lead to higher blockage of the seller's capital,” adds Jalan.

Bear in mind

Buyers should be careful about deducting the right amount of TDS and depositing it with the government. According to Jalan, “While the financial implication of non-compliance (the TDS amount involved) may be low, the buyer will have to unnecessarily bear penalties and interest for deducting a lower amount.”