Immovable property: Buyer must consider stamp duty value for TDS

Immovable property, here, means any land (other than agricultural land) or any building or part of a building.

Earlier, as per section 194 IA of the Income Tax Act, the buyer was required to deduct TDS (tax deducted at source) only on the value of the consideration paid, which includes 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.

The stamp duty value of the immovable property was not considered while deducting TDS on sale. Stamp duty value means the value of the immovable property adopted by any Central government/State government authority to calculate stamp duty.

But for calculating the capital gains (or profits or gains from business or profession, if immovable property is held as inventory), the IT Act mandates taking stamp duty value also into consideration. If the transaction value is less than stamp duty value, higher of both the values has to be considered.

Thus, to remove inconsistency within the Act from one section to another, Budget 2022 proposed to amend section 194-IA of the Act, such that the TDS is to be deducted on the amount of consideration or the stamp duty value of such property, whichever is higher.

Note that, in case the consideration paid for the transfer of immovable property and the stamp duty value of such property are both less than ₹50 lakh, then no tax is to be deducted under section 194-IA. This will continue even after the Budget 2022 proposal. 

But experts believe this amendment may not be of greater significance as TDS is anyways adjusted with the tax liability of the individual on assessment of tax for the year. Archit Gupta, founder and chief executive, Clear said, “This move has come even though such TDS is adjustable for the taxpayer (seller) against tax payable overall, and where capital gains are invested, such TDS is in fact refunded. However, this will lead to higher tax mop up, which may be later adjusted against tax dues or refunded if capital gains claimed as exempt.”

This amendment will take effect from 1 April 2022.

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