As per |Section 194IA, TDS @ 1% needs to be deducted by buyer where sale consideration is more than Rs 50 Lakhs.
UPDATED Note – TDS on paying instalments of Under-Construction properties
As per my discussions with experts, I understnat that TDS needs to be paid only if the payment after 01-Jun-2013 is more than Rs 50 Lakhs.
Therefore, for properties which are purchased by builder and are still under-construction, TDS needs to be deducted by Buyer against Builder, only
- if the payment due after 01-June-2013 is more than Rs 50 lakhs
- on the amount paid after 01-Jun-2013. You may not need to deduct TDS on instalments which is already paid before 01-June-2013
For e.g if the property is booked for Rs 75 lakhs in 2012 and payment of Rs 45 lakh is already made before 01-June-2013.
Balance payment after 01-Jun-2013 is 30 lakhs, so TDS under Section 194IA is not applicable.
Applicability on TDS in case of Re-Sale of an under-construction property ?
What happens when you buy an under-construction property in resale. Do you need to deduct TDS from the payment made to seller?
These are my personal views: (not legal advice) :
It can be argued that when you are buying an under-construction property, you are not buying the property itself. You are acquiring the right to buy the property.
Generally, in cases of sale of flats under construction, a tripartite agreement is entered into between the seller (who had originally booked the flat), the purchaser and the builder. Under this agreement, the seller assigns his rights to the under-construction property to the purchaser with the consent of the builder. The purchaser agrees to pay the balance of the original purchase price payable to the builder and the builder agrees to give possession of the ready flat to the purchaser directly.
The agreement assigns the right to acquire a particular flat.
For purpose of calculating Capital gains on Sale of Under-construction properties, there is distinction between tranfer of flat & transfer to rights to acquire flat. For e.g If you book the flat in 2009 and get possession in 2013, sell the flat in 2013, it may be treated as Short term capital gain as the date of acquisition of property is treated as date of possession / registration. If you sell between 2009-2013 it is treated as transfer of rights to acquire flat.
Read Article on Capital Gain related to under-construction property at Live mint. http://www.livemint.com/Opinion/CczIEV9GY6gHN1k1XmygTN/Selling-underconstruction-flat-before-possession-saves-tax.html
As in the resale transaction of under-construction property, there is a transfer of “RIGHT TO ACQUIRE” and NOT “Transfer of property”, and it can be argued that Section 194IA may not be applicable and it may not be required to decuct TDS. Some clarifications are required from IT dept to avoid litigations.
For e.g If the buyer booked a flat for Rs 75 lakhs and paid instalments of Rs 20 lakh before 1-June-2013
Buyer Booked flat of Rs 75 lakh
Paid Rs 20 lakh before 01-June-2013 - No TDS required
Sold property on 01-Aug-2013 for 30 lakh - No TDS needs to be deducted by buyer
Balance Installment paid by buyer – Rs 55 Lakh - TDS to be deducted at time of paying installment to builder
Based on above analysis, it can be argued that TDS under 194IA may not be applicable in case of RESALE transactions of Under-construction properties.
These are my personal views and should not be considered as legal advice. Before taking any investment / tax decision, you should consult your tax advisor.
Please share your views / opinion / discussions with other experts.