If Transferee Fails to Deduct Tax Under Section 194-IA, May Be Considered Defaulter

The Income Tax Department has recently released a pamphlet discussing the Tax Deducted at Source (TDS) payment duties for individual taxpayers. This focuses on TDS rules for property purchases (except agricultural land) and house rent payments above a certain limit. These rules also apply to non-resident taxpayers. If someone doesn’t follow the TDS rules, they may be considered an ‘assessee in default’ and, in some cases, could be seen as a tax evader.

What does the Income Tax Department Pamphlet say?

• Section 194-IA: TDS on the transfer of specific types of immovable property (excluding agricultural land).

Applicability of TDS under Section 194-IA

• Under this section, anyone buying property (except agricultural land) from a resident seller must reduce TDS (tax at the time of payment).

Threshold limit for TDS deduction

• TDS under Section 194-IA doesn’t apply if the property’s price and stamp duty value are both under the value of Rs. 50 lakh.

Timing of TDS Deduction

TDS must be reduced before the below-listed two events:

• When the payment is transferred to the account of the seller.
• When the payment is formed, whether in cash, by cheque, draft, or any other mode.

TDS Rate under Section 194-IA

• TDS will be 1% of the higher value between the purchase price or the stamp duty value.
• If the seller doesn’t provide a PAN/Aadhaar, the TDS rate will be 20% (as per Section 206AA).
• From April 1, 2025, the higher TDS rate for non-filers (as per Section 206AB) will no longer apply under Section 194-IA.
• If the PAN and Aadhaar are not linked, the higher TDS rate under Section 206AA will still apply.
• If the seller is a Non-Resident Indian (NRI), TDS should be deducted according to Section 195, not Section 194-IA.

An expert said Section 195 of the Income Tax Act says that anyone making a payment to a non-resident, which is taxable in India, must deduct TDS at the time of payment or when the payment is credited, whichever comes first. When an Indian resident buys property from a Non-Resident Indian (NRI), the buyer must deduct TDS on the full sale amount, regardless of any capital gains the seller may have. This ensures that the tax on the NRI’s income from the sale is collected upfront.

Process for TDS Payment and Filing TDS Return

TDS Payment and Return filing on Sale of Property u/s 194-IA is done in Challan – cum Statement Form 26QB. Within 15 Days, TDS Certificate is generated in Form 16B.