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TMI BlogTDS BY BUYER OF PROPERTY- only at the time of transfer of property and not on advance payments- a point of viewX X X X Extracts X X X X X X X X Extracts X X X X ..... TDS BY BUYER OF PROPERTY- only at the time of transfer of property and not on advance payments- a point of view - By: - CA DEV KUMAR KOTHARI - Income Tax - Dated:- 10-3-2014 - - Provisions for tax deduction by buyer of immovable property. Relevant links and references: Section 194IA , 194LA and 203A of Income-tax Act, 1961 . TDS BY BUYER OF PROPERTY Earlier article web hosted on: New section 194-IA : A new section namely section 194-IA has been inserted vide the Finance Act 2013 , w.e.f. 1st day of June, 2013. This provision is not to impose tax on income of any previous year of any assessee, the provision is only for collection of tax through buyers of immovable properties. The tax deducted will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for credit as tax paid on behalf of the seller just like other cases of TDS. The provision shall be applicable in respect of transactions of transfer of such immovable properties to which the section applies. The section shall apply, if the consideration is credited or paid, whichever is earlier, on or after 1 st June, 2013. Therefore, consideration paid or credited on or before 01.06.2013 will not be liable for deduction. The section is reproduced below with highlights added by author for easy analysis, understanding and catch words for memory recall: [ 194-IA. Payment on transfer of certain immovable property other than agricultural land. (1) Any person, being a transferee, responsible for paying (other t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han 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 as income tax thereon. (2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; (b) immovable property means any land (other than agricultural land) or any building or part of a building .] An analysis so far relevant in relation to advance payments : The liability to deduct tax is imposed on any person, who is a transferee and is responsible for paying (other than the person referred to in section 194LA - cases of compensation for acquisition of land and / or building under law) The provision apply when payment is made to a resident transferor. The payment should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of any sum by way of consideration for transfer of any immovable property (other than agricultural land),payment can be in any manner including by any adjustment of recoverable sums from vendor, other dues, book entries or third party adjustment etc.. The time of applicability is at the time of credit of such sum to the account of the transferor or at the time of payment whichever is earlier. Crucial words used in section are as follows : Any person, being a transferee, to a resident transferor any sum by way of consideration for transfer of any immovable property at the time of credit of such sum to the account of the transferor or at the time of payment of such sum . Advance payment: When an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement for purchase of a property is entered into, the person, though may be described as buyer or purchaser in the agreement is not a transferee of immovable property. By entering into agreement, and making advance payments, he becomes entitled to certain rights and privileges as per agreement. However, he does not become a transferee. Similarly when an agreement for sale of a property is entered into, the person, though may be described as seller, or vendor in the agreement is not a transferor of immovable property. By entering into agreement, and receiving advance payments, he undertakes obligation to transfer property and becomes entitled to certain rights and privileges as per agreement. However, he does not become a transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or of property. Advance payment made cannot be called any sum by way of consideration for transfer of any immovable property . The payment so made is an advance payment made as per agreement. The transfer of property will take place later on, which may not be in the same previous year in which advance is made. The expression at the time of credit of such sum to the account of the transferor or at the time of payment of such sum . also refer to payment for consideration on transfer of property and not before such transfer. Accounting of advances : As per common sense, general understanding, and even generally accepted and followed accounting methods, accounting standards, advance payment made or received are to be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as an item of asset as advance payment made and an item of liability as or advance payment received. This is applicable in respect of all sorts of advance money whether it relates to any movable property, immovable property or for services to be rendered or received. An advance money received cannot be considered as income of recipient or an expenditure of payer. Advance money is always received with certain obligations to me met and its accrual as income is contingent and uncertain. When an amount is paid as advance payment, it is advance money, against agreed purchase, and not consideration for transfer. Merely on making payment of some advance to buy a property, the person who pays such sum does not become a transferee. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilarly the person who receives advance money, receives it as advance against agreed sale and not consideration for transfer of property. Even in case of agreed purchase or sale of movable property (say even stock-in-trade in case of trading activities), any payment made as advance is an advance money against agreed purchase, the consideration for transfer of movable property shall also be due only when goods are actually delivered and delivery is accepted being , delivery as agreed. Even in case of trading, if the delivery of goods is not made, the advance money remains an advance made or received and cannot be considered as consideration for transfer of stock purchased in hands of buyer or sale proceed for such transfer in hands o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f seller. When an advance payment is made the personal account of receiver is debited. It cannot be debited to goods purchase account or property account. When an advance payment is received the personal account of person paying is credited. It cannot be credited goods sales account or property account or property sale account. Accrual of income: The accrual of income on transfer of any property shall take place when property is transferred and not before that. The transfer of property may be against payment already made or to be made in future. A sale of property by allowing credit to the buyer is also a sale and transfer. Therefore, even if sale is made on credit, then the buyer will be a transferee. If he credits the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of seller, then he will be liable to make deduction of tax at source, if applicable. Even in case of deemed transfer, the transfer take place when possession of property is given. Ground realities: In case of sale of immovable properties, an agreement or memorandum of understanding (MOU) is entered into between parties. Some advance payment may be made by the intending buyer- generally called as earnest money or bayana amount. When the intending seller satisfy the intending buyer, about title of property further payment will be made. Payments are generally spread over a period of time. The payments may be made covering two or more years. Particularly in case sale is of a property under construction or part of such property, as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of sale of ownership apartments, under construction, the period of construction and making of advance payments may be spread over a long period (usually 3-5 years, if agreement is entered into at the initial stage of construction). In case of large construction projects of ownership apartments, ownership shops and offices in large complexes, the property to be sold may not at all be in existence at the time of entering into the agreement to purchase an apartment or space. Therefore, the payment cannot be regarded as consideration for transfer of property, which is not even in existence or which is not in the condition in which a transfer is intended. In such circumstances, payment made as advance money cannot be called as pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made by transferee of immovable property to the transferor of immovable property . The payment cannot be called as a consideration for transfer of immovable property . When tax should be deducted : In view of the above discussion, author is of view that payment of advance money for agreed purchase of any immovable property is not a payment for consideration for transfer, therefore at the stage of such payment, tax is not required to be deducted at source. When property is transferred, then only in cases where TDS provision apply, the transferee should deduct tax at source for the full consideration. Even when a property is transferred against credit facility, fully or partly, allowed by transferor and availed by tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferee, tax will be deducted on the basis of entire consideration accruing on such transfer of immovable property. - Reply By A J DEORA & ASSOCIATES as = Good try -but too theoretical.......Ashok Deora Dated: 2-4-2014 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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