Transaction tax

The TDS rules in real estate transactions have changed. What this means for home buyers and sellers

In the 2022 budget, the Minister of Finance proposed that at the time of the purchase of a property, a TDS (Withholding at Source) of 1% applies on non-agricultural real estate of more than 50 lakh based on sales price or stamp duty value, whichever is greater, after a change in the income tax law.

Currently, TDS is deducted only on the counterparty value of real estate. Finance Minister Nirmala Sitharaman on Tuesday proposed the amendment aimed at eliminating the anomaly in the law.

This amendment will also help the government clearly identify these transactions, where any property is purchased below its stamp value.

“In accordance with the proposals of the 2022 budget, it is proposed to modify article 194-IA and to also take into account the value of the stamp duty of these goods for the calculation of the amount of the TDS. Under the proposal, the 1% TDS will be calculated on the sale or stamp duty value of that property, whichever is greater. So, in case the stamp duty value of the property is high compared to the sale value, the TDS should be deducted from this stamp duty value of the property. For example, if Mr. B bought a property for the sum of 60 Lacs de Mr S, however the stamp duty value of this property is 65 Lakes, then according to the new amendment, TDS of 1% will be calculated and deducted on 65 lakes, i.e. 65,000/-, the payment of 59.35 lacs will be paid to Mr. B,” explained Abhishek Soni, co-founder and CEO of Tax2win.in.

In accordance with the finance bill 2022, presented to Parliament, “article 56 aims to modify article 194-IA of the income tax law relating to the payment during the transfer of certain immovable property other than Sub-section (1) of the said section provides for the deduction from tax by any person responsible for the payment to a resident of any sum in consideration for the transfer of any immovable property (other than agricultural land) shall, at the time of crediting or paying such sum to the resident at the Subsection (2) of the said section provides that no tax deduction shall be made where the consideration for the transfer of immovable property is less than fifty lakh rupees.”

The bill further stated that “it is proposed to amend subsection (1) of the said section to provide that the person responsible for the payment to a resident of any sum in consideration for the transfer of any immovable property (other than land farm) shall, at the time of crediting or paying such sum to the Resident, deduct tax at the rate of one per cent from such sum or the value of the stamp duty of such property, whichever is greater, at income tax. to amend subsection (2) of that section to provide that no tax deduction shall be made where the consideration for the transfer of immovable property and the stamp duty value of such property are both less than fifty lakh rupees.

Investment experts believe the move will help contain tax evasion.

“A TDS of 1% is applicable in the event of the sale of real estate on the sum paid to the seller, that is to say. 1% is applicable on the consideration paid to the seller. The buyer must deduct this TDS. Here, the value of the stamp duty is not taken into account. However, when business income is calculated or when capital gains must be calculated if the transaction value is less than the stamp duty value, the higher value is taken into account. The same has been made applicable to TDS, where the stamp duty value, if higher, will apply to the 1% TDS. This decision came about even though this TDS is adjustable for the taxpayer (vendor) in relation to the tax payable overall, and when capital gains are invested, this TDS is in fact refunded. However, this will lead to a higher tax catch-up – which can then be adjusted against tax assessments or refunded if capitalization gains are claimed as exempt,” said Archit Gupta, Founder and CEO of Clear.

Mumbai-based tax and investment expert Balwant Jain said: “Amending the TDS standards on the sale of immovable property will help contain tax evasion as it would be reflected in buyers’ and sellers’ Form 26AS. If there was an inconsistency, then the income tax department could assist in finding the offender in that case.”

Pankaj Mathpal, MD and CEO of Optima Money Managers, said, “The TDS modification in real estate transactions is intended to contain the evasion of long-term capital gains by sellers. on the stamp duty paid. Thus, if the stamp duty paid on a real estate transaction is 50 lakh or more while the net money exchanged is less than 50 lakh, even then 1% TDS will be taken.”

This would not only bring transparency, but it would also not interfere with real estate prices being set on the undisclosed amount, as it would be irrelevant.

“The proposal of 1% TDS on real estate over 50 lakh is much better than the rate previously practiced on the privately considered anonymous price, which was rather mischievous on the part of the citizens. Now it would work much better on the government revenue portion as well as the clear idea of ​​paying TDS by someone regardless of their worth,” said Amit Gupta, MD and Founder, SAG Infotech.

It is also proposed to insert clause (c) in the explanation to define “value of stamp duty”.

Where the consideration paid for the transfer of immovable property and the stamp duty value of that property are both less than 50 lakh, then no tax should be deducted under Section 194-IA, he added.

These changes will come into effect on April 1, 2022.

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