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FM thrusts onerous obligation of deducting TDS on all purchasers of immovable property over Rs.50 lakhs 

The taxing proposal, which came to be announced by Pranab Mukherjee in his Budget proposals in February, 2012, but soon came to be rolled back, when he realized its harsh implications, has quite astonishingly been sneaked in once again by P. Chidambaram in the Finance Bill, 2013.


Attempting to justify the reintroduction, the FM tried to explain in his Budget speech, “Transactions in immovable properties are usually undervalued and underreported.  One-half of the transactions do not carry the PAN of the parties concerned.  With a view to improve the reporting of such transactions and the taxation of capital gains, I propose to apply TDS at the rate of one percent on the value of the transfer of immovable property where the consideration exceeds Rs.50 lakhs.  However, agricultural land will be exempt.”

At the outset, it needs to be pointed out that PC’s claim to the effect that, “agricultural land will be exempt” is factually incorrect, in as much as what has been excluded under the language of the new Section 194-IA is only agricultural land situated in non-urban areas (which in any case do not attract capital gains tax) and transfer of all other agricultural lands would very much attract the charge of TDS. 

            It is also difficult to believe the the FM’s statement that one half of the transactions do not carry PAN. Infact, the Memorandum explaining the provisions of the Finance Bill has also observed with reference to the reporting requirements under Section 285-BA of the Income-tax Act, read with Rule 114-B of the Income-tax Rules that, “the information furnished to the Department in Annual Information Returns by the Registrar or Sub-Registrar indicate that a majority of the purchasers or sellers of immovable properties, valued at Rs.30 lakh or more, during the financial year 2011-12 did not quote or quoted invalid PAN in the documents relating to transfer of the property.”

            It is well known that both the purchaser and seller are required to present their original PAN card for verification to the Registrar or Sub-Registrar at the time of property registration. Moreover, I.T. Rules require the filing of an elaborate Declaration in Form 60 alongwith supporting evidence of identity of proof and address by persons who do not possess PAN. Under the circumstances, it is truly difficult to believe that the reporting system is faulty as alleged in the Memorandum. Infact, if this is so, the tax administration authorities need to explain, as to whether any action was taken against any Registrar or Sub-Registrar for not correctly discharging their obligation.


            Why should a common investor in property bear the huge burden of compliance that has been proposed to be thrust by the proposed TDS provision? PAN alone will now be not enough. If the provision as proposed is passed, with effect from 1st June, 2013, no purchaser would be able to buy a property worth Rs.50 lakhs or more, without obtaining a Tax Deduction Account Number (TAN). He would be required to deduct 1% by way of TDS from the sale consideration he pays to seller and if the payments involve installments, such TDS would be required to be made out each such payment. Onerous responsibilities of depositing the tax deducted in the Govt. treasury, filing of quarterly TDS returns, issue of TDS certificate, payment of interest and penalty in case of any default etc., which even organised business entities find tedious to discharge, would now be required to be fulfilled even by a senior citizen, widow or farmer wanting to buy an immovable property.

            And just imagine the practical complications that may arise if a purchaser, who has booked a property by paying an advance, seeks refund on cancellation of his booking. The seller may refuse to return TDS to the purchaser on the ground that the same is blocked with the I.T. Department. The purchaser has collected the TDS and paid it to the Department, but he cannot claim it back from the Department.

            On the other hand, the seller would still be required to bear the brunt of 1% TDS, even if he sells the property at a loss, or even where he is lawfully not required to pay any tax, being entitled to enjoy exemption from capital gains under the provisions of Section 54, 54B, 54EC or 54F of the Income-tax Act.


            It is further surprising that even while the earlier dumped proposal has been now revived, the logical relaxation, as announced by Pranabda in his original proposal in 2012, is conspicuously absent in PC’s Finance Bill 2013. The Memorandum last year had explained that, “For reducing the compliance burden on the transferee or purchaser, it is also proposed that a simple one page challan for payment of TDS would be prescribed containing details (including PAN) of transferor and transferee and also certain details of the property. The transferee would not be required to obtain any Tax Deduction and Collection Account Number (TAN) or to furnish any TDS statement as this would be mostly a one time transaction. The transferor would get credit of TDS like any other pre-paid taxes on the basis of information furnished by the transferee in the challan of payment of TDS.”

            Taxpayers and investors need to raise their voice in protest and press for dropping the harsh TDS proposal. Will the FM respond or remain adamant? In any case, the least he ought to do is to incorporate the above relaxation of 2012.

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