DELHI: A common saying goes, to know “stress”, organize a person’s marriage or endeavor to build a house. Consider the various factors which affect the decision on the purchase or building of a house, they range from vastu, legal documentation, anticipated appreciation in value and maybe even the whims and fancies of the relatives. Clearly, factors which may cost a common man, seeking to obtain a roof over his head, many a nights sleep. Well, thanks to the Finance Act, 2013, the stress has been compounded.
Effective from 1 June 2013, taxes are to be deducted at source (‘TDS’) on payments for the purchase of immovable property (including any land other than agricultural land, or any building or part of a building) @ 1 per cent. Taxes would be required to be deducted @ 20 per cent should the seller not hold a PAN. Such requirement to deduct taxes is triggered should the purchased property’s cost exceed Rs. 5,000,000.
Many hoped that the representations of the Confederations of real estate Developers of India, requesting for a rollback of the section would be accepted. Non notification of rules to govern such new amendments, hinted at a possible rollback similar to the one performed last year, when similar TDS requirements were proposed in the Finance Bill 2012, but not enacted into the Finance Act 2012.
However, the Government, vide a notification released on 31 May-2013, has notified the relevant rules for deducting such taxes at source. As per the rules, the purchaser is to deposit TDS, vide Form 26QB, which is a challan cum statement, within 7 days from the end of the month in which tax is to be deducted (tax to be deducted at the time of payment or credit whichever is earlier). Further the purchaser is also required to download a TDS certificate, Form 16B, from a yet to be specified web portal and issue the same to the seller within 22 days from the end of the month in which tax is to be deducted.
The Purchaser would need to be vary of procedure listed above, non compliance may be invite penal implications, ranging from collection of taxes (along with applicable interest) to initiation of prosecution proceedings in extreme cases.
Given the penal implications imposed, many purchasers might question the need to place such burden on a purchaser. While the government may argue that this was a measure adopted to clamp down on the black money being generated out of this sector, people eagerly point out that the Annual Information Report from the registrar’s office on transactions involving Rs. 3,000,000 or more was generating the same data already. The only additional effects of such newly introduced section, much to the displeasure of the procedurally stricken purchasers, are the procedural compliances and collection of tax revenues.
Given the above, for a first time house buyer, maybe considering the purchase of a house in a sub-premium project (value less than 4,000,000) would be more enticing. Apart from the non application of the TDS provisions, the purchaser may also be able to leverage on the additional tax deduction of Rs. 100,000, introduced by the Finance Act 2013, as incentive for first time house buyers (only available if the value of the house property is less than Rs. 4,000,000).
From a Seller’s perspective, the introduction of such TDS requirements may open the gate to refund claims from taxes so deducted. This is a genuine threat for the seller as, though a person may claim exemptions on capital gains based on specified re-investments, taxes would continue to be withheld at 1 per cent/20 per cent. Resulting in an immediate reduction in cash inflow and an introduction of the hassle of following up with the Department for refunds.
A silver lining in this matter is that in the Finance Bill 2012, much despised rule requiring the proof of tax deduction be produced before the registrar for registration of proerty was removed. So the purchaser and the seller may proceed to register the transaction, despite the TDS compliance still being underway. So, thankfully, the house warming ceremonies needn’t be adjusted to the Tax compliance schedules.