Purchase of immovable property in India – Tax Withholding under Income Tax Act, 1961
Purchase of immovable property for most in India has aspirational value, while others do so for reasons such as getting returns from rent and appreciation in value. For many of the non-resident Indians, a purpose to invest is also security of their earnings in home country should any contingency arise in the future.
The enactment of Real Estate (Regulation and Development) Act, The Insolvency and Bankruptcy Code, The Consumer Protection Act amongst others seek to protect the interest of buyers into immovable property in India. Along with plethora of favourable court judgements, these have provided the much-needed confidence to buyers and the impetus to real estate sector players to reform and adhere to regulations.
Does a buyer have any obligation under the Indian Income Tax Act, 1961 “(ITAct”) while purchasing an immovable property in India?
Yes, and a non-resident too needs to comply (besides other laws such as foreign exchange regulations which are not covered here).
Read on my views for a summary overview of a few…..
A. Tax Withholding – in case Seller/Transferor is a Resident (as under ITAct) in India
- If an immovable property (other than agricultural land*) situated in India is being purchased (not being compulsory acquisition under law) from a transferor who is a resident in India; and
- If neither the consideration for its transfer nor the stamp duty value of such property is less than Rs 50 lakh (Rs 5 million) i.e. either is Rs 50 lakh or above; then
- Tax is required to be deducted @1% of consideration** amount or stamp duty value, whichever is higher, at earlier of crediting such sum to account of the transferor or at the time of payment to the transferor
- The above applies even if the buyer of property is a non-resident.
*Land though agricultural will not be considered so if it’s situated in an area as laid down in the ITAct.
**Consideration includes all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to the transfer of the immovable property. GST component in payment is not considered for purpose of deduction.
A few notes to attention:
- In case of payment in instalments, tax to be deducted for each instalment.
- If consideration exceeds the threshold limit (Rs 50 lakh), tax is required to be deducted on the entire amount and not only the amount exceeding the threshold
- If initially the consideration and stamp duty value were both below the threshold limit but subsequently the situation changes, tax withholding compliance is required to be undertaken thereafter
- Lower tax withholding certificate cannot be obtained
- In absence of PAN of seller (though take note that PAN of seller in Form 26QB is a mandatory field), tax withholding rate is higher.
- Tax Deduction Number (“TAN”) is not required to be obtained by the buyer. Permanent Account Number (“PAN”) of buyer will be used to pay (“Form 26QB”) the tax amount so withheld within 30 days from the end of the month in which deduction was made. The certificate of tax deduction (“Form 16B”) is required to be provided within 15 days of due date of Form 26QB. These procedural formalities are online.
- A special note to highlight is of a situation where there is more than 1 buyer/transferee. In such a case the compliance is required to be done by each buyer separately for his/her share. Also, in my view, the threshold limit in such a case would be seen for each buyer separately and if the share of a buyer is below the threshold, tax withholding is not required to be undertaken by such a buyer.
- A property held in joint names may not mean the same under ITAct. A situation very prevalent in practice is of having name of both husband and wife in the property, which then is also widely misunderstood to mean automatic split in income for purpose of income tax (more on this important subject in a later post).
B. Tax Withholding – in case Seller/Transferor is a Non-Resident (as under ITAct) in India
- For any sum to be paid for purchase of an immovable property situated in India;
- Tax is required to be deducted by buyer @rate in force on such sum at earlier of crediting such sum to account of the transferor or at the time of payment to the transferor
- Under ITax Act the rate may vary depending upon the holding period of the immovable property, “long term” or “short term” (g. for long term*** it’s 20% plus surcharge, if applicable, and 4% Health & Education Cess)
- The above applies even if the buyer of property in India is a non-resident.
*** immovable property held for more than 24 months (holding period under certain circumstances specified in ITAct may be more than the actual period such as in case of inheritance).
A few notes to attention:
- There is no threshold limit. Hence compliance is required in all cases in which sum is chargeable to tax.
- Lower tax withholding certificate can be obtained from tax authorities
- Form 15CA and Form 15CB should be generated (online) to remit the sum
- TAN is required to be obtained by the buyer. The tax amount so withheld is required to be deposited within 7 days from the end of the month in which deduction was made (except for March which can be deposited by April 30). The withholding tax return is filed quarterly within 1 month from end of quarter (except March quarter which can be filed within 2 months) in Form 27Q and certificate of tax deduction (“Form 16A”) is required to be provided within 15 days of due date of filing Form 26Q. These procedural formalities are online.
Your Thoughts, Comments, Observations, Inputs are deeply appreciated.
Rajesh Lal
Chartered Accountant
☎: +91-9971033977
✉: rajeshlal@rajeshlalandco.com
LinkedIn: https://in.linkedin.com/in/rajesh-lal
