Income tax is an amount charged on the income of all residents of India. The Income Tax Act lays the responsibility of paying the tax on the earning individuals or corporate.
Income Tax Act has also laid down provisions for deduction of tax at source by the person paying the income (hereinafter referred to as the deductor) to the tax payer (herein after referred to as the deductee). The Income Tax Department holds the deductor responsible for the deduction of tax at source as per the rates as prescribed under section 192 to 194 of the Income Tax Act.
Section 192 to 194 of the Income Tax Act prescribes the nature of income subject to deduction of tax at source (TDS), the amount limit and the rate at which tax is to be deducted by the deductor. Income Tax Act requires all entities (other than Individuals and HUFs) to deduct TDS at the prescribed rates, if it falls under the purview of Section 192 to 194. Also, individuals, subject to tax audit under section 44AB are required to deduct tax at source.
The deductor is thus responsible for the following:
- Deduct tax at source, if their payment falls under the purview of Income Tax Act
- Deposit the tax deducted at source to the Government of India.
- Submit a quarterly return stating the name of deductee, amount paid, amount deducted, section under which the same is deducted, date of deduction etc.
- Issue a certificate of tax deducted at source to the deductee
Every person responsible for deduction of tax at source is required to obtain TAN (Tax Deduction and Collection Account Number). TAN is a ten digit alpha-numeric unique identification number allotted to the deductor. This number is to be quoted in all communication of the deductor.
TRACES is the TDS reconciliation, analysis and correction enabling system. The deductor needs to login through the TRACES system by using TAN and then submit the quarterly TDS return. In the TDS return, the deductor needs to provide details of the deductee, amount paid to the deductee, tax deducted, etc. Once the return is accepted, the deductor needs to request for issue of Certificate of Deduction of Tax at source. The request is processed by TRACES and then the deductor needs to download the same and furnish it to the deductee. These certificates are in FORM 16 for Tax deducted at Source from Salary and under other heads. Therefore, it is a must for a deductor to obtain TAN.
Exception to the Requirement of TANN with the Introduction of Section 194IAWhile the procedure to deduct tax, deposit it and issue a Certificate of deduction of tax at source is well documented, there are instances where the deductor does not have a TAN. Here, Section 194IA helps.Section 194IA with effect from June 1, 2013, provides deduction of tax at source by any person/entity who buys an immovable property worth Rs. 50 lacs and above.
The tax is to be deducted @1% on credit or payment of the amount.
Thus, Section 194IA is applicable in the following scenario:
- Transfer of immovable property, which includes any land (other than agricultural land), building or part thereof within India. Agricultural land is the land as defined by section 2(14) (iii) (a)/ (b) of the Income Tax Act based on the population of the municipality and its distance from the municipality or cantonment board.
- The transfer of immovable property that has taken place after/on June 01, 2013
- The sale value/consideration for the property is more than Rs. 50 lacs
- The onus to deduct tax lies on the buyer of the property. Any person who is a resident of India and buys a property would need to deduct tax at source before making the payment to the seller
- The tax should be deducted @1% of the value of consideration. That is, if the consideration is Rs. 60 lacs, then TDS has to be deducted on the entire amount of Rs.60 lacs and not merely on the amount exceeding Rs. 50 lacs.
- The amount should be deducted at the time of credit of the money or actual payment, whichever is earlier.
Thus, the above section is applicable to all including individuals. However, Individuals (not requiring tax audit under section 44AB) are not required to deduct tax at source under any other sections of the income tax act and therefore are not required to obtain a TAN.
Tax deducted under any other sections relating to tax deduction at source requires the deductor to deposit the tax by filling of Challan No. / ITNS 281 and then filing of quarterly return of tax deducted at source and generating and issuing of FORM 16A to the deductee.
However tax deducted at source under Section 194IA cannot be deposited by using Challan No. /ITNS 281 as individuals, who are most of the times party to such transactions, do not have a TAN and obtaining a TAN for such onetime transactions is not practical. Therefore, the Income Tax department has clarified that requirement of TAN as per section 203A, would not be applicable for deductor deducting tax under section 194IA.
For those who don’t have TAN under section 194IA, the Income Tax Department has prescribed payment of tax by filing Form 26QB and then issuing a certificate for tax deduction under Form 16B. Form 26QB is available in the e-payment section of Tax Information Network (TIN) of the Income Tax Department. The form can be filled online and payment of tax can be done using the e-payment gateway or by submitting Form 26QB to any authorized bank.
The following details need to be mentioned in Form 26QB:
- Financial Year and Assessment Year of transaction
- Whether the payment is being made by corporate or non- corporate
- Type of payment, which is tax deducted at source on Sale of property
- Status of the Seller- whether the seller is a ‘Resident’ or Non-Resident’
- PAN of the buyer. Once the PAN is entered, the category of transferee (individual, corporate etc.) is auto reflected along with the name as per the Income Tax department’s database. Similarly, enter the PAN number and name of the transferor (seller) as per the Income Tax department’s database. It is the key, so special caution should be exercised while entering the PAN.
- Other details like address, email , mobile number
- The details of property bought like the address etc.
- Date of agreement, total value of consideration, payment type (lump sum or installments)
- Details of amount paid/credited along with TDS amount and date of tax deduction
- For making payment online, the buyer needs to select the e-tax payment as the mode of payment and select the bank through which he/she intends to make the payment. There are selected authorized banks through which the buyer can pay the tax deducted at source.
- The payment can also be done by downloading the form and approaching a bank branch.
Thus, the buyer can make payment of TDS and receive a copy of 26QB. On making the payment, a Challan is generated which have details like challan No, amount paid, bank name, date of payment etc.
Once the payment is made the deductor, he/she needs to obtain the Certificate of tax deducted at source and issue Form 16B to the seller of the property confirming the credit of tax to the seller’s account. Such certificate needs to be issued within 15 days after the due-date of paying tax and challan Form 26QB.
Procedure for obtaining FORM 16B:
- Payment reflected in Form 26as: As mentioned above, the TDS payment can be done after filling Form 26QB and making payment either by using net banking facility or through offline branch. After 7 days of TDS payment, the same gets reflected in AS 26 of the buyer under PART F – Details of Tax Deducted at Source on Sale of Immovable Property u/s 194IA (For Buyer of Property).The same would have details like the TDS certificate number, name of the deductee (seller), PAN of the deductee, acknowledgement number, total transaction amount, transaction date, amount of TDS deposited, date of deposit and date of booking.
Register and create a Login for the TRACES system: Once the payment is reflected in AS26, the buyer needs to login to the TRACES system and register as a tax payer. To create a login, the buyer needs to enter the following details:
- The details of the deductor- PAN, Date of Birth and Name
Details of the tax deducted- date, amount and TDS Challan No.
- Download FORM 16B: To download Form 16B, click on the ‘Download’ tab of the TRACES. Then submit the request for Form 16B. You need to enter the ‘Acknowledge Number’ as appearing in PART F of AS26 of the deductee. The request number is generated. The deductor can post 24 hours login to the TRACES system and select the ‘Download’ TAB and then the’ Requested Downloads’ option. The request submitted for Form 16B would be marked as available. The deductor can download Form 16B and furnish it to the deductee.
What if the seller does not furnish PAN? The seller of the property is responsible for furnishing details of his PAN to the buyer. The buyer needs these details while filling Form 26QB. If the seller fails to furnish his PAN, then tax would be deducted at a rate of 20% as prescribed by the Income Tax Act or the Finance Tax or @20%.
When does the buyer deposit the deducted tax amount? The tax is deducted on credit or payment of amount, whichever is earlier. The tax deducted under section 194IA is to be deposited within a period of 30 days from the end of the month.
- How to deduct tax in case of more than one seller or buyer? In case there is more than one seller, the TDS will be deducted in a proportion in which the property is held and considered paid. That is if the sale consideration is Rs. 75 lacs and the payment is made to two sellers equally, the TDS needs to be deducted @1% that is Rs.75, 000/- equally from both sellers and two Form 16B need to be issued. Similarly, if there is more than one buyer, then each buyer needs to deduct TDS and pay the same using Form 26QB. Please note that for the purpose of deduction of tax at source under section 194IA, we need to consider the value of sale consideration (which should be more than Rs. 50 lacs) and not the payment made to each seller (which could be less than Rs.50 lacs). This means, if the value of sale consideration is Rs. 75 lacs, each seller would receive Rs. 37.5 lacs (which is less than Rs. 50 lacs) and section 194IA would be applicable.
Non-deduction of TDS as prescribed under 194IA is subject to levy of simple interest @1% for every month or a part thereof till the date of tax deduction.. Delay in deposit of tax deducted at Source is also subject to simple interest @1.5% for a month or part thereof from the date on which tax is deducted till the date on which the same is deposited by the deductor.