The primary intent behind this decision of Mr. Chidambaram is to help in tracing those buyers and sellers who do not provide PAN numbers and also those who do not report significant transactions, which results in a loss of revenue to the Government. This provision is inserted in new Section 194IA under current TDS provisions of the Income Tax Act, 1961.
The proposed Section 194IA of Income Tax Act, 1961 is applied on transfer of immovable property i.e. any land, any building or part of the building. However, imposing the threshold limit of Rs50 lakhs has given some relief to those in rural areas or middle income group people.
However the problems which buyers can face due to the implementation of this TDS provision are as follows:-
- TAN Number will have to be obtained by every buyer for complying with the provisions of this section.
- TDS return will have to filed quarterly by every buyer and the Permanent Account Number (PAN) of seller should be mentioned on that.
- The buyer will have to deposit the tax deducted within the specified time limit.
- This may be subject to scrutiny by TDS officer.
Another implication of the insertion of this section in the Act is that the proposed TDS provision is required to be applied on gross transaction value and not the net value. This will have implications on cash flows. There is no clarity yet on whether the tax will be deducted on a one-time basis, though the Finance Bill says that this would be 'mostly' be a one-time transaction.
In another positive for Hindu Undivided Families, property received from any member of the family for no or inadequate amount will no longer be taxable. Earlier, such properties were included as income from other sources and taxed accordingly.
Introduction of taxes on transactions relating to immovable property will make deals expensive. But this will boost Government’s revenues and reduces the chance of tax evasion over the long term, as both PAN and TAN need to be quoted.
In a nutshell -