Letter to Shri Jayant Sinha (MoS, Finance) to Revisit Section 194-IA

Section 194-IA

My letter to Hon’ble Minister of State for Finance Shri Jayant Sinha on the need to relook at Section 194-IA of the Income Tax Act which levies a 1% TDS on all property purchases above Rs. 50 lakhs and puts the onus of paying the same on home buyers rather than the sellers. This has proved to be a nightmare for property purchasers, many of whom are salaried middle-class persons.

Dear Shri Jayant Sinha ji

I am writing to you to highlight the problems faced by home buyers on account of the 1% TDS payment for home purchases above Rs. 50 lakhs.

While I have no problem paying the extra 1% TDS, putting the onus of paying it on the buyer is proving a disaster for home buyers on several counts, as listed below:

1. These days the limit of Rs. 50 lakhs (required for this provision to kick in) is not a large amount. Most middle class home purchases in large cities (Tier-1 and many Tier-2 cities) fall in this category. Even in the outskirts of such large cities it is difficult to find properties costing below Rs. 50 lakhs.

2. Since most buyers who are liable for paying 1% TDS are from the middle classes (including lower middle classes), these people are not very aware in taxation matters. Unless the builder/seller informs them about this provision and explains the need to take it seriously and pay the TDS diligently, many buyers would tend to ignore or delay the TDS payment thereby invoking the penal provisions of 1% monthly interest on late deduction/payment of TDS and Rs. 200 per day penalty for late filing of Form 26QB. Many buyers do not realise the mounting penalty until it reaches a significant amount.

3. Many sellers either do not inform or casually inform buyers about this provision and do not bother to follow up even to collect the Form 16B. As a result buyers are further lulled into taking the matter lightly. This is because the general perception of a home buyer is the builder is responsible for driving the entire process till registration and handover of the property, and all that the buyer has to do is make the payments diligently to the builder as per the sale agreement.

4. Even if we take the technical argument that a buyer must acquaint himself/herself with these taxation matters when entering into a serious transaction such as purchasing a property, one forgets that most buyers do not pay the entire price of the property in one go. It is paid in several small installments to the buyer. In case of under-construction property, even the home loan is released in installments by the bank to the builder/seller upon request of the buyer. Now due to this tax provision, the buyer needs to keep track of each payment, howsoever small it may be, and pay the TDS diligently and without delay. This adds a lot of unnecessary overhead on the buyer.

My request and suggestion is that this provision be either done away with completely (on account of the compliance costs on the buyer) or at least the onus of paying it may be placed on the seller who can then include this cost in the overall deal value. This will reduce the compliance burden on the buyer.

Vijay Padiyar


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