Will 1% TDS on property costing over Rs 50 lakh really help in policing tax payers
The provision in the finance bill 2013 to impose 1% tax at source (TDS) on all properties costing over Rs 50 lakh has kicked in from June.This means that anybody who is selling a house for Rs 50 lakh will now have to pay Rs 50,000 to the government as TDS;this may also slowdown the transaction in residential realty,as people are very sensitive to even minor upward price correction.
Apart from this,if you have booked a flat under construction,costing over Rs 50 lakh,it may entail a big tax headache for you: while making payment to the developer,1% of the deal value has to be deducted as tax and the task of depositing this tax and filing returns must also be followed.According to a report,over 4.5-5 lakh housing units are expected to be delivered this year – all of these will face this tax liability.
The finance bill 2013 also entails that the buyer of an immovable property (other than agricultural land) worth over Rs 50 lakh must pay withholding tax at the rate of 1% from the consideration payable to a resident transferor.The guiding philosophy of this idea was to ensure property deals are reported and it was believed that the rule will apply to ready property acquired.But it does not make a distinction between property that is under construction and the property that is fully ready.
Ambiguity over 1% tax deduction
According to rules in respect of tax deducted at source,buyers will have to obtain a tax deduction and account number,or PAN,file a return with the tax authorities and also issue a TDS certificate to the seller.Once the tax is deducted,the builder will be able to claim credit for such TDS against his tax liability;but the burden of this tax could fall on buyers if cash-strapped builders refuse to take the liability on themselves.
Further,if the seller does not possess PAN card,the tax would then be deducted at the rate of 20% instead of the prescribed 1%.The provision applies even if the property is financed through a bank loan.The buyer will have to make sure either he himself or the bank deducts tax before disbursing the loan to the seller,either in instalments or as lump sum amount.The provision will evenly apply in cases where a buyer bought a property under construction prior to the provision coming into effect but has to make the balance payment on or from June 1,2013.
The provision would mean that the buyer would be responsible for the deduction of TDS each time an instalment is disbursed by the bank unless the responsibility is shifted to the bank.The builders and developers see the new TDS scheme as a burden on homebuyers and have taken up the issue with the finance minister.
Analysts believe that the rationale and intent of expanding data base or mopping up revenue collection is ambiguous as 1% additional tax will only add to subsequent claims and adjustment adding to unnecessary paperwork and one more compliance in an over-regulated sector.This should actually be targeted at secondary transactions,which are linked to market prices versus the declared values through some scientific mechanism,so that data base as well as tax collection can be enhanced.
Impact of 1% TDS
Navin M Raheja,president of Naredco and CMD of Raheja Developers,says: “As on date,the direct taxation mechanism in the country is very well regulated and extremely vigilant.The government periodically takes sales transactions from developers and scrutinizes every transaction.The buyers,who are buying any property with the developers,have to furnish details of their PAN number as well as complete identification details.”
“Application of 1% TDS seems to be more in the intent of identifying black money transactions and also to expand data base and information mechanism for income tax department.Since the developers are already paying income tax and are under regular scrutiny and the buyers purchase only through post-tax income or through bank advance notes,no tax evasion is possible from both the ends,”Raheja says.
Getamber Anand,chairman and managing director of ATS Group,said the methodology and logistics has not yet been clarified for the 1% TDS,which has to be deposited by the property buyers,especially those who buy properties costing over Rs 50 lakh.For example,if a buyer takes a home loan,the bank deducts 1% TDS and deposits the TDS on their own and if during the duration of the construction the buyer trades his property,the TDS paid needs to be adjusted in this case.Can the developer now claim 1% TDS as the advance tax for the corresponding financial year If not,when does this TDS get adjusted in tax liability of the developer This point is still ambiguous,experts say.
“We understand that 1% TDS has been introduced to prevent cash transactions but the government must also realize that this is more prevalent in the secondary market and in the unorganized real estate markets.The government’s intention was to identify the buyers who engage in cash transactions but this will not happen in the unorganized real estate sector because in this space the so-called ‘builders’ are non-compliant and function without any controls.The organized real estate sector is already compliant and is regularly assessed by the government authorities – hence will it really help by policing the tax payer The government must formulate something for the unorganized real estate sector for this space,”Getamber Anand says.
Rakesh Yadav,managing director of Antriksh Group,says: “This will increase the price of residential properties.The realty market may see a further fall,hitting the already struggling sales.”
Sanjiv Kumar,managing director of Swarnim Group,says: “The demand for super-premium properties may also be impacted after the government proposed a 10% surcharge on individuals who earn yearly income of more than Rs 1 crore.A proposal to double surcharge to 10% for companies whose taxable income exceeds Rs 10 crore will hit real estate developers.”
Ashok Gupta,MD of Ajnara India,says: “The levy of 1% TDS is going to increase the price of property in Noida Extension.In the Delhi NCR,most properties are over Rs 50 lakh;thus,this will affect the market adversely.We see the tax as an added burden on customers who are already reeling under high property prices,and upon the developers,who are already suffering due to high input costs.”
Deepak Kapoor,director of Gulshan Homz,says: “Adding up another cost right now can affect the demand adversely.The customer is already paying a lot of taxes and the developer is paying the same.This requirement may lead to additional withholding compliance burden on purchasers and would negatively impact the working capital requirements of sellers and developers.The deduction in service tax abatement rate will also add to the increased burden on the developer.”
“The levy of 1% TDS on properties over Rs 50 lakh will add up to the burden of the buyer.In addition to the increased cost,the buyer will now have to undertake the arduous task of deducting the tax and filing returns,making the process more cumbersome and time-taking for him,”Ashish Gupta,JMD of Gold Souk Group,says.
Sunil Mittal,managing director of Addela Group,says: “Today,most of the residential properties are priced around Rs 40-50 lakh in a majority of the metropolitan cities.Under the mandated proposal,buyers are required to pay 1% tax at source in urban areas on a purchase of over Rs 50 lakh,which means they would be burdened with the baggage of an additional amount to be dispersed at the time of purchase.This will certainly distress homebuyers and make the process cumbersome by making them run from pillar to post just to deposit tax and file returns – until then you can’t register the transaction.”
THE GOVERNMENTS INTENTION WAS TO IDENTIFY THE BUYERS WHO ENGAGE IN CASH TRANSACTIONS BUT THIS WILL NOT HAPPEN IN THE UNORGANIZED REAL ESTATE SECTOR BECAUSE IN THIS SPACE THE SOCALLED BUILDERS ARE NON-COMPLIANT AND FUNCTION WITHOUT ANY CONTROLS
THE ORGANIZED REAL ESTATE SECTOR IS ALREADY COMPLIANT AND IS REGULARLY ASSESSED BY GOVERNMENT AUTHORITIES HENCE WILL IT REALLY HELP BY POLICING THE TAX PAYER THE GOVERNMENT MUST FORMULATE SOMETHING FOR THE UNORGANIZED REAL ESTATE SECTOR