ITAT Clarifies Section 194-IA Scope: No TDS Liability if Buyer’s Share is Below ₹50 Lakh

In the complex landscape of Indian real estate taxation, Section 194-IA of the Income Tax Act has often been a point of contention between taxpayers and the Revenue Department. The primary debate has historically centered on whether the threshold limit of ₹50 lakh for Tax Deducted at Source (TDS) applies to the property as a whole or to the individual share of each buyer and seller. Recently, the Income Tax Appellate Tribunal (ITAT) provided much-needed clarity on this matter, reinforcing the principle that for periods prior to the latest legislative amendments, the individual share is the determining factor.

The Core of the Dispute: Individual Share vs. Aggregate Consideration

Section 194-IA mandates that any person purchasing immovable property (other than agricultural land) must deduct TDS at the rate of 1% if the consideration exceeds ₹50 lakh. However, a common scenario involves joint ownership—where multiple buyers purchase a single property, or a single buyer purchases from multiple sellers. For years, the Tax Department argued that if the total transaction value exceeded ₹50 lakh, TDS must be deducted, regardless of how that value was split among the parties.

The ITAT, in its recent ruling, has sided with the taxpayer’s interpretation for assessments preceding recent legislative changes. The tribunal clarified that:

• TDS liability under Section 194-IA is transaction-specific to the buyer and seller.
• If a buyer’s individual contribution or share in the property purchase is less than ₹50 lakh, the obligation to deduct TDS does not arise, even if the total property value is significantly higher.
• The law, as it stood, focused on the ‘amount paid’ by a ‘transferee’ to a ‘transferor,’ implying a singular relationship rather than a collective property value.

The Finance Act 2024 Amendment: A Paradigm Shift

While the ITAT ruling provides significant relief for past transactions and pending litigations, it is crucial for Chartered Accountants and taxpayers to note that the legislative landscape has changed. The Finance Act 2024 introduced a specific amendment to Section 194-IA to settle this ambiguity once and for all.

Aggregation of Consideration from October 2024

The amendment stipulates that for the purpose of determining the ₹50 lakh threshold, the consideration paid by all transferees (buyers) and to all transferors (sellers) for a single property must be aggregated. This means:

• Effective Date: This amendment is applicable for transactions occurring on or after October 1, 2024.
• Mandatory Aggregation: If the total sale consideration of the property exceeds ₹50 lakh, TDS must be deducted, even if individual shares are only ₹10 lakh or ₹20 lakh.
• End of Ambiguity: The amendment effectively nullifies the ‘individual share’ argument for all future transactions, aligning the law with the Revenue’s long-standing preference for property-wise limits.

Practical Implications for Taxpayers and Professionals

As a Chartered Accountant, it is vital to distinguish between transactions based on their timing. The ITAT’s clarification acts as a powerful shield for taxpayers facing demands for prior years. If you are currently under scrutiny for a property purchase made before October 2024 where your individual share was below the threshold, this ruling serves as a binding precedent to contest such demands.

However, for current and future dealings, the compliance burden has increased. Practitioners must ensure that:

• Client onboarding for property transactions includes a review of the total property value, not just the client’s specific investment.
• TDS (Form 26QB) is filed correctly by each buyer in proportion to their share if the total property value exceeds ₹50 lakh.
• Sellers are informed that 1% will be withheld even if their individual receipt is below the threshold, provided the total deal value crosses the line.

In conclusion, while the ITAT has provided a favorable interpretation for the past, the Finance Act 2024 has paved a new path for the future. Understanding this transition is essential to avoid interest, penalties, and the unnecessary stress of tax litigation.