Get ready to pay 1% TDS on Rs. 50 Lakh House from June, 2013..!

* There is no clarity even in instances where the purchase is made from borrowed funds..!

* The buyer would be responsible for the deduction of TDS..!

Lakhs of people who have booked under-construction apartments and home costing over Rs. 50 lakh have a big tax headache coming up their way. While making payments to builders/ promoters, they will have to deduct 1 per cent  of the deal value as tax after June 1, 2013 and also go through the onerous task of depositing tax and filing returns.

As many as about 4.5 to 5 lakh houses are expected to be delivered in 2013, according to Property research firms Liases Foras & PropEquity as well as property consultancy CB Richard Ellis.

The Union Budget  2013 has proposed that purchaser of an immovable property (other than agricultural land) worth more than over Rs. 50 lakh is required to pay withholding tax at the rate of 1 per cent from the consideration payable to a resident transferor.

The guiding philosophy of this idea was to ensure property deals are reported, & it was believed that the rule will apply to ready property acquired.

But officials say the finance bill does not make a distinction between under construction & ready property.

According to an income tax department official, "Tax will have to be cut from the total consideration & not balance payment made after the enforcement of the finance act"

According to rules in respect of tax deducted at source, buyers would have to obtain a tax deduction and account number, or / TAN, file a return with the tax authorities and also issue a TDS certificate to the seller.

Once the tax is deducted, the builder would be able to claim credit for such TDS against its tax liability but the burden of this tax could fall on buyers if cash-starved builders refuse to take the liability on themselves.

Tax experts said the onerous requirements should be diluted in the case of such buyers and the proposal needs to be clarified.

Mr.Sunil Jain, Partner, J Sagar Associates said, "An individual buyer will be obligated to comply with the withholding tax registration or  / TAN, tax payment, e - TDS returns, issue of TDS certificate to seller for claiming tax credit unless a simplified mechanism is provided in this direction" 

There is no clarity even in instances where the purchase is made from borrowed funds and  where the property is in joint ownership.

Mr. Rahul Garg, Leader, Direct tax, PwC India said, "It looks at the provision of property of Rs. 50 lakh or /  more, assuming it is a transaction that happens at one go. A large number of transactions are installmentbased and extend over 3 to 5 years where installments are disbursed directly by banks"

The provision would mean that the buyer would be responsible for the deduction of TDS each time an installment is disbursed by the bank unless the responsibility is shifted to the bank.

Builders see the new TDS as a burden on buyers and have taken up the issue with the finance minister.

Src: ET

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