The real estate sector in India has witnessed significant reforms to bring transparency and better regulation. One of the key measures is ensuring tax deduction at source (TDS) for income derived from joint development agreements (JDA) under the Income Tax Act. Specific TDS provisions now govern rent payments under various property-related arrangements like leases, sub-leases, and tenancies. Section 194I, Section 194IB, and Section 194IC of the Income Tax Act manage TDS on rent payments.
Section 194IC of the Income Tax Act deals with the deduction of TDS on payments made under a joint development agreement (JDA). It mandates that any person who makes a payment to a resident individual under a JDA must deduct TDS at the prescribed rate. The section specifically focuses on situations where a landowner allows a developer to construct a real estate project on their property in exchange for monetary compensation or a share in the developed property.
A Joint Development Agreement (JDA) is a legally binding agreement between a property owner (landowner) and a developer (promoter). Under this contract, the landowner provides their land, and the developer constructs a real estate project on it. In return, the landowner receives compensation, which could be either in cash or as a share in the constructed property.
The TDS under Section 194 IC is deducted at a rate of 10% on the monetary consideration paid to the landowner. Key details include:
You may also want to know Section 24 of the Income Tax Act
Section 194IC governs Tax Deducted at Source (TDS) for payments made under joint development agreements involving land or buildings. This section ensures that tax liabilities are addressed promptly during monetary transactions between developers and property owners.
Below is a detailed explanation of the TDS certificate and payment method under this section:
Once the developer deducts TDS under Section 194IC, they must issue a TDS certificate to the property owner as proof of compliance.
The developer issues the TDS certificate under TDS U/S 194IC in Form 16B, applicable for deductions on monetary consideration for transferring land or buildings.
The certificate must be issued within 15 days of filing the TDS return for the respective quarter.
The deductor can download the TDS certificate from the TRACES portal after depositing the TDS amount and filing returns.
The deductor must deposit the TDS amount to the government using the prescribed payment methods. Here’s a step-by-step guide:
The system generates a challan receipt with the Challan Identification Number (CIN). You must retain this as proof of payment for future reference.
The CIN must be quoted in the quarterly TDS return to ensure proper linkage of the payment.
TDS must be deposited by the 7th of the following month in which the payment is made. For payments made in March, the due date is April 30.
You must file quarterly TDS returns using Form 26Q, which includes details of the deductions you made under TDS Section 194.
Late or non-issuance of the TDS certificate or delayed payment of TDS can lead to penalties under the Income Tax Act.
Maintain proper records of challans, certificates, and agreements to avoid disputes during audits.
By adhering to these requirements under Section 194IC, developers can ensure compliance with tax laws while fulfilling their obligations in joint development agreements.
You may also want to know Section 194I – TDS on Rent
Failure to deduct TDS or late compliance under TDS U S 194 IC attracts penalties as per the Income Tax Act. These include:
The authority levies interest at 1% per month or part of a month from the date the tax becomes deductible until the date the deduction occurs.
The authority charges interest at 1.5% per month or part of a month from the date you deduct the TDS until the date you deposit it.
A late filing fee of ₹200 per day is imposed under Section 234E until the TDS return is filed.
The penalty cannot exceed the amount of TDS deductible.
Prosecution: Persistent non-compliance may result in prosecution under Section 276B, leading to imprisonment of 3 months to 7 years.
Developers involved in transactions under joint development agreements must ensure timely compliance with TDS under Section 194 to avoid penalties and interest. Keeping accurate records and meeting deadlines is essential to mitigate legal and financial consequences.
The process of paying TDS online is straightforward. Follow these steps:
After completing the payment, the system generates a confirmation receipt that serves as proof of the TDS payment.
Section 194IC of the Income Tax Act regulates the taxation of payments under joint development agreements in the real estate sector. The section ensures that the government receives tax from such agreements by mandating TDS deductions on payments made to landowners. It simplifies tax compliance for both landowners and developers while ensuring transparency.
By deducting 10% TDS on payments made under JDAs, Section 194IC provides a structured approach to tax payments and offers a mechanism for smooth property development.
The TDS rate under Section 194IC is 10% of the payment amount. If the recipient does not provide their PAN, the rate increases to 20%.
No, there is no threshold limit for TDS deduction under Section 194IC. TDS must be deducted from every payment made under a joint development agreement.
Form 16C is the TDS certificate issued by the payer to the recipient (landowner) after deducting TDS under Section 194IC. It serves as proof that the TDS has been deducted and deposited with the government.
Yes, under Section 194IC, the payer is not required to have a TAN (Tax Deduction and Collection Account Number) to deduct and deposit TDS.
If TDS is not paid on time, a penalty of 1.5% per month of the TDS amount is charged from the date of deduction until the date of deposit.
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