TDS loophole closed: Budget brings in stricter rules for property transactions

livemint.com:

MUMBAI: India's real estate market just got a bit more transparent for tax authorities, but this increased scrutiny can change the dynamics of property transactions. A new tax rule, effective from October, will close a loophole that has allowed property sellers to skirt their tax obligations.

Under previous income tax rules, any property sold for more than ₹50 lakh required the buyer to deduct 1% as tax deducted at source (TDS). However, a clever workaround has been in play for years. To avoid the 1% tax deducted at source (TDS) on property sales exceeding ₹50 lakh, sellers and buyers would structure deals to keep individual payments below this threshold.

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For example, a ₹60 lakh property could be sold to a couple with each paying ₹30 lakh, or a couple could sell a property showing each received ₹30 lakh, effectively splitting the total transaction value.

“Some people were of the stand that if they were paying less than ₹50 lakh individually, the 1% TDS was not required," said Nitesh Buddhadev, a chartered accountant and founder of Nimit Consultancy.

This scheme is about to end, as provisions of Budget 2024 will plug this loophole by considering the total sale consideration, not just individual payments.

As per the new rules, “where there is more than one transferor or transferee in respect of an immovable property, then such consideration shall be the aggregate of the amounts paid or payable by all the transferees to the transferor or all the transferors for the transfer of such immovable property."

This means that the combined payments of all buyers will determine the TDS liability.

The move is expected to bolster tax collection