SECTION 194IC: TDS ON PAYMENT UNDER SPECIFIED AGREEMENT

TDS U/S 194IC: TDS ON PAYMENT UNDER SPECIFIC AGREEMENT

1. What do you mean by TDS?

TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.

TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.

The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.

The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.

Note: -

Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.

Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.

2.  What is TDS under Section 194IC of Income Tax Act?

Section 194IC of Income Tax Act, 1961 mandates that TDS to be deducted by the payer while making payments to resident under a joint development agreement.

3. What do you mean by Joint Development Agreement?

The legal contract that binds the owner and a builder is known as joint development agreement. Under this agreement, the owner grants the developer the right to construct a real estate project on their land or building.

The developer in turns, agrees to share a portion of the constructed property or make cash payments to the owner as compensation for use of their property.

4. When is TDS to be deducted under Section 194IC?

TDS is required to be deducted: -

• At the time of actual payment.

            Or

• At the time of crediting the account of payee, whichever is earlier.

Few examples of date of deduction are: -

5. Who is required to deducts TDS under Section 194IC?

TDS to be deducted by any person on payments made to a resident person under a joint development agreement.

NOTE: -

This section i.e. TDS on payments related to joint development agreement is not applicable in case of non-resident payee.

Example: -

Mr. Kunal owner of land in Delhi enters into a Joint Development Agreement (JDA) with builder Mr. Satyam, wherein Satyam would build a 3-story building on his land, in return Mr. Kunal will get one floor with roof rights worth 10 crore rupees and 5 crore rupees. Discuss the TDS implications?

Under Section 194IC TDS is required to be deducted by the payer while making payment in relation to joint development agreement to a resident payee.

In this case Mr. Satyam used Mr. Kunal’s land and in return Mr. Kunal will get a floor worth Rs. 10 crores and cash of Rs. 5 crores. Since under Section 194IC TDS is to be deducted only on cash payment @10%, so Mr. Satyam is liable to deduct Rs. 50lakhs i.e. (5cr * 10%) before making payment to Mr. Kunal.

6. Rate of TDS under Section 194IC?

The TDS rate under this Section is: -

NOTE:

In case the PAN & AADHAR of the seller is not linked then the TDS rate will be 20% instead of 1%.

7. Exemption under Section 194IC?

No TDS if: -

• Payment is made in any form other than cash i.e. if payment is made in cash only then TDS has to be deducted.

8. Time limit for deposit of TDS under Section 194IC?

The due date for deposit of TDS is as below: -

9. What is the due date for filing of TDS return under Section 194IC?

Due date of filing of form under 194IC is as follows.

10. Type of TDS return & form to be issued?

TDS under this section has to filed through FORM 26QC and the deductor has to issue FORM 16C to the employee after filing of return within 15 days of filing return.

11. Fees/ Penalties for Late/ Non- Filing of TDS u/s 194IC?

Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.

12. FREQUENTLY ASKED QUESTIONS?

Q. What is the threshold limit for TDS under 194IC?

A. TDS is deducted only on cash payments, so if no payment is done in cash TDS is not required.

Q. Is 194IC applicable when paying rent to non-resident?

A. No, this section is not applicable when paying any amount under joint development agreement to non- resident person.

Q. Is it mandatory to obtain tax deduction account number (TAN) to deduct TDS under Section 194IC?

A. No, TAN is not required to deduct TDS under Section 194IC as PAN is used for filing of 26QC statement.