TDS - 194IA or 194M

[Ethirajan Parthasarathy]

To claim capital gain exemption under section 54 or 54F of Income Act, booking of on apartment in an “ongoing project”, it is treated as “construction” and not “purchase” of property.

The developer is also charging GST on construction value since the superstructure is not complete. Invariably the developer also enter into “Construction” agreement.

But for purpose of TDS, I have come across almost everyone is deducting tax of 1% u/s 194IA which came into force with effect from 01-06-2013.

Effective from 01-09-2019 section 194M has come into force which provides for TDS of 5% by Individual and HUF on payments to contractors if the contract value exceed 50 lakhs which is the threshold limit for section 194IA also.

In view of the above, I invite experts’ opinion on the Query whether an Individual paying amount towards apartment under construction should deduct tax at 1% or 5%.

AI Summary

TDS on immovable property: purchases of flats trigger the property-transfer TDS provision, not the contracts TDS provision.
For TDS purposes, purchases of apartments-including units in ongoing projects-are generally treated as transfers of immovable property and fall under the provision governing property transfers; GST treatment or use of a construction agreement does not by itself convert such purchases into payments under a works contract. Payments that are truly pursuant to a separate works contract, professional fees, commission or brokerage paid by Individuals or HUFs are governed by the contracts-related provision. The decisive factor is the contractual structure and the legal characterisation of what is being paid for.