Section 194LA | TDS on Compulsory acquisition

Overview

Section 194LA of the Income Tax Act, 1961 governs the Tax Deducted at Source (TDS) on payments made as compensation for the acquisition of immovable property. Specifically, section 194LA applies to compensation paid for the acquisition of land or building by government agencies. The section was introduced to ensure that the government or any person making compensation payments for the acquisition of immovable property deducts tax at the source before making the payment to the landowners.

Applicability of Section 194LA, TDS on compulsory acquisition

Under Section 194LA, TDS must be deducted when the following conditions are met:

• Nature of Payment: The payment should be in the form of compensation or enhanced compensation for the acquisition of land or building (or both).
• Mode of Acquisition: The section applies when the property is compulsorily acquired under any Law in force (like land acquisition by a government authority).
• Threshold Limit: If the compensation amount exceeds ₹2,50,000, the deductor (typically the person acquiring the property) must deduct tax at the specified rate.

Note: Tax must be deducted under this provision only when the payment is made to, or is due to, a person who resides in India. If the payment is made to, or is due to, a non-resident, the tax shall be deducted as per the provisions of Section 195.

Threshold limit and Rate of TDS u/s 194LA

Threshold limit:

Under Section 194LA of the Income Tax Act, 1961, which deals with TDS on compensation for compulsory acquisition of immovable property, the threshold limit for deducting TDS is as follows:

1. TDS is required to be deducted if the compensation or consideration paid for the acquisition of the property exceeds ₹2,50,000.
2. If the compensation amount is ₹2,50,000 or less, no TDS is required to be deducted under this section.

Rate of TDS:

TDS rate u/s 194LA, TDS on compensation for compulsory acquisition of immovable property is:

• 10% of the compensation paid or payable to the resident, or
• 20% in all cases if PAN details are not provided by the payee to the payer (as per section 206AA of the Act).

When to deduct and deposit TDS u/s 194LA ?

Time to Deduct:

Under Section 194LA of the Income Tax Act, 1961, which pertains to TDS on compensation for compulsory acquisition of immovable property, the TDS is required to be deducted at the time of payment of such compensation.

Time to Deposit:

TDS on compensation for compulsory acquisition of immovable property which is deducted u/s 194LA and is required to be deposited to the central government. Time to deposit TDS u/s 194LA is given below:

For example, TDS is deducted on 15th December and needs to be deposited on or before 7th January. Tax is deducted on 21st March ; needs to be deposited on or before 30th April

Note: If the TDS is deducted by the government office it is required to be deposited on the same day.

Exemptions and Relaxations u/s 194LA

There are certain exemptions under Section 194LA that reduce the tax burden for certain payees:

• No TDS for Payments Below ₹2,50,000: TDS is not applicable if the compensation paid does not exceed ₹2,50,000.
• Exemption for Agricultural Land: Compensation for the acquisition of agricultural land is typically exempt from TDS under this section, even if the land is located in a rural area or urban area.
• Reduction in TDS: In cases where the recipient can demonstrate that they are eligible for a lower rate of tax due to specific reasons (such as lower tax liability or treaty provisions), they can apply for a lower or NIL TDS certificate from the Income Tax Department under section 197.

Why Choose Bizfoc for TDS?

At Bizfoc, we specialize in providing you the best accounting services in filing your TDS. Here are the reasons why we are known for our services to our clients on filing TDS:

• Assist in suggesting the right documents for TDS filing.
• Providing valuable insights on sections of TDS computations.
• Prescribe forms as per the necessity.
• Helps in accurate computations for TDS computations and returns.
• Tailored advice and guidelines for TDS filing.

In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.

Conclusion

Section 194LA plays a crucial role in the taxation of compensation for the acquisition of certain immovable property, ensuring that taxes are collected at the source. Understanding its provisions, including the TDS rate, exemptions, and compliance procedures, is vital for both deductors and payees involved in such transactions. Landowners should be aware of the threshold limits and ensure the proper filing of TDS returns to avoid penalties. For detailed guidance, it is recommended to consult with a tax professional or chartered accountant.

Frequently Asked Questions? (FAQs)