Section 194IC

What is Section 194-IC of the Income Tax Act?

Section 194IC was introduced to regulate the TDS deduction on payments made under Joint Development Agreements. A JDA is a contract where a landowner allows a developer to construct a project on their property, in return for either a monetary payment or a share of the developed property. Section 194IC ensures that TDS is deducted from such payments, bringing them under the purview of tax collection at source (TCS).

This section applies when a payment is made to a resident under a JDA, making it mandatory for the developer or payer to deduct TDS at the applicable rate.
 

Applicability of Section 194-IC

Section 194-IC applies to any payment made to a resident in connection with a Joint Development Agreement. The provision specifies that TDS must be deducted on the payments made by the developer or the promoter to the landowner, regardless of the method of payment. These payments can either be in cash, cheque, draft, or any other mode of payment.

The section was specifically introduced to bring the transactions under a formal framework for tax deduction and avoid potential tax evasion in real estate development projects. The law is not limited to a specific kind of land but applies to any property involved in a joint development agreement where the landowner agrees to share a portion of the revenue or the developed property with the developer.
 

Tax Deduction Rate Under Section 194-IC

Under Section 194-IC, the tax deduction rate is 10%. This rate applies when the recipient’s Permanent Account Number (PAN) is provided. However, in cases where the landowner fails to provide a valid PAN, the rate increases to 20%, in accordance with Section 206AA of the Income Tax Act. This higher deduction is intended to encourage taxpayers to provide their PANs and ensure accurate and efficient tax deduction.

It is important to note that there is no exemption or threshold limit in Section 194-IC. This means that TDS is applicable on the entire payment made under a Joint Development Agreement, regardless of the amount. The tax is deducted at source as soon as a payment is made, either in cash or through other payment methods like cheque or bank draft.

When is TDS Deducted Under Section 194-IC?

TDS under Section 194-IC is deducted at the time when the payment is made to the landowner. The deduction occurs at the earlier of the two possible events:

• When the income is credited to the payee's account: If the payment is made through a cheque or bank transfer, the TDS will be deducted at the time the income is credited to the landowner's account.
• When the payment is made: If the payment is made in cash, the TDS will be deducted at the time the payment is actually made, whether it is through physical cash, cheque, or other payment methods.

This ensures that the government collects tax from the transaction at the point of payment or credit, preventing any potential tax evasion that might occur if the tax was only deducted after the entire payment is made.

No Threshold Limit for TDS Deduction

Unlike other provisions in the Income Tax Act that offer exemptions or thresholds for TDS deduction, Section 194-IC does not provide any minimum payment limit. This means that TDS must be deducted on the full amount of payment made under the JDA, regardless of the sum involved. Whether the payment is large or small, the tax will be deducted at the specified rate of 10% (or 20% if PAN is not provided).

This aspect ensures that there is no loophole for smaller transactions to avoid TDS deductions. All payments made under the Joint Development Agreement are treated the same for TDS purposes, further ensuring consistency in tax collection.
 

How to Deposit TDS Under Section 194-IC?

Once TDS is deducted under Section 194-IC, it must be deposited with the government. The due date for depositing TDS varies depending on the circumstances of the payment. According to the Income Tax Act, the TDS amount should be deposited on or before the 7th day of the month following the month in which the deduction was made. This means that if TDS is deducted in January, the payment should be made by the 7th of February.

For government payments, the TDS should be deposited on the same day. However, for private payments, the tax should be paid using an income tax challan, and the payment can be made through the online portal or at designated bank branches.
 

Penalty for Non-Compliance or Delay in TDS Payment

Section 201(1A) of the Income Tax Act stipulates a penalty for failure to deduct or deposit TDS on time. If the TDS is not deducted or deposited by the due date, interest will be charged at the rate of 1% per month (or part of a month) on the amount of TDS from the date it was due until the date it is deducted. If TDS is deducted but not deposited, the interest will be charged at the rate of 1.5% per month (or part of a month).

Section 234E imposes an additional penalty if the TDS return is not filed on time. A penalty of ₹200 per day is levied for each day of delay, although the total penalty cannot exceed the amount of TDS that was due for filing.

These penalties are designed to encourage timely compliance with the provisions of the Income Tax Act and ensure that the government receives the taxes due to it on time.

Conclusion

Section 194IC of the Income Tax Act ensures that Joint Development Agreements are brought under the scope of TDS, thereby increasing transparency and reducing tax evasion in the real estate sector. Developers are responsible for deducting and depositing the TDS, while landowners must ensure they receive the appropriate TDS certificates.

Both parties must comply with the provisions of this section to avoid penalties and ensure smooth transactions. By adhering to the rules and maintaining proper documentation, developers and landowners can navigate the complexities of TDS with ease.