Section 194-IC of Income Tax Act

Section 194-IC requires any person paying any sum of money to a landlord under a specified agreement to deduct TDS before making the payment. The specified agreement is a Joint Development Agreement made between a land or building owner and a developer, and its terms are covered under Section 45(5A).

The TDS deduction is mandatory for any monetary payment made to a resident and does not apply to payments in kind, such as flats or the transfer of developed land. As of FY25-26, the Section 194-IC TDS rate is 10% of the cash payment under JDAs.

Also Read: Section 194I TDS on Rent Payments

A Joint Development Agreement (JDA) is a registered agreement between a landowner and a developer that allows the latter party to build a real estate project. The developer gets access to land to conduct their business, while the owner receives a share of the developed land or a cash payment.

JDAs are common in the Indian real estate industry, as they provide a mutually beneficial arrangement for both parties. Property owners can monetise their assets without investing significant capital, while developers can access land or buildings for their projects without incurring high upfront costs.

Both the land or building and the cash consideration received are considered capital gains and are taxed as per the provisions of Section 45(5A). However, Section 194-IC is concerned only with TDS on the cash amount received. Flats and built-up areas do not attract TDS under this section.

Also Read: Section 45(5A) of Income Tax Act

The provisions of Section 194-IC apply under the following conditions:

• Eligible Deductors: Any person responsible for making payments to a landowner regarding a Joint Development Agreement must deduct TDS. Since the section poses no restrictions on the deductor, it includes individuals, HUFs, firms, companies and other taxpayer categories.
• Eligible Deductee: The deductee (person receiving payment) must be an Indian resident or HUF (Hindu Undivided Family) and the owner of land, building or both. If the landowner is a company or firm, different sections for TDS deductions are applicable.
• Specified Agreements: Section 194-IC requires TDS deductions on specified agreements defined under sub-section (5A) of Section 45.
• Type of Property: This section refers to immovable property, including land, building or a combination of both, held by a resident landowner as a capital asset.
• Mode of Payment: The mode of payment for the cash consideration under a JDA can be cash, draft, cheque or any other mode.

If you wish to know how to calculate TDS under 194-IC, it is important to first identify the total payment involved in the joint development agreement and then apply the prescribed TDS. For FY25-26, the TDS rate u/s 194-IC remains unchanged at 10% of the cash consideration paid to a resident landowner under a Joint Development Agreement. The TDS rate also depends on whether the landowner has submitted their PAN details:

It's important to note that there is no threshold limit or exemption limit under Section 194-IC. TDS must be deducted regardless of the amount paid as long as it falls under the purview of a JDA. This means that even small payments made under a JDA are subject to TDS deduction.

Also Read: TDS Rate Chart in India

Time Limit for Deducting TDS

The developer or promoter must make the deduction u/s 194-IC at the time of making payment. Here are the timelines for TDS deductions:

• When Income Is Credited to the Payee’s Account: The developer must record the TDS deduction in their book of accounts at the time of crediting the income to the payee’s account.
• When Actual Payment Is Made: The developer must deduct the TDS at the time of making actual payment when it’s made via cash, cheque or other payment modes.

Time Limit for Depositing TDS

For Non-Government Payees

• Payments Made in March: For TDS deductions made by non-government developers and promoters in March, TDS must be deposited by April 30th.
• Payments Made in Any Other Month: For deductions made in any month other than March, the amount must be deposited to the government by the 7th of the next month.

For Government Payees

When the payment is made by or on behalf of a government agency, the payment must be made on the same day as the TDS deduction.

Any person responsible for deducting Section 194-IC TDS has to fulfil the following duties regarding compliance:

• TAN Registration: The developer or promoter must have a valid TAN number, as it’s compulsory to quote the TAN in TDS returns, TDS statements and TDS certificate required under Section 194-IC.
• Obtaining the Payee’s PAN: The payer must obtain the landowner’s PAN and submit it when filing TDS returns. Failure to submit the PAN will result in a higher TDS deduction (20%) on the transaction.
• Deduction and Deposit of TDS: The payer is responsible for deducting the correct TDS amount at the time of crediting payment and submitting the same to the government. Delays in deducting and submitting TDS carry separate penalties, including penal interest and daily fees till the default is addressed.
• Filing TDS Returns: Once the deduction is complete, the payer must file quarterly TDS returns via Form 26Q within 30 days from the end of the month in which the tax payment was made.
• Issuing TDS Certificate: The developer is also required to issue a TDS certificate via Form 16A as proof of TDS payment. The landowner needs this document to claim credit for the tax deducted u/s 194-IC.

To facilitate compliance and ease of payment, the Income Tax Department has provided an online platform for making TDS payments and filing returns. Follow these steps to make TDS payments online:

Step 1: Visit the official income tax e-filing website of the Indian Government.

Step 2: Log in using your credentials and go to e-File > e-Pay Tax on the homepage.

Step 3: Choose the applicable challan type (in this case, Form 26Q for Section 194-IC).

Step 4: Fill in the required details, such as the TAN of the deductor and the deductee’s PAN, the TDS amount, and the assessment year.

Step 5: Select the payment mode (net banking, debit card, or credit card).

Step 6: Complete the payment process and obtain a challan counterfoil as proof of payment.

Failure to comply with the provisions of Section 194-IC can attract penalties under various sections of the Income Tax Act:

Section 201(1A) - Late Deduction or Payment of TDS

The interest of 1% per month, or a portion thereof, will be applied to the TDS amount if it is not deducted on time, calculated from the date when it should have been deducted until the actual deduction date.

If TDS is deducted but not deposited with the government, interest at 1.5% per month or part thereof will be levied on the TDS amount, calculated from the deduction date until the deposit date.

Section 234E - Late Filing of TDS Returns

If the tax deductor fails to furnish TDS statements within the prescribed due dates, a penalty of ₹200 per day will be imposed until the failure continues. However, the maximum penalty cannot exceed the amount of TDS for which the return is required to be filed.

Section 271H - Penalty for Failure to Furnish TDS Returns

If no TDS return has been filed before the due date, or if the deductor provides incorrect information at the time of filing the TDS return, the Assessing Officer can levy a penalty ranging from ₹10,000 to ₹1,00,000.

These penalties underscore the importance of complying with Section 194-IC and ensuring timely deduction, deposit, and reporting of TDS. Non-compliance can lead to significant financial implications and legal consequences.

Section 40(a)(ia) - Disallowance of Business Expense

Under Section 40(a)(ia), any payments made to residents are not fully tax-deductible as business expenses if you have not deducted or deposited TDS within the due date. As a penalty, only 30% of the total payment made can be claimed as a business expense.

Section 194-IC of the Income Tax Act is a crucial provision that governs TDS on cash payments made under joint development agreements. It ensures that capital gains earned through such agreements are subject to tax and helps in curbing tax evasion. Property developers and promoters are responsible for deducting TDS, depositing it with the government and generating the correct return statement and certificate.

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