The Delhi High Court kept that TDS on External Development Charges (EDC) in a real estate project. It directed that home buyers shall need to bear the load of TDS.
A division Bench of the Delhi High Court Justices Yashwant Varma and Purushaindra Kumar Kaurav kept that Section 194C applies to EDC paid by real estate developers to Haryana Urban Development Authority. “We negative the challenge raised in these writ petitions in so far as the invocation of Section 194C of the Act is concerned and hold that EDC payments would be covered thereunder,” the bench mentioned. It also overlooked the challenge to the Clarification that the Central Board of Direct Taxes issued on December 23, 2017.
As per the said office memorandum mentioned that EDC when paid before the government of Haryana shall be exempted from the provisions of TDS.
When the developer has incurred the payment such as EDC not to the government but to the HUDA [Haryana Urban Development Authority) which is a development authority of the State government of Haryana and is levied to tax under the Income-tax Act, 1961, TDS shall be applicable.
Section 194C of the Income Tax Act requires that deductions could be made under TDS if the total payment credited to a contractor or sub-contractor in a fiscal year is more than ₹30,000 in a single payment or amounts to ₹1 lakh in the aggregate.
The TDS rate ranges between 1-2 per cent if the contractor has a Permanent Account Number(PAN). The rate shall be 20 per cent in case of no PAN.
EDC directed that the charges be filed via the real estate builders before the municipal authorities for the making and maintenance of civic utilities that are contained in a real estate project.
Under the policies mentioned in the Real Estate (Regulation and Development) Act (RERA), 2016, EDC is used to develop essential infrastructure like roads, water and electricity supply, drainage and sewage systems, waste management, landscaping, and other comparable projects that provides the advantages to the whole project.
Civic authorities find out the charges, and the liability to payment is in the homebuyer since the developer transfers the cost to them. On the project size EDC is computed and could add to 15 to 20 percent of the total cost of the project for the homebuyers.
Tax experts stated that the problem of whether the EDC filed via the real estate developers is levied to TDS as a payment to the contractor or as rental payments has been a case of dispute and witnessed distinct rulings via distinct courts.
External development directs to the charges imposed via local authorities on the real estate developers towards the development of the infrastructure around a project, like roads, sewage systems, parks, etc. The dispute question emerges as to whether such revisions must be acknowledged as payments to the contractors for the services provided or as a rent payment.
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Certain tax officers have deemed EDC payments as rent payments levied to TDS. However, such a method suffers issues in distinct high court rulings. “Many courts have held that treating EDC payments as rental payments is ‘fundamentally flawed’ & ‘incurable’. The ruling by the Delhi high court stating that 194C is applicable would clear the air around such charges paid by the real estate developers,” he added.
| Case Title | Puri Constructions Private Limited Vs Additional Commissioner of Income |
| Case No. | W.P.(C) 9483/2019 & CM APPL 39041/2019 |
| Date | 13.02.2024 |
| Counsel For Appellant by | Mr Puneet Agarwal, Mr Yuvraj Singh, Mr Chetan Kumar |
| Counsel For Respondent | Mr Aseem Chawla, Ms Pratishtha Chaudhary, Mr Aditya Gupta, Mr Navin Rohila |
| Delhi HC | Read Order |
