Property Buyers Alert: ITAT Ruling Sheds Light on TDS Challenges
A ruling by the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has highlighted the critical nature of tax deduction at source (TDS) obligations for property buyers. The case involved a Mumbai resident who, along with her husband, purchased a residential flat in Haji Ali for Rs 1.9 crore. She held a 15% share in the property, amounting to Rs 28.50 lakh, and deducted TDS of Rs 28,500 under Section 194-IA based on her share of the purchase price.
The tax department later issued a demand exceeding Rs 5.8 lakh, claiming a short deduction of tax due to the seller’s PAN being inoperative. The department argued that higher TDS provisions under Section 206AA should have been applied. However, the ITAT dismissed this demand, noting that the seller had linked his Aadhaar with his PAN and regularized it within the timeline set by a Central Board of Direct Taxes (CBDT) circular issued in July 2025. The ITAT also pointed out that the seller had reported the capital gains in his tax return and paid the necessary taxes, making it inappropriate to classify the buyer as an ‘assessee in default.’
Importance of TDS Compliance
Tax experts warn that the non-linking of PAN with Aadhaar is just one scenario where buyers may face tax demands for short TDS deductions. They emphasize that property buyers must be vigilant about their TDS obligations, especially when dealing with non-resident sellers or purchasing properties held in joint names. Ketan Vajani, a chartered accountant, advises buyers to exercise caution when purchasing from both resident and non-resident sellers. For resident sellers, TDS under Section 194-IA is typically deducted at 1%, with no provision for lower deductions.
Vajani also highlights the need for buyers to compute TDS based on the higher of the transaction value or the stamp duty value. Buyers must ensure that TDS is calculated on the total amount, which includes additional charges like parking fees and club memberships, rather than solely on the property value.
Challenges with Non-Resident Sellers
The compliance requirements become more complex when dealing with non-resident sellers. According to Vajani, buyers must calculate the seller’s taxable capital gains and deduct tax under Section 195 at the applicable rates, which differ from the standard 1% rate for resident sellers. Ameet Patel, another chartered accountant, notes that TDS provisions can often catch ordinary buyers off guard. He explains that while the tax department uses TDS as a mechanism to track transactions and ensure seller compliance, the burden on homebuyers can be significant.
Patel adds that disputes can arise in transactions involving jointly held properties. For instance, if a husband fully funds a property but includes his wife’s name for security, determining the correct allocation of the sale price and TDS components can be challenging when the property is sold. Many buyers remain unaware of their TDS obligations and often require professional help to navigate the necessary procedures, including obtaining a Tax Deduction and Collection Account Number (TAN), filing forms, depositing tax, and securing TDS certificates.
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