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What is a hidden risk about TDS what buyers must consider before property purchase?

Posted on 20 Dec 2023
Author: Sayan Sircar

Tags: Tax ; House Purchase

5 mins read
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This article considers one risk on TDS payment due to an inoperative seller PAN card where the buyers ends up with an income tax notice to pay the remaining tax.

What is a hidden risk about TDS what buyers must consider before property purchase?

This article is a part of our detailed article series on the issues tax-payers are facing due to not having PAN-Aadhaar linkage. Ensure you have read the other parts here:

Which mistakes in tax-proof submission that can make you lose your HRA exemption?

This article tells you the common mistakes to avoid while giving your HRA exemption proof to your company.

What should NRIs do if your PAN has become inoperative?

This article shows the solution in case NRIs suddenly find their PAN number has become inoperative after 30th June 2023.

📚 Topics covered:

What is TDS on property purchase? Who pays TDS?
How much TDS will the buyer have to pay?
How to check if the seller’s PAN is valid?
What should the buyer do in case they receive an income-tax notice regarding TDS?

What is TDS on property purchase? Who pays TDS?

To track the buying and selling of residential property, TDS must be deducted by the buyer and deposited in the Income Tax portal.

TDS is paid by the buyer of the property
The seller receives the property value minus the TDS value
The seller can adjust the TDS against other taxes to be paid in their income tax return

We have discussed the topic of TDS on property purchase in more detail here: TDS on Property Purchase: A Step-by-Step Guide.

One risk that on TDS payment for the buyer happens when:

the seller has an inoperative PAN due to non-linkage of PAN with Aadhaar
the buyer will now have to pay TDS at 20% rate instead of 1%
the buyer will get an Income Tax notice if they have bought a property from a seller with an inoperative PAN to pay the remaining TDS

How much TDS will the buyer have to pay?

The property buyer is responsible for paying TDS at the correct rate, 1% or 20%, as per income tax laws.

For example:

property price: ₹1 crore
seller residency: resident Indian
TDS rate: 1% i.e. ₹1 lakh
buyer pays the seller: ₹99 lakhs
buyer pays to income tax portal: ₹1 lakh

We have covered the process of paying TDS on property purchase in detail here: How to file TDS for Property Purchase: A Step-by-Step Guide.

If the seller’s PAN is inactive, then

TDS rate: 20% i.e. ₹20 lakhs
buyer pays the seller: ₹80 lakhs
buyer pays to income tax portal: ₹20 lakhs

The danger here is that the buyer did not know that the seller’s PAN was inactive and paid ₹99 lakhs to the seller and deposited only ₹1 lakh as TDS. Now, the buyer will get an income tax notice for the remaining ₹19 lakhs. There is no option for the buyer but to pay this ₹19 lakhs. Whether the seller will entertain the buyer and return ₹19 lakhs is another story.

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How to check if the seller’s PAN is valid?

Link Pan Aadhaar Home Page

There is an easy-to-use facility on the income-tax filing portal to check PAN validity and PAN-Aadhaar linkage status. The buyer must use this facility to ensure the seller’s PAN is valid before purchasing the property.

Even NRIs, who do not have to link their PAN with Aadhaar, might have inoperative PAN cards since their KYC may not be updated: What should NRIs do if your PAN has become inoperative?.

What should the buyer do in case they receive an income-tax notice regarding TDS?

The buyer, at the end of the day, has to pay the remaining TDS. They should immediately get in touch with a competent Chartered Accountant to understand the next steps.

In a best-case scenario, they can contact the seller to get the remaining 19% returned to pay the required TDS. If there is a long delay since the TDS due date, there will be a penalty interest on the buyer of 1.5% per month.

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