A recent ruling by the Income Tax Appellate Tribunal (ITAT) in Mumbai has highlighted the critical need for property buyers to understand their tax deduction at source (TDS) obligations. The case involved a Mumbai resident who jointly purchased a flat in Haji Ali valued at Rs 1.9 crore with her husband. She held a 15% share in the property, amounting to Rs 28.5 lakh, and deducted TDS of Rs 28,500 under Section 194-IA on her share of the purchase price.
Background of the Case
The tax department later raised a demand exceeding Rs 5.8 lakh, alleging short deduction of tax. The department argued that since the seller's Permanent Account Number (PAN) was inoperative, higher TDS provisions under Section 206AA should have applied. However, the ITAT deleted the demand, noting that the seller had subsequently linked Aadhaar with PAN and regularised the PAN within the timeline prescribed by a Central Board of Direct Taxes circular issued in July 2025. Additionally, the seller had disclosed the capital gains in his tax return and paid the applicable taxes, making it inappropriate to treat the buyer as an 'assessee in default'.
Expert Insights on TDS Compliance
Tax experts emphasised that non-linking of PAN with Aadhaar is just one instance where buyers bear the brunt of tax demands for short deduction of TDS. They cautioned that property buyers must be aware of their TDS obligations, which become more complicated when the seller is a non-resident or when the property is held in joint names.
Chartered accountant Ketan Vajani stated, 'Buyers must exercise caution when purchasing property from residents as well as non-residents. For resident sellers, TDS under Section 194-IA is generally deducted at 1%, and there is no provision for lower deduction.' He added that buyers should ensure TDS is computed on the higher of the transaction value or stamp duty value. The deduction must be made on the total amount, including charges such as parking fees and club membership, not merely on the property's value.
For purchases from non-resident sellers, the compliance burden is significantly higher. According to Vajani, buyers need to compute the seller's taxable capital gains and deduct tax under Section 195 at applicable rates, rather than the standard 1% rate applicable to resident sellers.
Joint Ownership Challenges
Ameet Patel, another chartered accountant, pointed out that TDS provisions on property transactions often catch ordinary buyers unaware. 'While the tax department views TDS as a tool for tracking transactions and ensuring tax compliance by sellers, the compliance burden on homebuyers can be onerous,' he said. Disputes can become more complicated in transactions where the property is held jointly. For instance, if the husband funded the property entirely but added his wife's name for security, determining the correct allocation of the sale price and TDS components can be challenging for the buyer.
Tax experts noted that many buyers are unaware of TDS obligations and often require professional assistance to navigate procedures such as obtaining Tax Deduction and Collection Account Number (TAN) and TDS certificates, filing forms, and depositing tax.
