On April 23, 2024, the Income Tax Department issued a circular providing relief to many homebuyers who had received tax deduction at source (TDS) notices due to the property sellers' Permanent Account Numbers (PAN) being inoperative. The circular stated that homebuyers would not be liable for any TDS shortfall notices received before March 31, 2024, if the seller's PAN is linked to Aadhaar by May 31. This gave relief to over 16,000 homebuyers who had received notices demanding an additional 19% TDS payment amounting to at least INR 9.5 lakh per property transaction. As per IT regulations, homebuyers must deduct TDS at 1% of the sale value if the property purchase exceeds INR 50 lakh.
On April 23, the Income Tax Department issued a circular providing relief to many homebuyers who had received tax deduction at source (TDS) notices due to the property sellers' Permanent Account Numbers (PAN) being inoperative. The circular gave homebuyers breathing room from liability for tax notices regarding shortfalls in TDS deductions, provided the property sellers linked their PAN and Aadhaar by May 31.
As per Income Tax regulations, homebuyers must deduct TDS at 1% of the sale value if the property purchase exceeds INR 50 lakh. However, if the seller's PAN is unavailable or inoperative, the TDS rate increases to 20%. Effective July 1, 2023, failure to link a PAN with Aadhaar renders the PAN inoperative.
Homebuyers who were unaware or failed to verify the PAN's validity and linkage and deducted TDS at 1% received notices demanding an additional 19% payment for cases where the seller's PAN was inoperative. According to information obtained through a Right to Information (RTI) request filed by one of the affected homebuyers, in January, over 16,000 homebuyers had received tax notices about a TDS shortfall citing inoperative seller PANs.
Given that TDS on property transactions applies to properties valued at over INR 50 lakh, a short notice of 19% would amount to at least INR 9.5 lakh for each home buyer. The higher the property value, the greater the TDS short notice demand.
The circular noted the grievances of those who received Central Board of Direct Taxes (CBDT) notices demanding the TDS shortfall. Most homebuyers who received these notices did not receive any resolution from the Income Tax department. Some even resorted to filing writ petitions in court for assistance.
The circular notes grievances over CBDT notices demanding TDS shortfalls and specifies no liability for deductors/collectors for transactions before March 31, 2024 if the PAN becomes operative by linking to Aadhaar by May 31. The circular implies that the buyer should urge the seller to link their PAN with their Aadhaar to get the tax notices dismissed. It has thus provided significant relief to these homebuyers.
With the new circular in place, it is hoped that the CBDT will file an affidavit in favour of homebuyers who have received TDS notices due to the inoperative PANs of sellers.
While the new circular has provided significant relief to affected homebuyers, some concerns still remain. Homebuyers believe they should not be penalized for lapses beyond their control, such as the seller not updating their PAN details.
Going forward, it is hoped that the CBDT will acknowledge this issue and work on streamlining information sharing between government databases to avoid punishing innocent taxpayers for others' oversight. The circular is a step in the right direction, but more still needs to be done to address systemic flaws and ensure fairness in the tax administration process.
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