Property Tips: While buying a property, check the seller's PAN carefully, otherwise you may have to pay 20% TDS..
If you are buying a property worth Rs 50 lakh or more, then you need to read and understand the information given here carefully. If you do not do this, then you may have to suffer a huge financial loss. If you buy any property worth Rs 50 lakh or more, then while making payment to the property seller, you have to deduct 1% of the sale price, TDS, and deposit it with the government.
Although this rule is generally known to people and even if they do not know, the property agents or lawyers who help in buying and selling property give information about it. But there is little awareness about a subtlety related to this rule. We are going to talk about that important information here.
What is the rule of deducting TDS at the time of payment?
There is a rule to deduct 1% TDS of the property value while buying a property worth Rs 50 lakh or more, but this rule applies only when the property seller has a valid and active PAN number. Here it is important to pay attention to 'valid and active PAN'.
This means that the PAN number of the seller of the property, whose details you are providing, should be valid and active at the time of payment. If the seller's PAN number is not valid and active at the time of payment due to not being linked to Aadhaar or for any other reason, then in such a situation, the mandatory deduction of TDS under the rules increases from 1% to 20% directly! That is, if you took the seller's PAN number while making payment for the property, but did not check the validity of his PAN, then this rule can become a big reason for trouble for you. How we will understand this with the help of an example.
What can be the result of deducting less TDS?
Suppose Alok bought a house from Sanjay for Rs 60 lakh. While making the payment, Alok took Sanjay's PAN details deducted 1% TDS, and paid the remaining amount. After this, Alok submitted the amount of 1% TDS deducted by filling out Form 26QB along with Sanjay's PAN details. However, at the time of payment, Sanjay's PAN number was de-activated due to not being linked to Aadhaar, that is, the number was not valid at that time. However, Alok did not check the validity of Sanjay's PAN number while making the payment. Therefore, he did not know about it.
Now in such a situation, there is every possibility of Alok being given a notice by the Income Tax Department under Section 200A after a few days that you deducted 1% TDS while making payment to a person with an inactive PAN number, whereas you should have deducted 20% TDS and deposited it. Therefore, now you will have to pay the remaining 19% TDS. Along with this, Alok can also be demanded to pay penal interest at the rate of 1% / month on the outstanding amount of TDS and pay a penalty equal to the amount of outstanding tax under Section 271C.
The payer is responsible
After receiving the notice from the Income Tax Department, Alok has the option of demanding compensation from Sanjay, who sold the property, because Sanjay had made a mistake by giving an inactive PAN number. However after the property deal is completed and the payment is made, it will not be easy to recover the amount demanded in the tax notice from the seller. Apart from this, in the income tax rules, the responsibility of checking the validity of the seller's PAN number deducting TDS correctly, and then depositing it has been put on the property buyer. That is why, the notice of deducting less TDS and depositing it is received by the buyer of the property, not the person who has given the inactive PAN number.
Changing the PAN status later will not work!
An important thing is that if after receiving the notice, you tell the seller that his PAN is inactive, after which he gets his PAN activated again, even then the liability of 20% TDS instead of 1% will not end. This is because the liability of TDS depends on what was the status of the seller's PAN at the time of payment. That is if the PAN is inactive at the time of payment and later its status changes to 'valid', even then 20% TDS will have to be paid.
That is why it is important that while buying property or making payment for any other work, if you have been given the responsibility of deducting and depositing TDS as per the rules, then before making the payment, you must check the PAN status of the person receiving the payment. Otherwise, later you may have to face not only financial loss but also mental troubles.
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