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TDS Troubles: Buyer Beware

A seemingly minor oversight in checking the PAN-Aadhaar linkage of a property seller could lead property buyers into a tax trap, causing them to pay a whopping 20% TDS instead of the usual 1%. This significant discrepancy stems from the seller’s PAN status and has caught many buyers off guard, highlighting the importance of due diligence in property transactions.

Chartered Accountant Mihir Tanna shared a cautionary tale of one such buyer who found themselves in hot water due to this PAN-related issue. Despite deducting 1% TDS as required, the buyer received a notice from the Income Tax Department for the shortfall, amounting to a staggering 20%. The seller’s inoperative PAN, unbeknownst to them, turned a routine transaction into a tax nightmare.

Tanna emphasised the crucial lesson for property buyers: verify the seller’s PAN status rigorously, even before paying token money. Delayed discovery of the seller’s inactive PAN could result in hefty penalties and interest liabilities for the buyer, as seen in this unfortunate case.

The repercussions of deducting a lower TDS than mandated by law can be severe. Tax experts warn that the Income Tax Department may issue intimation notices and levy interest on the shortfall. Additionally, penalties under section 271C could be imposed on the buyer for non-compliance.

Should buyers find themselves in this predicament, they face the daunting task of recovering the TDS shortfall from the seller. While the law allows for such recovery, practical challenges may arise, leaving buyers at risk of financial losses.

In the event of non-response to the tax department’s notices regarding TDS discrepancies, buyers could face further consequences, including additional interest charges and heightened penalties.

With property transactions becoming increasingly complex, buyers must exercise utmost caution and diligence to avoid falling victim to unexpected tax liabilities. Awareness, thorough verification, and timely action are key to navigating these potential pitfalls and safeguarding one’s financial interests.

Monika Shanmugam