A judgment by the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has underlined the importance of understanding tax deducted at source (TDS) obligations while purchasing property.The case involved a Mumbai resident who had jointly purchased a residential flat worth Rs 1.9 crore in the tony area of Haji Ali with her husband. He had a 15% stake in the property (Rs 28.50 lakh) and deducted TDS of Rs 28,500 under section 194-IA on his share of the purchase price.However, the tax department later raised a demand of over Rs 5.8 lakh, alleging short deduction of tax on the grounds that the seller’s PAN was inoperative and hence higher TDS provisions under section 206AA should have been applicable.ITAT dropped the demand saying the seller had subsequently linked Aadhaar with PAN and regularized the PAN within the deadline prescribed by a circular issued by the Central Board of Direct Taxes (CBDT) in July 2025. The ITAT also observed that the seller had disclosed capital gains in its tax returns and paid the applicable taxes, making it unfair to treat the buyer as an ‘assessee in default’.Tax experts say non-linking of PAN with Aadhaar is just one example where buyers have to bear the brunt of tax demands for lower deduction of TDS. They caution that property buyers should be aware of their TDS obligations, which becomes more complicated in cases when the seller is non-resident or the property held in joint names is being purchased.Chartered accountant Ketan Vajani said buyers should be careful while purchasing property from residents as well as non-residents. In case of resident sellers, TDS under section 194-IA is generally deducted at 1% and there is no provision for lower deduction. He pointed out that buyers should ensure that TDS is calculated on the higher of the transaction value or stamp duty value. He said, the buyer should ensure that the deduction is made on the total amount, including all charges like parking charges, club membership etc. and not just on the value of the property.For purchases from non-resident sellers, the compliance burden is significantly higher. According to Vajani, buyers will need to calculate the seller’s taxable capital gains and deduct tax under Section 195 at the applicable rates instead of the standard 1% rate applicable to resident sellers.Chartered accountant Ameet Patel said TDS provisions on property transactions often catch common buyers unaware. “While the tax department views TDS as a tool to track transactions and ensure tax compliance by sellers, the burden of compliance on home buyers may be daunting”.Patel said disputes can be more complex in transactions where assets are held jointly. For example, the husband may have financed the property in full, but added his wife’s name to it to provide protection. When such assets are sold, it may be challenging for the buyer to determine the correct allocation of the sale price and TDS components.Tax experts point out that many buyers are unaware of their TDS obligations and often require professional assistance to navigate the processes like obtaining TAN, filing forms, depositing tax and obtaining TDS certificates.
