A ruling by the Mumbai Income Tax Appellate Tribunal (ITAT) has emphasized the importance of understanding tax deduction at source (TDS) obligations when purchasing property.The case concerns a Mumbai resident, who jointly purchased a residential apartment in the tony Haji Ali area, worth Rs 1.9 crore, with her husband. It held 15% stake in the property (Rs. 28.50 lakh) and TDS deducted Rs. 28,500 under Section 194-IA on its share in the purchase price.However, the tax department later filed a demand exceeding Rs 5.8 lakh, alleging short deduction of tax on the ground that the seller’s PAN was ineffective and hence higher TDS provisions under Section 206AA should have been applied.The ITAT team deleted the order, pointing out that the seller subsequently linked Aadhaar with PAN and regularized the PAN within the timeline stipulated in a circular issued by the Central Board of Direct Taxes (CBDT) in July 2025. The ITAT team also observed that the seller had disclosed capital gains in its tax return and paid applicable taxes, making it inappropriate to treat the buyer as a ‘defaulting assessee’.Tax experts state that non-linking of PAN with Aadhar is just one example where buyers have to bear the brunt of the tax demands of short TDS deduction.
They warn that property buyers should be aware of their TDS obligations, which become more complex in cases where the seller is non-resident or a property is purchased in joint names.Ketan Vajani, a chartered accountant, said buyers should be careful when buying properties from residents and non-residents. In case of resident sellers, TDS under Section 194-IA is generally deducted at 1% and there is no provision for less deduction.
Buyers should ensure that the TDS is calculated on the transaction value or the stamp duty value, whichever is higher, he noted. He added that the buyer must ensure that the discount is made on the total amount, including all fees such as parking fees, club membership, etc., and not just on the value of the property.For purchases from non-resident sellers, the compliance burden is much higher. According to Vaghani, buyers will need to calculate the seller’s taxable capital gains and deduct tax under Section 195 at applicable rates rather than the standard 1% rate applied to resident sellers.TDS provisions related to real estate transactions often surprise ordinary buyers, said Amit Patel, a chartered accountant. “While the tax department views TDS as a tool to track transactions and ensure tax compliance by sellers, the burden of compliance on homebuyers can be onerous.”Patel added that disputes can become more complex in transactions where ownership is held jointly. For example, a husband may have financed the entire property, but added his wife’s name to provide a security cushion for her. When such a property is sold, it may be difficult for the buyer to determine the correct allocation of sales price and TDS components.Tax experts point out that many buyers are not aware of their TDS obligations and often need professional help to navigate procedures such as obtaining a TAN, filing forms, filing taxes and obtaining TDS certificates.