How Does The Absence of PAN Affect TDS Deductions On Property Sales?

Tax compliance is a mandatory requirement for buying and selling property in India. In such a transaction, a mandatory requirement for the buyer and seller is to provide their Permanent Account Number. PAN, issued by the Income Tax Department, is a unique identifier for all financial transactions and is an essential requirement for TDS compliance in property sales. This would imply the lack of a PAN in such transactions is important mainly regarding TDS deductions.

As per Section 194-IA of the Income Tax Act, when the transaction value of immovable property, other than agricultural land, is above Rs 50 lakh, then it is mandatory for the buyer to make a deduction of TDS at the rate of 1% of the transaction value and deposit the amount with the government, said Abhishek Tharwani, Director, Tharwani Realty.
"However, if the PAN of the seller is not available, then the TDS rate is 20% according to Section 206AA. The higher rate causes a greater tax liability but can also have a higher liquidity impact on the seller. In the case of buyers, there is a penalty and interest along with even a possibility of prosecution for incorrect deduction and deposit of TDS," commented Abhishek Tharwani.

This will impact the compulsory challan-cum-return statement that the buyers are supposed to file in form 26QB in case they are claiming TDS on the transaction of property. With the delay, chances of a penalty in generating this would further increase due to the non-availability of a valid PAN number.

In the absence of PAN, the sellers may face difficulties in availing credits at the time of filing the income tax return for TDS deducted, which results in disputes and increased liability. Furthermore, sellers would face a hassle in concluding property transactions since buyers might want to delay such transactions based on the compliance requirements which become more rigorous along with the risk of taxes involved.

"To avoid such complications, it is mandatory for both the buyer and seller to ensure that their PAN details are correctly mentioned and validated during the transaction. Getting a PAN is easy through the Income Tax Department's website or through any authorized PAN service centers," stated Abhishek Tharwani.

It is also advisable to consult a tax advisor in order to navigate the complexities of TDS deductions and ensure smooth compliance in property transactions.