What Buyers Should Do If the Seller Doesn’t Have A PAN In Property Transactions?

In India's case, buying a property could translate into buying something even when a seller does not have a Permanent Account Number. Though PAN has become a compulsory document for undertaking monetary transactions, in India some property owners particularly in rural areas and old people might not have one.

It is essential to understand how to resolve the situation, where so much is at stake, in a way that is legally acceptable and secures property purchasing opportunities. The absence of a seller's PAN may attract a number of problems, especially in the areas of tax deduction at source (TDS) and the genuineness of the transaction.

If a property consideration amount is over fifty lakh rupees, that is, if a deal is worth more than Rs 50 lakhs, it is determined by Section 194-IA of the Income Tax Act that when making a payment for that property, payment of TDS must be deducted at one per cent of the value of the property. This deduction requires the PAN of the vendor to be mentioned to facilitate proper documentation of the transaction and crediting of tax.

"There are some instances where a lack of PAN card may not be a complete show stopper for a property transaction. Even so, it will mean doing a bit more work. Compliance with other tax control measures and procedures will also become necessary," says Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited.

It is recommended that sellers keen on doing business with buyers seek to obtain a PAN Card. The procedure is quite simple and can be done over the Internet or through designated centres. If time allows, this is the best option available as it makes the whole dealing process easy. It is argued by LC Mittal, Director of Motia Builders Group, "In the present day scenario, it has become easier to get hold of a PAN card. Buyers should help sellers appreciate the essence of a PAN and accompany them through the application process which takes roughly around 15 days".

Those buyers who are unable to get a PAN because of the lack of time or any other reason can look for other options. They can complete Form 60 which is a declaration for those people engaging in a transaction where a PAN is not presented. But there are responsibilities that come with this option as well as risks associated with it.

In cases where Form 60 is used - the buyers should verify that the seller has provided proper proof of identity and address, that the initial Fulfilment Agreement has all relevant information and has all mandatory details filled, that the transaction has been reported in the Income Tax Department and that all necessary paperwork is done and kept for future reference.

"Form 60 is an alternate solution. However, the buyers need to keep a complete record of all the communications and documentation relating to the transaction. This includes any communication regarding PAN and its procurement," states Aman Gupta, Director, RPS Group.

It is suggested that for high-value transactions, the buyers may have to exercise more caution. These include hiring a property lawyer in order to review the transaction and ensure all legal requirements are complied with, conducting proper due diligence of the property and the seller, making detailed notes of every idea to request the seller's PAN number, and working together with the banks to see that the payments and the laws are properly followed.

It is also important for the buyers to appreciate the issues they face for TDS compliance. TDS rate in respect of any financial transaction attracts a rate of 20% under Section 206AA of the Income Tax Act if the seller has no PAN. The higher rate here has an effect on the financial arrangements of the transaction and must be considered in the plan. Buyers will also have to factor in the risk of being scrutinized by the tax department at a future date. Although Form 60 is legally acceptable not all PANs might be transacted without call for excessive scrutiny from the revenue authorities.

Documentation, good planning, and legal fulfilment are the best ways to cope with such situations. Even when the PAN of the seller is lacking, if one knows exactly what to do and refrains from making mistakes, it should be possible to achieve a good, legal sale of a property.