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Generally, on purchasing property worth more than Rs 50 lakh, the buyer has to deduct 1% TDS. This rule applies under Section 194-IA of the Income Tax Act. But recently a decision of Income Tax Appellate Tribunal (ITAT) Ahmedabad has given great relief regarding this rule.
What happened in the case?
This case is related to Hasmukhbhai Jayantibhai Patel vs ITO, in which the buyer purchased a property whose total value was more than Rs 50 lakh, but it belonged to multiple owners. The amount received by each seller was less than Rs 50 lakh, so the buyer did not deduct TDS. However, the tax department considered this wrong and declared the buyer a defaulter and ordered to recover tax and interest of about Rs 13.5 lakh.
What did ITAT say?
ITAT Ahmedabad overturned the decision of the tax department and ruled in favor of the buyer. The tribunal said that the limit of Rs 50 lakh in the relevant assessment year (AY 2015-16) should be seen on the basis of each seller and not on the basis of the total value of the entire property. Since the payment to each vendor was less than Rs 50 lakh, it was not necessary to deduct TDS.
Reason behind the decision
The tribunal made it clear that there was no provision in the law of that time that the payments made to all the vendors should be combined. Apart from this, the amendment made in 2024 will be applicable to future cases and not to old cases.
Tax demand ended
After this decision of ITAT, the tax of Rs 13.5 lakh imposed on the buyer and the interest charged on it has been completely removed, which has brought great relief to him.
What does it mean for homebuyers?
This decision is especially important for those who have purchased property before April 1, 2024 and where multiple sellers were involved. In such cases, if less than Rs 50 lakh has been paid to each seller, then TDS will not be applicable.
Now the rules have changed
However, now the rule has changed. After April 1, 2024, the limit of Rs 50 lakh will be applicable on the total value of the entire property. That is, if the total price is more than Rs 50 lakh, then it will be mandatory to deduct TDS, even if the payment is made to different sellers. This decision of ITAT has brought relief to homebuyers in old cases. But tax compliance has become strict under the new rules, so it is very important to understand the existing rules while buying property.
