There has been a landmark decision from the Income Tax Appellate Tribunal (ITAT), providing relief for some of the home purchasers in India. ITAT has ruled on the issue of TDS application under Section 194-IA of the Income Tax Act and provided clarification for such instances where the property deals are made between more than one vendor.
How the Current TDS Rule Works
As per Section 194-IA, any purchaser of immovable property should deduct 1% of TDS if the value of the transaction surpasses ₹50 lakh. The TDS rule ensures that all large property purchases are carried out transparently and expands the tax net in the process.
Usually, this requirement comes into play at the time of payment to the vendor, and the TDS amount should be paid to the government. However, issues usually occur when dealing with immovable properties with several vendors or where the purchase of the property is being done by several buyers.
The Case That Set The New Interpretation
The Ahmedabad Bench of the ITAT dealt with this confusion in the case of Hasmukhbhai Jayantibhai Patel vs ITO. In this particular case, the purchaser had acquired property wherein the total value of the property was above ₹50 lakh but the amount paid to each seller was below ₹50 lakh.
The purchaser opted not to deduct TDS since he believed that the ₹50 lakh limit applied to each seller individually and not on the total purchase price. The tax authorities contested this stance, and therefore, they treated the purchaser as “assesses in default” and made demands of nearly ₹13.5 lakh.
Decision of the ITAT in Favour of Homebuyers
ITAT held in favour of the homebuyer and stated that, with regard to the said assessment year, the ₹50 lakh threshold needs to be calculated for each seller separately. Since the seller did not get anything more than ₹50 lakh, no TDS was required to be deducted from his side.
Therefore, the whole tax claim, including interest, was quashed.
The Changes that occurred after April 1, 2024
Despite the ruling being helpful to buyers, it is essential to remember that the change in the law has occurred. As of April 1, 2024, the limit of ₹50 lakh applies to the total value of the property and not its shares.
This implies that:
Regardless of the number of sellers involved
If each seller receives an amount below ₹50 lakh
It does not matter if the total value of the property is more than ₹50 lakh
For instance:
Before 2024: Property valued at ₹80 lakh sold by 4 sellers (₹20 lakh each) = Not subject to TDS
After 2024: Same case = Applies TDS
Advantages for Home Buyers
This new development comes handy for people who:
Have bought a property before April 1, 2024
Are dealing with many sellers
Have paid an amount below ₹50 lakh for each seller separately
However, for present and future transactions, compliance with the new law becomes mandatory, otherwise penalties and interest would be applicable. The implications of not deducting TDS can cause legal hassles.
Impact of Ruling on Industry and View by Experts
The judgment comes like a breather to the people who were in the dilemma regarding taxation in the property purchase transaction. The interpretation of tax provisions needs to be made according to the nature of transactions, which was done by the tribunal in the judgment.
Experts opine that the decision will save some amount of litigation in respect of past transactions. However, there is a need for the buyers of properties to be aware of the updated regulations and comply with those.
Conclusion
The ruling made by the ITAT is significant in the interpretation of provisions related to TDS on property transactions. Even though the ruling helps homebuyers of past transactions, future transactions will have to follow the new provisions strictly.
The lesson that can be learnt by property purchasers is that although it has become easier for them because of this ruling, the future transactions will have to be taken care of as per the provisions.
