Vishal Verma, 38, an information technology sector professional from Bengaluru, bought land in his home town for Rs 2 crore on July 31, 2023. On August 4, 2023, Verma got the shock of his life when he received a TDS (tax deducted at source) shortfall notice to the tune of Rs 38 lakh from the Income Tax Department.
“Being a salaried employee, by no imagination I will be able to arrange this much money to pay TDS. It's been 7 months since I got the notice and I am yet to have the courage to tell this bad news to my family members, I don't want them to go into the depression that I am already dealing with,” said Verma.
Verma's situation is not unique; there are numerous others across the country who have received TDS short notices after purchasing properties between July 1st 2023 and January 10th 2024.
In January, Moneycontrol reported how several homebuyers have been getting tax notices about TDS shortfall.
On February 8, a writ petition filed by a diverse group of 60 homebuyers from across India seeking relief from the higher TDS (Tax Deduction at Source) imposed by the Income-Tax (I-T) department, through their TDS short notices will be heard by the Delhi High Court.
Moneycontrol has reviewed at least three such TDS short notices.
What is a TDS short notice?
A TDS short notice is issued when the individual responsible for deducting TDS applies a lower rate than what is stipulated in the income tax regulations. According to the rules, if a person (deductor) is obligated to make a payment to another person (deductee), they must deduct TDS and transfer the remaining balance to the deductee. The deducted TDS amount should then be remitted to the government. Different TDS rates apply to various types of payments. For property purchases, TDS should be levied at a rate of 1 percent of the property value if it exceeds Rs 50 lakh. In the absence of a PAN or if the PAN is inoperative, the TDS rate increases to 20 percent.
Read more here: The TDS tangle for which homebuyers are getting tax notices
The current issue
The issue leading to many homebuyers receiving TDS short notices stems from sellers whose PANs were inoperative due to not being linked to Aadhaar. Unfortunately, homebuyers had no means of verifying whether the PAN was linked to Aadhaar. Even if they had identified an inoperative PAN and tried to apply a 20 percent TDS rate, they were unable to do so because the income tax portal calculates the TDS rate by default, and the payer lacks the authority to adjust the TDS rate.
Similar to Verma, another homebuyer, Samuel Joseph David from Tiruchirappalli bought a house valued at Rs 55 lakh, only to be hit with a tax notice of over Rs 11 lakh shortly afterwards. “I bought this property considering my children’s future. I liquidated all my savings and borrowed money from my relatives. Our happiness didn’t last long. Two weeks after our registration, I received a demand notice for Rs 11 Lakh plus 1.5 percent interest per month. It was a shock for us. We did not use any third-party application to pay the TDS. We paid through the official income tax website believing that information on their website is up to date,” said Samuel.
Similarly, a senior citizen Rakesh Bansal and his daughter from Lucknow also received a tax notice of Rs 11.5 lakh approximately after he bought a house valued around Rs 60 lakh to gift it to his daughter. “I’m a 70-year-old senior citizen suffering from heart and other diseases. I bought a home for my daughter and now, I’m running pillar to post, writing emails to CBDT, Finance Minister and other officials. I even wrote to the PMO for help, unfortunately, I’m still waiting for a resolution,” said Bansal.
The cumulative TDS short notice amount for the group of homebuyers mentioned above alone exceeds Rs 10 crore. The majority of them made their property purchases between July 1, 2023, and January 10, 2024.
Also read: Understanding the tax implications on sale of property
Income Tax portal not updated till January 10, 2024
The deadline for linking the 12-digit Aadhaar number with the PAN card expired on June 30, 2023. Any PAN cards not linked by this date became inoperative from July 1, 2023. According to CBDT Notification No.15/2023 dated March 28, 2023, the IT portal was expected to be updated with new rules; however, no updates were made until January 10, 2024.
On or after July 1, 2023, when home buyers logged into the IT portal to make TDS payments related to property purchases, the TDS portal did not flag the PAN status. The tax portal calculated TDS at the rate of 1 percent, the homebuyers paid just that and thought their job was done. The official webpage on the Income Tax website does not provide any information about validating PAN status before making TDS payments.
I-T Department's response failed to provide respite to homebuyers
Homebuyers' complaints to the I-T Department and Centralized Public Grievance Redress and Monitoring System (CPGRAMS) regarding these issues resulted in standard responses without any tangible resolutions.
Homebuyers who spoke to Moneycontrol say that the response is largely standardised and looks like a template. It states: "Your query has been analyzed. It is to inform that the default in the case has been computed by CPC-TDS as per the provisions of CBDT Notification No. 15/2023 dated March 28, 2023. The provisions of Notification No. 15/2023 are applicable based on the status of PAN on the date of the transaction. Kindly refer to CBDT Notification No.15/2023 dated March 28, 2023, for details."
Following several complaints from aggrieved homebuyers and taxpayers, Moneycontrol has learnt that the I-T Department had sent an internal memorandum from the TPL section to The Under Secretary (ITA)-I, CBDT on January 1, 2024, to address the issue. This shows that the tax department has recognised the issue.
Subsequently, on January 10, 2024, the tax department implemented changes in the TDS portal and included a standard warning message on the TDS payment portal. The warning states, "Please note that if the seller's PAN is inoperative, then a higher rate of TDS will be deductible in accordance with section 206AA of the Income-tax Act, 1961, read with CBDT Notification No. 15 of 2023 dated March 28, 2023, and Circular No.3 of 2023 dated March 28, 2023. Please make sure to mention the correct amount of TDS."
Following the portal update (effective January 10 onwards), the TDS amount is no longer automatically calculated by the portal. Instead, an editable field is provided, allowing the buyer to input the correct TDS rate, and the amount is calculated accordingly.
However, the issue persists for homebuyers who have received TDS short notices, with no clarification or acknowledgement of mistakes from the department.
Also read: Will FM's talk of small tax demands really make a big difference?
Filing the writ petition
With chartered accountants and tax experts offering no solutions and lukewarm responses from the I-T Department, homebuyers had only one recourse left: filing a writ petition in the Delhi High Court, legal experts say.
Meanwhile, the distress continues for homebuyers given that they did not benefit by paying a lower TDS, in the first place, and fraud here wasn’t an intention. And especially so, since it is the seller’s (of the property) fault who failed to link their PAN card so far.
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