If you’re selling property in India and do not have a Permanent Account Number (PAN), it’s important to understand the tax implications. According to Section 206AA of the Income Tax Act, 1961, failing to provide a PAN during the property transaction has significant consequences for both the buyer and the seller.
Tax Deduction at Source (TDS) at Higher Rates
When you sell property and don’t provide a PAN, the buyer is legally required to deduct tax at source (TDS) at a higher rate. Typically, the TDS rate for the sale of property is 1% of the sale value for residential properties and 1% for the sale of commercial properties under Section 194-IA. However, in the absence of a PAN, as per Section 206AA, the TDS rate is increased to 20%.
This means that the buyer will deduct 20% of the sale price before making the payment to you, which could significantly reduce your overall proceeds from the sale. For instance, if you sell a property for ₹50 lakh without a PAN, the buyer will deduct ₹10 lakh as TDS before completing the payment to you.
Filing for Refund of Excess TDS
If TDS is deducted at the higher rate due to the absence of a PAN, you can claim a refund of the excess amount when filing your income tax return. However, the process of claiming a refund may involve additional paperwork and delays, making it important to ensure timely and accurate filing.
Why is PAN Required for Property Transactions?
The PAN serves as a unique identifier for individuals in India, and it helps the government track financial transactions and tax liabilities. When you provide your PAN during a property sale, it enables the Income Tax Department to assess your tax obligations accurately. Without it, the buyer is mandated to deduct TDS at a higher rate to avoid any tax evasion issues.
Other Tax Considerations for Property Sellers
Apart from the TDS implications, sellers should also be aware of capital gains tax, which is applicable when selling a property. If the property has been held for more than two years, long-term capital gains (LTCG) tax applies. If the property has been held for less than two years, short-term capital gains (STCG) tax is levied. Having a PAN simplifies the process of calculating and paying these taxes, which is crucial for compliance.
How to Avoid TDS Deduction at 20%?
The best way to avoid this higher TDS deduction is by obtaining a PAN before initiating the property sale. If you already have a PAN but it is not linked to your property transaction, it is advisable to link it before proceeding. The buyer, in turn, can then apply the standard 1% TDS deduction rate.
Conclusion: Importance of PAN in Property Transactions
Selling property without a PAN leads to a higher TDS deduction, which means you lose out on a significant portion of the sale proceeds. It’s crucial to ensure that you have a PAN linked to your property transaction, both to avoid higher tax deductions and to make the tax filing process smoother. If you don’t have a PAN yet, consider applying for one well in advance to avoid any complications during your property sale.
For more details on tax deductions and PAN-related queries, consult the Income Tax Act, 1961 or speak to a tax professional for personalized advice.
