Form 26QB: TDS default u/s 200A due to inoperative PAN

If you are the buyer of a property, you will deduct a 1% TDS from the total amount to be paid to the seller, and deposit this TDS by filing form 26QB. This TDS will be reflected in the seller’s form 26AS and they can claim a credit of the same while filing the ITR.

What is Form 26QB?

Form 26QB is a return-cum-challan form used for paying TDS to the government.

If you are the buyer of a property, you will deduct a 1% TDS from the total amount to be paid to the seller, and deposit this TDS by filing form 26QB. This TDS will be reflected in the seller’s form 26AS and they can claim a credit of the same while filing the ITR.

Sounds pretty straightforward forward, right? Well, it is.

But, recently there have been many cases where buyers are receiving default notices where they are liable to pay TDS at 20% instead of 1%.

Why so? Because the seller’s PAN and Aadhaar were not linked.

30th June 2023 was the last day to link PAN and Aadhaar, and if someone had not linked their PAN with Aadhaar by then, their PAN becomes “inoperative.”

So, if a buyer purchased a property from a seller whose PAN was inoperative, they were liable to deduct TDS at the rate of 20%. While many buyers were not aware of the same, they deducted TDS at the usual rate which is 1% and later when their form 26QB was processed, they received a notice demanding the remaining 19%.

On top of this, an interest at the rate of 1% per month is also imposed till the differential payment of TDS is made.

This amount can lead to a big difference when the property value is high and many sellers may not cooperate in such situations.

Hence, before buying the property, ensure that the seller’s PAN is operative and is linked with their Aadhaar. Here’s a tool to check whether a PAN is operative or not.

What can you do if you receive default notice u/s 200A for paying 19% more TDS?

If you are one of those who received the default notice, you will have to make the payment for the amount of short deduction to solve the default.

You can ask the seller to pay you the differential amount and you can deposit the same by filing a form i.e “Demand payment for TDS on Property” on the e-filing portal.

This TDS will be reflected in the seller’s Form 26AS, and they can claim it as a credit when they file their ITR and get a refund.

Say, for example, you bought a property worth ₹1 crore and due to the seller’s PAN being inoperative, you pay 20% TDS on the same. This way, you’ll have to deposit ₹20 lakhs as TDS. As this tax is deducted from the seller’s income, ₹20L will be reflected in the seller’s form 26AS as taxes paid during the FY.

But, when the seller files their ITR, they will report these capital gains from sale of property. If their gains from the property were say, ₹30 lakhs, they are liable to pay 20% tax (considering long term) on those gains which will be around, ₹6 lakhs. Hence, the remaining ₹14 lakhs will be issued as a refund to the seller.

Is there a way to cancel this demand if the seller has linked the PAN and Aadhaar later?

While the best option is to pay the demand, there could be one way out if the seller is not cooperating.

You can cancel the agreement with the seller, and file a 26QB correction return. However, this process involves approval from the assessing officer(AO). If the AO approves the cancellation of the agreement and allows correction of Form 26QB, you can request a refund of the amount paid.

Once the PAN-Aadhaar of the seller is linked, you can file another Form 26QB, and pay 1% TDS.

Please note: This process entirely depends on AO’s discretion.

If you want to learn more about Form 26QB and how to file it, read here.

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