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

TDS TDS Return Forms
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Many homebuyers are receiving notices to pay 19% TDS due to the seller’s PAN being inoperative. But Why?

So, it all starts from the buyer of a property filing form 26QB and depositing the TDS in the seller’s name.

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.

Update as on 24th April 2024

A major relief has been announced for defaults issued u/s 200A due to inoperative PAN.

In a recent circular issued by the CBDT (Central Board of Direct Taxes), it has been notified that for transactions entered up to 31st March 2024, there shall be no liability on the buyer/deductor to deduct TDS at a higher rate if the PAN becomes operative on or before 31st May 2024.

In case you have already paid the demand, the seller can file the ITR for AY 24-25 and claim a refund of the same.

2 Likes
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Hi @Bharti_Vasvani

Understand from few sources(not very sure though) that a seller cannot get a refund to his bank account rather the capital loss can only be carry forwarded to next 8 years against Capital gain only. If I pay 5.32 Lakhs to seller then he cannot claim refund on this but will happily use my amount against his capital gain or Capital loss. Can you please help me understand the logic if he can really get refund and in what scenario can he get refund - in capital gain or Capital loss scenario?. My details below

  • Sale consideration value 56lakhs
  • Both buyer and seller are Joint owners
  • So paid 28lakh each to both seller
  • For one of the seller PAN adhar was not linked and hence recd a demand of 5.32 Lakhs
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Hey @Jitendra_Magaji,

When the PAN of the seller is inoperative, the buyer is liable to deduct TDS at 20% instead of 1% and deposit the same. Hence, you have received a notice for short deduction.

In this case, you will have to pay the demand. Moreover, the seller will be able to claim the TDS amount as a tax credit, which means, if his actual tax liability is less than the amount which has been paid, he will be able to claim a refund of the same.

Hope this clarifies.

4

Dear All,
Good Day.
Is there any way to correct the Paid TDS on the purchase of property after seller PAN is operative.
Actually I received a default notice from income tax . asking to pay extra 19 % TDS.
How to over this problem.
Please suggest.
Regards.

5

Hey @khanshahnawaz24,

This thread should help you. Let us know if you need any further clarification.

6

Hello All,

I received TDS default u/s 200A due to inoperative PAN of seller,

Can some one guide me how and where can i cancel the agreement with the seller,?

and again file TDS with for 26 QB because seller PAN is operative now.

Kindly assist me to rectify this problem.
Regards.

7

Hey @khanshahnawaz24,

For cancelling the agreement, you need to connect with your advocate. Post that if you need help from a tax expert for filing the new Form 26QB, you can book a MEET.

8

Hi everyone, I had the same issue and got notice with interest in Nov 23. Everyone has overlooked this rule bank from where I took the home loan, CA who deposited the TDS amount and the lawyer who filed the registry. Moreover, the seller has another PAN link with the Aadhar when we approached him he said he would delink it. At present, he delinked the other PAN but linked the PAN with Aadhar which is used in the registry. The seller is not cooperative I know I will not get a single penny from the seller if will deposit the notice TDS amount. Pls suggest.
Thanks

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Hi All,

A property was purchased with GPA (the GPA holder is the mother of the original buyer and the original buyer has been living out of India for the past 10 years). Registration of the flat has been completed, and as a buyer we are unaware of the seller’status as an NRI, so TDS has been deducted as usual. Upon filling out form 26QB, I learned that I must pay TDS of 22.88% since the buyer is an NRI and his PAN is inoperative.

I already paid the amount in full, No loan on the property.

I have below queries.

  1. Since I already paid the amount and have deducted only 1% of TDS, are there any changes to the sales deed or registration?

Ex.

Property Cost - 60 Lakh
TDS deducted- 60,000

The seller will refund the remaining TDS amount,
As a result, the buyer now receives a total of 72 lakhs, and all payment calculations have been changed in the sales deed and registry as well.

Please help me on this asap.

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Hi @Akhi,

If you are buying property from an NRI seller, you are required to file from 27Q after deducting 20%TDS.

In your case, you can consider cancelling the Form 26QB and claim a refund of the TDS that was paid. Later on, you can file 27Q with the 20% TDS.

11

Hey All,

A major relief has been announced for defaults issued u/s 200A due to inoperative PAN.

In a recent circular issued by the CBDT (Central Board of Direct Taxes), it has been notified that for transactions entered up to 31st March 2024, there shall be no liability on the buyer/deductor to deduct TDS at a higher rate if the PAN becomes operative on or before 31st May 2024.

In case you have already paid the demand, the seller can file the ITR for AY 24-25 and claim a refund of the same.

12

HI @Surbhi_Pal, In my case the TDS was paid on 6th April 2024 and I got the short deduction demand notice on 7th April 2024. My seller PAN and Aadhar was not linked some mistake in his PAN, we have applied for the correction. Once its done we can link his Aadhar and PAN. In my case how should I proceed further? your help was really appreciated.

13

Hey @jaylanics42,

As per the recent notification by the CBDT, for transactions entered up to 31st March 2024, there will be no liability to pay TDS at a higher rate.

Hence, if you had paid TDS for a transaction that was made before the above-specified date, in my opinion, there should not be any liability on the buyer to pay the TDS at the higher rate.

However, if the transaction happened after 31st March 2024, you will have to pay the default TDS amount and the seller can later claim the same as a refund while filing their ITR.

Hope this clarifies.

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Hi @Surbhi_Pal,

That is good to know. I have a question, what happens to the tax notice we received? How do we resolve it? Do we need to file for any correction?

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@Surbhi_Pal
I paid for defaults under section 200 A. How long will it take to come in the 26AS of seller/ when would it show nin the form 26QB?

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Hey @Srishti_Mukherjee,

It would take around 7-10 days to process the demand and post that the TDS shall reflect in the seller’s form 26AS.

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Hey @Pranay,

CBDT has announced that the buyer is not liable to deduct TDS at a higher rate for transactions entered up to the 31st March 2024 if the PAN of the seller becomes operative by 31st May 2024.

However, there has been no specific update for the demands that have already been issued. Hence, in this case, we’ll have to wait for some further clarification from the department.