The Income Tax Appellate Tribunal (ITAT) has issued a significant and technically important ruling for homebuyers. Normally, TDS (Tax Deducted at Source) is required on property transactions exceeding ₹50 lakh, but the ITAT has now introduced a new definition for transactions involving "joint ownership." This ruling will reduce the tax burden on individual investors and help make the property purchase process easier and more transparent.

Generally, 1% TDS is deducted by the buyer on purchase of property worth more than Rs 50 lakhs, but now an important decision of the Income Tax Appellate Tribunal (ITAT) Ahmedabad has given a big relief in this rule. The tribunal has clarified that TDS will not be applicable in every case based on the total value of the property. This case was related to a home buyer who had purchased a property whose total value was more than Rs 50 lakhs, but the property had multiple co-owners and the amount received by each one was less than Rs 50 lakhs. The buyer did not deduct TDS on this basis, which the Income Tax Department considered wrong.

The Assessing Officer (AO) of the Income Tax Department declared the buyer a "defaulter" and imposed a tax demand of approximately ₹1.35 million and interest. Later, the CIT (A), the first appellate authority, upheld the department's decision, stating that the ₹5 million limit applies to the value of the entire property, not just a portion of it.

The Tribunal ruled in favor of the buyer.
However, the ATAT Ahmedabad reversed both these decisions and ruled in favor of the buyer. The Tribunal stated that at that time (assessment year 2015-16), there was no law requiring the addition of payments to all co-owners. Therefore, the ₹50 lakh limit should be considered in terms of each seller's share. The Tribunal also clarified that the payments to each co-owner were less than ₹50 lakh. Therefore, the buyer was not responsible for deducting TDS. Based on this, the tax demand of ₹13.5 lakh and the interest thereon were completely quashed.

This rule will not be applicable in old cases.
The tribunal's reasoning behind this decision was that the law applicable at that time did not mention consolidation. Later, the rules were amended through the Finance Act 2024. It clearly states that TDS will now be determined on the basis of the total property value. But the ITAT has said that this change is for the future and cannot be applied to old cases. This decision will directly benefit those home buyers who have purchased properties before April 1, 2024, where there were more than one sellers, each of whom was worth less than Rs 50 lakh. In such cases, TDS will not be applicable even if the total property value exceeds Rs 50 lakh.

TDS will have to be followed under the new rules.
However, the situation has changed under the new rules. After April 1, 2024, if the total value of a property exceeds ₹50 lakh, TDS will be required, even if the payment is made in installments. While this ITAT decision has provided relief in older cases, new buyers will have to pay TDS according to the current rules.

PC: TV9