ITAT Clarifies TDS Rule on Property Deals, Offers Relief in Multi-Seller Cases

In a significant development for homebuyers, the Income Tax Appellate Tribunal (ITAT) has delivered a ruling that could ease the tax burden in certain property transactions. While it is generally mandatory to deduct 1% TDS on property purchases exceeding ₹50 lakh under Section 194-IA of Income Tax Act, the tribunal has clarified that this rule does not apply uniformly in every case.

The judgment specifically addresses scenarios involving multiple sellers and has brought clarity on how the ₹50 lakh threshold should be interpreted—especially for transactions completed before April 1, 2024.

What the Rule Says About TDS on Property

Under Section 194-IA, buyers are required to deduct 1% TDS when purchasing immovable property valued above ₹50 lakh. This deduction is applicable at the time of payment to the seller and must be deposited with the government.

However, confusion often arises when a property is owned by multiple sellers and the total transaction value exceeds ₹50 lakh, but individual payments to each seller are below that threshold.

Key Case Behind the Ruling

The ITAT’s decision stems from the case of Hasmukhbhai Jayantibhai Patel vs ITO (Ahmedabad ITAT, March 27, 2026). In this case:

• The buyer purchased a property jointly owned by multiple sellers
• The total property value exceeded ₹50 lakh
• However, each seller received less than ₹50 lakh individually

Based on this, the buyer did not deduct TDS, arguing that the threshold should apply per seller.

Tax Department’s Stand and Initial Penalty

The tax authorities disagreed with the buyer’s interpretation. The Assessing Officer (AO) treated the buyer as an “assessee in default” and raised a tax demand of approximately ₹13.5 lakh, along with interest for non-deduction of TDS.

Even the first appellate authority upheld this view, stating that the ₹50 lakh threshold should be applied to the total transaction value, not individual shares.

ITAT’s Final Verdict: Buyer Gets Relief

The ITAT overturned the earlier rulings and sided with the buyer. The tribunal held that for the relevant assessment year (AY 2015–16), the ₹50 lakh threshold should be evaluated individually for each seller, not based on the total property value.

Since each seller received less than ₹50 lakh, the buyer was not required to deduct TDS. As a result:

• The entire ₹13.5 lakh tax demand was cancelled
• The interest penalty was also withdrawn

Why Did ITAT Rule This Way?

The tribunal provided three key reasons:

1. Legal Interpretation at That Time: The law, as it stood then, did not mandate combining payments made to multiple sellers. Each seller’s share was treated separately.
2. Subsequent Amendment Not Applicable Retrospectively: The law was amended later (effective April 1, 2024) to consider the total property value. However, ITAT clarified that this change cannot be applied to older transactions.
3. Consistency With Past Judgments: Previous rulings had also followed a similar interpretation, reinforcing the decision.

What This Means for Homebuyers

This ruling is particularly beneficial for individuals who purchased property before April 1, 2024, where:

• The property had multiple sellers
• Each seller received less than ₹50 lakh, even if total value exceeded ₹50 lakh

In such cases, buyers may not be liable to deduct TDS under Section 194-IA.

Important Update: Rules Have Changed Now

Homebuyers must note that the law has been updated from April 1, 2024. Under the revised rules:

• The ₹50 lakh threshold applies to the total property value, not individual shares
• TDS must be deducted if the overall transaction exceeds ₹50 lakh, regardless of how many sellers are involved

For example:

• Before 2024: ₹80 lakh property bought from 4 sellers (₹20 lakh each) → No TDS
• After 2024: Same transaction → TDS applicable, as total value exceeds ₹50 lakh

Final Takeaway

The ITAT ruling brings clarity and relief for past transactions but also highlights the importance of understanding updated tax laws. While older deals may benefit from this interpretation, current and future property buyers must follow the revised rules strictly to avoid penalties.

Before finalizing any property deal, it is advisable to consult a tax expert or verify the latest provisions to ensure full compliance.