Introduction

Form 26QB is a crucial document for buyers of immovable property in India, as it pertains to the deduction and deposit of Tax Deducted at Source (TDS) on the purchase of property under Section 194IA of the Income Tax Act. Many taxpayers have recently received demand notices regarding Form 26QB filings due to the seller’s PAN not being linked with Aadhaar. This Article explains why such demand notices are issued, their implications, and the necessary steps to resolve them.

Understanding the Issue

The Indian government has mandated the linking of PAN with Aadhaar for all taxpayers. Failure to do so results in the PAN becoming inoperative, leading to various complications, including non-compliance with tax regulations. In cases where the seller’s PAN is inoperative at the time of the property transaction, the TDS rate is levied at a higher rate of 20% instead of the usual 1% as per Section 206AA of the Income Tax Act.

Reasons for Demand Notice on Form 26QB

The demand notice for Form 26QB is primarily issued due to:

1. PAN-Aadhaar Non-Linking: If the seller's PAN is inoperative due to non-linking with Aadhaar, the TDS liability increases from 1% to 20%.

2. Short Deduction of TDS: Since buyers typically deduct only 1% TDS on the sale consideration, a discrepancy arises when the system detects that a higher rate of 20% should have been deducted.

3. Late or Non-Payment of Additional TDS: If the additional TDS amount (19%) is not deposited, the Income Tax Department issues a demand notice to the buyer.

4. Interest and Penalty: The demand notice may also include interest and penalties for short deductions and late payment of TDS.

Consequences of Non-Compliance

If the demand raised is not addressed promptly, the following consequences may arise:

• Additional Financial Burden: The buyer may have to pay the differential TDS amount (19%) along with interest and penalty.

• Legal Implications: Continued non-compliance could lead to further legal action from the Income Tax Department.

• Impact on Seller’s Compliance: The seller may face difficulties in claiming TDS credit due to PAN-related issues.

Steps to Resolve the Demand Notice

1. Check PAN Status: The buyer should verify whether the seller’s PAN was active at the time of the transaction using the Income Tax e-filing portal.

2. Deposit Additional TDS: If the PAN was inoperative, the buyer must deposit the differential TDS (19%) through the Form 26QB correction facility.

3. File Correction Request: The buyer can file a correction request on the TRACES portal to update the seller’s PAN status if the linking has been done post-transaction.

4. Respond to the Demand Notice: The demand notice should be responded to within the stipulated time to avoid further penalties.

5. Professional Help: In case of complexities, We Balakrishna and Co, a Chartered accountant firm in Bangalore will help in efficiently resolving the issue.

Preventive Measures

To avoid such demand notices in the future:

• Buyers should ensure that the seller’s PAN is linked with Aadhaar before initiating the transaction.

• Verify the PAN status using the Income Tax Department’s online tools.

• Deduct and deposit the correct TDS amount at the applicable rate.

Frequently Asked Questions (FAQs)

1. What is Form 26QB?

Form 26QB is a TDS return form used for reporting TDS deducted on the purchase of immovable property under Section 194IA of the Income Tax Act.

2. Why did I receive a demand notice for Form 26QB?

You received the notice because the seller’s PAN was not linked with Aadhaar at the time of the transaction, resulting in a higher TDS rate of 20% instead of 1%.

3. How can I check if the seller’s PAN is linked with Aadhaar?

You can check the PAN status on the Income Tax e-filing portal by entering the seller’s PAN details.

4. What should I do if I receive a demand notice?

You should verify the PAN status, deposit the differential TDS (if applicable) or file a correction request on the TRACES portal, and respond to the notice within the deadline.

5. What are the penalties for non-compliance?

Failure to comply may lead to interest charges, penalties, and legal implications, increasing the financial burden on the buyer.

6. How can I avoid receiving such demand notices in the future?

Ensure that the seller’s PAN is linked with Aadhaar before proceeding with the transaction and deduct TDS at the correct rate.

Conclusion

Receiving a demand notice for Form 26QB due to the seller’s PAN not being linked with Aadhaar can be a stressful experience. However, understanding the reasons behind it and taking prompt corrective action can help resolve the issue efficiently. Buyers must exercise due diligence before executing property transactions to ensure compliance with tax regulations and avoid unnecessary financial liabilities.

If you have received such a demand notice and need our assistance to file a correction return, you may feel free to contact us at This email address is being protected from spambots. You need JavaScript enabled to view it. or WhatsApp at 86182 59712.

Team Balakrishna and Co, CA Firm in Bangalore