Quoting an incorrect PAN during property registration can invite penalties and prosecution.
Many property transactions escape the taxman's scrutiny because false or fictitious permanent account numbers (PANs) are used during registration.
Such practices make it difficult for the income-dax (I-T) department to trace the actual parties involved in a transaction.
Evading reporting requirements
Under Rule 114B, quoting a valid PAN is mandatory in property transactions of above Rs 10 lakh.
"Both buyer and seller must provide their PAN at the time of registration to ensure traceability," says Shefali Mundra, chartered accountant and tax expert, ClearTax.
Registrars and sub-registrars must report to the I-T department immovable property transactions valued at Rs 30 lakh or more thrOugh the Statement of Financial Transactions (SFT) via Form 61A.
"Individuals evade reporting by quoting incorrect, invalid, or fictitious PANs, or those belonging to others, to conceal their identity and prevent cross-linking in the I-T database," says Suresh Surana, a Mumbai-based chartered accountant.
Some transactions are executed using benami or proxy names. Property values are understated in sale deeds.
"Cash components are excluded from the official sale deed to understate the transaction value and reduce stamp duty and tax liabilities," says Mundra.
Essential documents
PAN, Aadhaar and address proof such as voter ID, passport, or driving licence are required at the time of registration.
Those without a PAN must submit Form 60 with supporting documents.
"In high-value transactions, registrars may ask for bank statements or a copy of the sale agreement showing the consideration value," says Mundra.
Consequences of using incorrect PAN
Quoting an incorrect PAN during property registration can invite penalties and prosecution.
"A penalty of Rs 10,000 per default is imposed under Section 272B(1). If done with intent to mislead or conceal identity, prosecution under Section 277 may follow, leading to rigorous imprisonment and fine," says Surana.
The use of fictitious PAN can trigger tax assessment or reassessment.
"Such discrepancies can also lead to cancellation of registration, title disputes, and rejection of bank loans," says Mundra.
TDS requirements
The buyer of a property whose value exceeds Rs 50 lakh must deduct 1 per cent tax deducted at source (TDS) and deposit it through Form 26QB within the due date under Section 194IA.
"The provision applies to all properties except rural agricultural land," says Pallav Pradyumn Narang, partner, CNK.
"The buyer must report the PAN of both parties and issue Form 16B (TDS certificate) to the seller," says Deepashree Shetty, partner, global employer services, tax and regulatory services, BDO India.
Cross-verification by department
The I-T department uses a multi-layered system to cross-check transactions.
"High-value deals over Rs 30 lakh are captured through the SFT," says Ankit Jain, partner, Ved Jain and Associates.
Property transactions above Rs 50 lakh get captured through TDS deduction.
"The verification process checks for consistency between declared income in the income tax return (ITR) with property transaction data and TDS deposits.
"Any discrepancies result in follow-up investigations or notices," says Jain.
Mistakes to avoid
In joint transactions, each buyer must deduct tax separately for each seller. One buyer cannot deduct TDS for all.
"The 1 per cent TDS applies to the entire sale consideration or stamp duty value, not just the amount exceeding Rs 50 lakh," says Narang.
Buyers of under-construction properties must deduct TDS on every payment.
"Non-deduction on interim payments can result in the imposition of interest and penalties," says Narang.
Shetty suggests that after depositing TDS, one should ensure that the amount is correctly reflected in Form 26AS.
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Feature Presentation: Ashish Narsale/Rediff
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