Tds refunds in case of cancelled property deals . ( Sec.194 IA )

In case of contract of purchases the property of more than 50 Lac. It is mandatory  to deduct the Tds and pay to the govt exchequer simultenues with the payment to the purchaser. On several occasions deal get cancelled in midway. In such situation what will be the status of the TDS paid? Who can claim the credit / refund of this TDS?

The purchaser cannot  claim the refund because

Refund of TDS  paid U/s.194 IA is big challenge, Rather it is a big loophole in the whole scheme. Normally tax is deducted while making payment to the seller and paid within 7 days of the following month. In most cases people prefer to pay it immediately. Subsequently when the deal gets cancelled by that time the purchaser has already deposited this amount with government treasury. And has nothing in his control.

Interestingly  no TDS return is mandated undre this section. Hence deductor need not to have TAN. In  absence of TAN no. No particular Income tax office has jurisdiction over such TDS payment.

 TDS refund provision is made in a form no 26B. This form needs to be filed with the A.O. This form is jurisdiction based, and the assessee has to file refund application  under whose Jurisdiction the TAN falls. But while depositing TDS U/s. 194IA there is no mention of  TAN so it is not clear whether 26B is applicable for claiming refund of tax paid U/S 194IA. And its applicable, to whom such application is to be made 

1)To the A.O of property purchaser.

2)To the A.O of property seller.

And seller also cannot claim the refund because

As per sec 199 the credit of TDS can be claimed by Deductee only when he will offer the said income for taxation. Since the deal is cancelled he can’t offer said income for tax and in effect can’t claim the credit of TDS.

This is practical difficulty, but the legislature has not thought about it and people at large are facing the problem. They have been deprived their legitimate money for lack of  procedural frame work.


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