Income Tax Implications: Deducting TDS in One Person’s Name While Paying Another

When purchasing property, adhering to tax regulations is crucial to avoid complications. Under Section 194IA of the Income Tax Act, any buyer of land or building must deduct a Tax Deducted at Source (TDS) of 1% on the sale amount if the property value exceeds ₹50 lakhs. This provision ensures that the appropriate taxes are paid on the transaction, but it also requires careful handling of documentation and payments.

TDS Deduction Requirements

According to Section 194IA, TDS must be deducted from the amount payable to the seller at the time of the transaction. The deduction must correspond to the name of the seller mentioned in Form 26QB, which is the form used to report TDS on property transactions. Here’s a breakdown of the key points:

1. Name Consistency: The name under which TDS is deducted must match the name mentioned in Form 26QB. This form is filed with the Income Tax Department and needs to reflect the seller’s details accurately.
2. Payment Allocation: When a property is held in joint names, the TDS should be deducted proportionately based on each joint owner’s share. If the joint owners do not provide specific details, it is assumed that the ownership is equal.
3. Cheque Issuance: The cheque for the sale proceeds should be issued in the name of the seller(s) as recorded in Form 26QB. This ensures that the payment matches the TDS deduction and helps avoid discrepancies.

Issue of Deducting TDS in the Husband’s Name and Paying the Wife

In your case, the suggestion to deduct TDS in the husband’s name while issuing the cheque to the wife is problematic for several reasons:

• Regulatory Compliance: The TDS amount must align with the name on Form 26QB. If the husband’s name is used for TDS deduction, the payment should correspond to that name to comply with tax regulations.
• Documentation and Record Keeping: Issuing a cheque in the wife’s name while deducting TDS in the husband’s name creates inconsistencies in documentation. This could lead to complications with tax authorities and potential issues with the property’s tax records.
• Legal and Practical Concerns: It is not advisable to follow a suggestion that does not align with legal and practical requirements. The tax deduction and payment process should be transparent and in accordance with the names provided in official forms.

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Recommended Approach

To ensure compliance with tax regulations and avoid complications:

1. Deduct TDS Consistently: Deduct TDS in the name of the person who will receive the payment. If the payment is to be made to the wife, the TDS should also be deducted in her name.
2. Issue Payment in Correct Name: The cheque or payment should be issued in the name of the person to whom the property sale proceeds are intended, as per the TDS deduction.
3. Review Documentation: Make sure all documents, including Form 26QB, match the payment details to prevent discrepancies and potential issues with the tax authorities.

By following these guidelines, you can ensure that the property transaction adheres to tax laws and avoids any future complications.