Income tax: TDS rules on the sale of undivided property

I plan to purchase a property held in the joint name of husband and wife for 2 crore. The lending bank I am taking out a home loan from is willing to issue two separate checks to a joint bank account held by husband and wife. The husband who is one of the co-owners of the property claims that the TDS should only be deducted in his name as he is the sole beneficial owner of the property as he only paid the full money to buy the house . He is willing to provide me with an affidavit stating that his wife has no economic interest in the property. To my knowledge, the TDS must be deducted on behalf of both sellers because as a buyer, I must deduct TD of the two co-owners. A meter to which the husband says he only paid to buy the house and now when he sells it, TDS should only be deducted from his account. Can you suggest me a way out of this? Can I deduct the full TDS on behalf of the husband and accept the affidavit signed by his wife and him? – (Name omitted)

Answer: In practice, a house is generally purchased in common name in order to ensure a harmonious succession in the event of the death of a co-owner. Just because a person is added as a co-owner of the property in the purchase contract does not mean that he or she becomes the beneficial owner of the property. The effective ownership of such a condominium house belongs to the respective joint owner in the proportion in which the contribution for the purchase of the property has been made. In the event that a person has contributed nothing for the property, he has no ownership rights to the property, even if he is added as the first co-owner in the purchase contract. Thus, when selling the condominium, it is the beneficial owner who has the right to receive the money if he has fully contributed to the cost of the property.

If the seller asserts that he is 100% beneficial owner of the property and is prepared to provide you with a certificate to that effect, you can consider him to be the sole owner for the purposes of withholding tax at the source. The income tax department does not care on whose behalf the tax is deducted as long as the entire tax is deducted in respect of the total consideration for the property. To avoid any complications, I advise you to mention the husband’s name only in the 26QB form that you must fill out when paying the TDS. For tax purposes, it is the beneficial owner who is treated as the beneficial owner and not the one joined for convenience. Please ensure that full payment is also made on behalf of the husband by you and the lender.

Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on Twitter.

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