How the department knows about your purchase
When a property worth ₹30 lakh or more is registered, the sub-registrar reports it to the Income Tax Department in a Statement of Financial Transactions (SFT). It then appears in the buyer's and seller's Annual Information Statement (AIS).
The department's systems compare that purchase with what you have declared over the years. If the purchase looks large for your reported income, or a compliance step was missed, a notice follows.
The five common reasons for a notice
- Source of funds isn't clear. The price looks high compared with your income in past returns. The department wants to know whether the money came from savings, a home loan, a gift or a sale.
- TDS on property wasn't deducted or deposited. If the price is ₹50 lakh or more, the buyer must deduct 1% TDS and deposit it. Until 31 March 2026 this was under section 194-IA, reported in Form 26QB. From 1 April 2026 it is section 393(1) of the Income-tax Act, 2025, reported in Form 141.
- Stamp duty value is higher than the price you paid. If the stamp duty (circle-rate) value exceeds the agreed price by more than 10% (and more than ₹50,000), the buyer can be taxed on the difference.
- Cash payments. A seller cannot accept ₹2 lakh or more in cash for one transaction, and large cash payments raise questions about where the cash came from.
- The seller's side. The seller may get a notice for not reporting the capital gain. If you are the seller, see our guide to capital gains tax.
Documents that answer most property notices
- The sale deed and the agreement to sell, showing price and payment schedule
- Bank statements showing each payment to the seller or builder
- The home loan sanction letter and disbursement statement
- Gift deeds and the giver's bank statement, for money received from relatives
- Proof of sale of another asset (property, shares, FDs) if that funded the purchase
- The TDS challan and Form 16B (or the Form 141 acknowledgement) showing the 1% TDS
- Your ITRs for the past few years, showing savings consistent with the payment
How to respond
- Log in to the e-filing portal and open the notice under Pending Actions → e-Proceedings. Note the section, the year and the deadline.
- Check your AIS to see exactly what was reported: the property value, date and parties.
- Prepare a short explanation of the source of funds, with each rupee traced to a document from the list above.
- If TDS was missed, deposit it now with interest and file the statement. Paying late is far better than not paying.
- Upload the reply and documents before the deadline and keep the acknowledgement.
Property notices can become expensive if the source of funds isn't explained well. Unexplained investment is taxed at a high flat rate. TaxQue's income tax notice resolution team drafts these replies and represents you through any follow-up.
Buying jointly, or from more than one seller
The ₹50 lakh TDS threshold is tested on the total price of the property, not on each buyer's or seller's share. If a ₹70 lakh flat is bought by a couple, each paying ₹35 lakh, TDS still applies. Each buyer deducts 1% on the amount they pay and files their own statement.
The same applies with several sellers: deduct on the amount paid to each seller, quoting each seller's PAN. Get every seller's PAN before you pay. If a seller has no PAN or an inoperative PAN, TDS has to be deducted at a much higher rate.
If the seller is a non-resident, the 1% rule doesn't apply. TDS is deducted on the capital gain at the rates for non-residents, and the buyer needs a TAN. This is a frequent source of notices for NRI property deals.
How to avoid a notice when you buy
- Pay every rupee through banking channels, never in cash.
- If the price is ₹50 lakh or more, deduct 1% TDS, deposit it and give the seller the TDS certificate. Get the seller's PAN before you pay.
- Keep a file with the loan papers, gift deeds and bank statements. You may need it years later.
- If your income is above ₹50 lakh, report the property in the assets and liabilities schedule of your ITR.
For other notice types, see our income tax notice guide. If the notice is about a seller's capital gain, our ITR documents checklist lists the sale papers to keep.
