Buying property worth ₹50 lakh or more in India carries an obligation that catches many first-time buyers off guard: the buyer, not the seller, is required to deduct TDS at 1% of the sale value and deposit it with the government before the transaction is complete. This is separate from stamp duty and registration charges, and missing it creates a genuine compliance problem at exactly the point you're trying to finalise a major purchase.
Who Is Responsible for Deducting This TDS
Under Section 194IA, the buyer of the property is responsible for deducting TDS, not the seller. This is a reversal of the usual pattern where the party making a payment for a service deducts TDS, here, whoever is buying the property (paying for it) deducts and deposits the TDS, then pays the seller the balance amount.
The Threshold and Rate
TDS under this section applies when the property's sale consideration is ₹50 lakh or more. The rate is 1% of the total sale consideration (not just the amount exceeding ₹50 lakh, the full 1% applies to the entire transaction value once the ₹50 lakh threshold is crossed).
Example: for a property purchased at ₹75 lakh, TDS is 1% of ₹75 lakh, ₹75,000, deducted from the payment due to the seller, deposited with the government, and the seller receives the remaining ₹74,25,000.
How to Actually Deposit This TDS
Unlike TDS deducted by a business (which requires a TAN, Tax Deduction Account Number), individual property buyers deducting TDS under Section 194IA don't need a TAN. Instead, you file Form 26QB online through the TIN-NSDL or Income Tax portal, providing your PAN and the seller's PAN, the sale consideration, and the TDS amount, then pay the TDS through net banking.
Form 26QB must be filed within 30 days from the end of the month in which the TDS was deducted (typically the month of payment to the seller). After filing, you should download Form 16B (the TDS certificate) from the TRACES portal and provide it to the seller, so they can claim credit for this TDS when filing their own income tax return.
What If Payment Is Made in Instalments?
If you're paying for the property in instalments (common with under-construction property or a builder payment plan), TDS at 1% needs to be deducted on each instalment payment, not just on the final payment, and Form 26QB filed separately for each deduction within the 30-day window applicable to that specific payment.
What Happens If You Don't Deduct or Deposit This TDS
Failing to deduct or deposit the required TDS attracts interest under Section 201(1A) (typically 1% per month for failure to deduct, 1.5% per month for failure to deposit after deduction) and a late filing fee under Section 234E of ₹200 per day for delayed filing of Form 26QB, up to the TDS amount itself. Beyond the financial penalty, an incomplete TDS compliance can also complicate the property's registration or create issues for the seller when they try to claim credit for TDS that was never actually deposited.
Does This Apply to Under-Construction Property Too?
Yes, if you're buying an under-construction property with a total consideration of ₹50 lakh or more, TDS applies to each instalment paid to the builder, following the same 1% rate and Form 26QB filing requirement, calculated on each payment as it's made through the construction period, not deferred until final possession.
What About Joint Buyers or Joint Sellers?
If there are multiple buyers or multiple sellers, the ₹50 lakh threshold is generally assessed based on the total sale consideration for the property, and TDS compliance (Form 26QB filings) may need to be done for each buyer-seller combination proportionate to their share, a situation worth getting specific guidance on from a chartered accountant or your property lawyer given the added complexity.
A Quick Checklist for Buyers
- Confirm whether your property's sale value is ₹50 lakh or more
- Collect the seller's PAN before finalising the payment
- Deduct 1% TDS from the payment due to the seller
- File Form 26QB within 30 days of the month of deduction
- Download and hand over Form 16B to the seller
Use our loan eligibility calculator and EMI calculator when planning your property purchase, and factor this TDS deduction into your cash flow planning, since it's an amount you'll need to have available separately from the seller's payment itself.
Frequently Asked Questions
Does the seller's PAN matter for the TDS rate applied?
Yes, if the seller doesn't provide a valid PAN, TDS is required at 20% instead of 1%, a substantial difference. Always confirm the seller's PAN before finalising payment.
Is this TDS in addition to stamp duty and registration charges?
Yes, this TDS is entirely separate from stamp duty and registration charges (which are state government levies), and separate from any home loan processing fees. It's a distinct income tax compliance requirement specific to the buyer.
What if the property is purchased through a home loan, does the bank handle this TDS?
No, this TDS obligation falls on you as the buyer, not automatically on the bank disbursing your home loan. Even if the loan amount is disbursed directly to the seller or builder, you (the buyer) remain responsible for ensuring the 1% TDS is deducted and Form 26QB is filed correctly.
Can the seller claim a refund if excess TDS was deducted?
Yes, TDS deducted under Section 194IA is treated as tax already paid on the seller's behalf, and when the seller files their income tax return declaring the capital gain from the sale, they claim credit for this TDS against their actual tax liability, receiving a refund if the TDS exceeds their actual liability for that gain.
