Tax Deducted at Source (TDS) on property transactions is a vital compliance requirement in India, ensuring transparency and accountability in high-value real estate deals. This guide provides a detailed, step-by-step overview of TDS on property purchases, with tables and real-world examples to help buyers, sellers, and professionals navigate the process confidently and accurately.
TDS on property purchases is governed by Section 194-IA of the Income Tax Act, 1961. It mandates that the buyer deducts a specified percentage of the sale consideration before paying the seller and deposits it with the government. This applies to all immovable properties (land, buildings, or parts thereof) except agricultural land.
| Condition | Applicability |
|---|---|
| Property value ≤ ₹50 lakh | TDS not applicable |
| Property value > ₹50 lakh | TDS applicable on full consideration |
| Type of property | All immovable property except agricultural land |
| Seller is Resident Indian | TDS under Section 194-IA |
| Seller is NRI | TDS under Section 195 (higher rate) |
Key Points:
• TDS applies to the total sale value, not just the amount exceeding ₹50 lakh.
• If the stamp duty value is higher than the sale value, TDS is calculated on the higher value.
• Additional charges (club membership, parking, maintenance, etc.) are included in the sale value.
| Seller Type | TDS Rate | Threshold Limit |
|---|---|---|
| Resident Individual/HUF | 1% of transaction value | ₹50 lakh or more |
| Companies/Other Entities | 2% of transaction value | ₹50 lakh or more |
| Non-Resident Indian (NRI) | 20% or more (plus surcharge & cess) | ₹50 lakh or more |
| Recipient Category | With PAN | Without PAN |
|---|---|---|
| Resident Individual or HUF | 1% | 20% |
| Any Resident (other than Indiv./HUF) | 2% | 20% |
• TDS Rate: 1% of the property value if the sale price exceeds ₹50 lakh.
• No Surcharge/Cess: Only 1% is deducted.
Example Table: TDS Calculation for Resident Seller
| Property Value | TDS Rate | TDS Deducted | Amount Paid to Seller |
|---|---|---|---|
| ₹60 lakh | 1% | ₹60,000 | ₹59,40,000 |
| ₹80 lakh | 1% | ₹80,000 | ₹79,20,000 |
| ₹1.2 crore | 1% | ₹1,20,000 | ₹1,18,80,000 |
• TDS Rate: 20% or more (plus surcharge and cess).
• Tax Relief: NRIs can apply for a lower TDS certificate under Section 197.
Example Table: TDS Calculation for NRI Seller
| Property Value | TDS Rate (approx.) | TDS Deducted | Amount Paid to Seller |
|---|---|---|---|
| ₹1 crore | 20% | ₹20,00,000 | ₹80,00,000 |
| ₹1.5 crore | 20%+ | ₹30,00,000+ | ₹1,20,00,000 |
Case Example: Lower TDS Certificate for NRI
If an NRI seller obtains a lower deduction certificate (LDC), the TDS can be reduced based on actual capital gains, sometimes as low as 0.76% of the sale value, depending upon lower deduction certificate.
When a property is purchased in installments, TDS must be deducted on each payment, not just the first or last, provided the total sale consideration exceeds ₹50 lakh.
| Payment Stage | Payment Date | Amount Paid | Cumulative Total | TDS Deducted (1%) | Form 26QB Required |
|---|---|---|---|---|---|
| Booking | 01-Apr-2025 | ₹20 lakh | ₹20 lakh | ₹20,000 | Yes |
| Foundation | 01-Jul-2025 | ₹30 lakh | ₹50 lakh | ₹30,000 | Yes |
| Superstructure | 01-Dec-2025 | ₹30 lakh | ₹80 lakh | ₹30,000 | Yes |
Key Point:
Each payment triggers a separate TDS deduction and a separate Form 26QB filing.
If there are multiple buyers or sellers, each buyer must deduct TDS on their share and file separate Form 26QB for each combination.
| Buyers | Sellers | Property Value | Each Buyer’s Share | TDS per Buyer | Number of Form 26QB |
|---|---|---|---|---|---|
| 2 | 2 | ₹2 crore | ₹1 crore | ₹1 lakh | 4 |
| 3 | 1 | ₹90 lakh | ₹30 lakh | ₹30,000 | 3 |
Case Example:
Two friends buy a property for ₹1.2 crore (₹60 lakh each) from two sellers. Each must file a separate Form 26QB for their share to each seller, totalling four forms.
Even if the bank directly disburses the loan to the seller or builder, the buyer is responsible for TDS deduction and deposit.
| Disbursement Date | Amount Disbursed | TDS Deducted (1%) | Form 26QB Filing Deadline |
|---|---|---|---|
| March 1 | ₹40 lakh | ₹40,000 | April 30 |
| August 1 | ₹60 lakh | ₹60,000 | September 30 |
a. Deduct TDS at the time of payment or credit to the seller.
b. Deposit TDS using Challan 26QB within 30 days from the end of the month in which TDS is deducted.
c. PAN Requirement: Both buyer and seller must provide valid PAN details.
• Form 26QB: File for each transaction.
• Form 16B: Download from TRACES and provide to the seller as proof of deduction.
Case Example:
A buyer in Pune deducted TDS on a ₹1 crore property but deposited it 3 months late and filed Form 26QB after 45 days. The total penalty was ₹2,000 (deduction delay) + ₹4,500 (deposit delay) + ₹9,000 (filing delay) = ₹15,500.
| Default Type | Interest/Fee Calculation | Example (TDS ₹1 lakh) |
|---|---|---|
| Deduction Delay | 1% per month of TDS amount | 2 months = ₹2,000 |
| Deposit Delay | 1.5% per month of TDS amount | 3 months = ₹4,500 |
| Filing Delay (234E) | ₹200 per day (up to TDS amount) | 45 days = ₹9,000 |
A Mumbai buyer splits a ₹1.2 crore property into two agreements (₹60 lakh each) to avoid TDS. Tax authorities reassess the transaction as a single unit, imposing 1% TDS on ₹1.2 crore and an 18% GST and appropriate penalty for malafide intent.
A Bengaluru seller loses their PAN card. The buyer uses Aadhaar-based PAN retrieval to avoid a 20% TDS deduction.
An NRI seller obtains a lower deduction certificate, reducing TDS from 20% to 0.76% of sale value, saving significant upfront tax outflow, provided obtaining of lower deduction certificate before executing transaction.
| Step | Action Required | Deadline/Note |
|---|---|---|
| Deduct TDS | At payment or credit to seller | Immediate |
| Deposit TDS | Online using Challan 26QB | Within 30 days of deduction |
| File Form 26QB | For every buyer-seller combination | Within 30 days of deduction |
| Provide Form 16B | Download from TRACES, give to seller | Within 15 days of Form 26QB filing |
| Maintain Records | Keep all challans and forms for audit | Ongoing |
TDS compliance is fundamental to transparent and lawful property transactions in India. Buyers must deduct and deposit TDS accurately, file the correct forms, and provide necessary documentation to sellers-whether the deal involves full payment, instalments, joint ownership, or NRI sellers. Using TDS calculators, adhering to deadlines, and maintaining thorough documentation will help all parties stay compliant, avoid penalties, and ensure smooth property transfers in the Indian real estate market.
By adhering to the guidelines outlined in this guide, taxpayers can minimize errors in their TDS return on property and enhance the chances of timely compliance. At ReturnFilings.Com, we provide expert assistance in TDS computation on property transactions and TDS return filing, ensuring that your TDS obligation are handled efficiently and in compliance with the law. For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091.
Tax Deducted at Source (TDS) on property transactions is a part of the Income Tax Act, 1961 (specifically Section 194-IA), where the buyer of an immovable property is required to deduct a certain percentage of the sale consideration before making the payment to the seller. This deducted amount is then deposited with the government.
TDS is applicable when the sale consideration of the immovable property exceeds ₹50 lakh. This applies to all immovable properties (land, buildings, or parts thereof) except agricultural land. Importantly, TDS is calculated on the full sale value, not just the amount exceeding ₹50 lakh.
The TDS rate for resident individual or HUF sellers is 1% of the transaction value if the sale price is ₹50 lakh or more. For resident companies or other entities selling property, the TDS rate is 2%.
For NRI sellers, the TDS rate is 20% or more, plus applicable surcharge and cess. However, NRIs can apply for a lower TDS certificate under Section 197 based on their actual capital gains.
If the stamp duty value of the property is higher than the agreed sale value, TDS is calculated on the higher value (stamp duty value).
Yes, additional charges such as club membership fees, parking charges, maintenance charges, etc., are included in the total sale value for the purpose of calculating TDS.
In installment-based transactions, TDS must be deducted on each payment made to the seller, provided the total sale consideration exceeds ₹50 lakh. Each installment payment requires a separate TDS deduction and a separate filing of Form 26QB.
If there are multiple buyers, each buyer is responsible for deducting TDS on their respective share of the payment to each seller. Each buyer-seller combination requires a separate Form 26QB to be filed.
Even if the bank directly disburses the loan amount to the seller or builder, the buyer is still responsible for deducting the TDS and depositing it with the government.
The TDS compliance process involves:
o Deducting TDS: At the time of making payment or crediting the amount to the seller’s account.
o Depositing TDS: Using Challan 26QB within 30 days from the end of the month in which TDS was deducted. This is done online.
o Filing Form 26QB: This form needs to be filed online for each property transaction within 30 days from the end of the month of deduction.
o Providing Form 16B: The buyer needs to download Form 16B from the TRACES portal and provide it to the seller as proof of TDS deduction within 15 days from the date of filing Form 26QB.
o PAN Requirement: Both the buyer and the seller must provide their valid Permanent Account Number (PAN). If the seller doesn’t have a PAN, TDS will be deducted at a higher rate (20%).
Penalties for non-compliance include:
o Interest on delayed deduction: 1% per month (or part of a month) on the amount of TDS not deducted.
o Interest on delayed deposit: 1.5% per month (or part of a month) on the amount of TDS not deposited.
o Penalty for delayed filing of Form 26QB (under Section 234E): A fee of ₹200 per day of delay, up to the amount of TDS.
Tax authorities may reassess such transactions as a single unit if there is evidence of an intention to evade TDS. This can lead to the imposition of TDS, along with penalties and potentially GST implications.
The buyer should encourage the seller to obtain their PAN. In some cases, as mentioned in the article, Aadhaar-based PAN retrieval might be possible to avoid a higher TDS deduction rate.
An NRI seller can apply to the Income Tax Department under Section 197 for a lower TDS certificate. If granted, the TDS rate can be reduced based on the seller’s actual capital gains, potentially resulting in a significantly lower upfront tax outflow. This certificate needs to be obtained before executing the transaction.
