What Is TDS on Property Purchase?
Under Section 194IA of the Income Tax Act, if you buy an immovable property (flat, house, plot — excluding agricultural land) in India for ₹50 lakhs or more, you must deduct 1% TDS from the payment to the seller and deposit it with the government.
Key points upfront:
- The buyer is responsible for deducting and depositing TDS — not the seller
- TDS applies to the full consideration (agreement value + any additional charges), not just the above-₹50L portion
- Failure to deduct TDS makes the buyer liable for the tax, interest (1.5% per month), and penalties
This is one of the most commonly mishandled compliance requirements in Pune property purchases.
Basic Calculation
Example: You buy a flat in Baner for ₹1.2 Cr
| Payment to seller | ₹1,20,00,000 |
|---|---|
| TDS to deduct (1%) | ₹1,20,000 |
| Net amount paid to seller | ₹1,18,80,000 |
| TDS deposited with government | ₹1,20,000 |
The seller receives ₹1,18,80,000. The TDS of ₹1,20,000 is credited to the seller’s income tax account (reflected in their Form 26AS), which they can use as a credit when filing their income tax return.
When Does TDS Apply?
| Scenario | TDS Applicable? |
|---|---|
| Purchase price ≥ ₹50 L (residential) | Yes — 1% |
| Purchase price < ₹50 L | No |
| Agricultural land | No |
| Seller is NRI | Different rules — Section 195 applies (see below) |
| Property gifted (no consideration) | No |
| Property inherited | No |
| Under-construction flat — instalment payments | Yes — TDS on each instalment if cumulative exceeds ₹50L |
Under-construction critical note: TDS applies to each instalment payment, not just the final payment. If you book a ₹90L flat and pay ₹20L booking amount + ₹20L on foundation + ₹20L on slab + ₹30L on possession — you must deduct 1% TDS from each instalment.
Step-by-Step: How to Deposit TDS
Step 1: Deduct at Source
When making payment to the seller (or any instalment), calculate 1% of the amount and deduct it.
Step 2: File Form 26QB Online
Form 26QB is the challan-cum-statement for TDS on property.
Where: income tax e-filing portal (incometax.gov.in) or through authorised banks
What you need:
- Your PAN
- Seller’s PAN
- Property details (address, consideration amount)
- Date of payment/credit
Deadline: File Form 26QB and deposit TDS within 30 days from the end of the month in which the deduction was made.
Example: Payment made on 15 April → TDS must be deposited by 30 May
Step 3: Issue Form 16B to Seller
After depositing TDS, download Form 16B from TRACES (tdscpc.gov.in) — the TDS certificate — and issue it to the seller within 15 days of the due date for filing Form 26QB.
Form 16B is the seller’s proof of TDS credit. Without it, the seller cannot claim TDS credit in their income tax return.
Joint Purchase / Joint Sale — TDS Rules
Joint buyers: Each buyer deducts TDS proportionately from their share of the payment. Two buyers purchasing a ₹1 Cr flat (50-50) each deduct 1% of ₹50L = ₹50,000 each. Each files a separate Form 26QB.
Joint sellers: TDS is deducted from each seller’s share. Buyers must have PAN of all sellers.
Practical tip: In joint transactions, coordinate carefully — a common mistake is only one buyer filing TDS or omitting one seller’s PAN.
NRI Seller — Section 195 (Different Rules)
If the seller is an NRI (Non-Resident Indian), Section 194IA does NOT apply. Instead, Section 195 applies with significantly higher TDS:
| Property Holding Period | TDS Rate (NRI Seller) |
|---|---|
| Less than 2 years (STCG) | 30% of capital gains |
| 2 years or more (LTCG) | 20% of capital gains (with indexation) |
Verification: Always verify the seller’s residential status (Form 60 or NRO/NRE account details). If a seller falsely claims resident status to avoid higher TDS, the buyer bears the legal consequence.
Lower deduction certificate: An NRI seller can apply to the Income Tax Department for a lower TDS certificate if their actual tax liability is lower than 20%. If granted, TDS is deducted at the certificate rate. This is common for NRI property sales and can take 2–4 weeks.
What If You Don’t Deduct TDS?
Consequences for the buyer:
| Consequence | Details |
|---|---|
| Deemed assessee | Buyer is treated as the defaulting taxpayer — not the seller |
| Tax liability | Must pay the TDS amount themselves |
| Interest | 1.5% per month from deduction date to payment date |
| Penalty | Up to the TDS amount under Section 271C |
| Prosecution | In extreme cases, 3 months to 7 years imprisonment under Section 276B |
Practical risk: Many buyers discover the TDS obligation only at registration, when the Sub-Registrar may not specifically check for TDS compliance. However, the income tax department’s systems increasingly flag high-value property transactions automatically.
GST on Under-Construction Property (Different from TDS)
TDS is separate from GST:
- Under-construction flats: 5% GST (1% for affordable housing under ₹45L) on payments to the developer
- Ready-to-move / completed OC: No GST
- TDS vs GST: TDS is deducted from the seller’s payment; GST is paid additionally to the government based on the developer’s tax invoice
Under-construction flat buyers typically owe both: GST on payments to the developer + 1% TDS on each instalment if total is ≥ ₹50L.
Checklist for Buyers
Before every property payment above ₹50L:
- Confirm seller’s PAN (and residential status — resident or NRI)
- Calculate 1% TDS on the instalment amount
- Deduct from payment to seller
- File Form 26QB within 30 days of month-end
- Download and issue Form 16B to seller within 15 days thereafter
- Keep proof of TDS deposit (challan) with all property documents
Common Mistakes to Avoid
1. Forgetting TDS on booking amount: Many buyers pay the booking amount informally and forget TDS. If the total purchase price exceeds ₹50L, TDS applies to the booking amount too.
2. Applying TDS only to the above-₹50L portion: Wrong. TDS is 1% on the full consideration, not just the excess above ₹50L.
3. Not filing Form 26QB even when deducting: Some buyers deduct but don’t file the form online, creating a compliance gap.
4. Using wrong PAN: A PAN mismatch for the seller causes the TDS credit to fail in the seller’s 26AS. Verify PAN from the seller’s PAN card, not just memory.
The Bottom Line
TDS on property purchase is a buyer’s obligation, not optional. For a ₹1 Cr Pune flat, this means ₹1L that goes to the government (credited to the seller’s income tax account) rather than directly to the seller. The process through Form 26QB is straightforward and entirely online — the risk is simply forgetting to do it or doing it incorrectly. Given the interest and penalty exposure, verify your TDS obligations early in the purchase process and execute them on time.
