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During the purchase or sale of immovable property in India, there are various tax implications that have to be considered, one of which is TDS (Tax Deducted at Source) under Section 194IA of the Income Tax Act. This section requires a particular TDS deduction for property transactions that exceed ₹50 lakh. Both the buyers and sellers have to be well-equipped with their duties to have easy compliance. It is important to know how TDS operates in real estate transactions, particularly for first-time homebuyers. Further, effective financial planning, such as investments in ULIPs and savings plans, can ensure maximum post-sale tax outgo and long-term wealth creation.
Key Takeaways
TDS at 1% is mandatory for property purchases above ₹50 lakh under Section 194IA of the Income Tax Act.
Buyers, not sellers, are responsible for deducting and depositing TDS using Form 26QB within 30 days.
NRIs face higher TDS rates up to 23.92%, and buyers must obtain a TAN before deducting TDS.
Missing Form 26QB filing invites a ₹200/day penalty, interest, and possible prosecution for non-compliance.
Form 16B must be issued by buyers to sellers as proof of TDS payment, available via the TRACES portal.
Property Sales: Quick Guide to Section 194IA
The Income Tax Act has Section 194IA, which requires a 1% deduction of TDS when you buy immovable property. This does not include agricultural land and only the properties above and equal to the value of ₹50 lakh. This applies regardless of whether multiple buyers and sellers are involved and the aggregate transaction value exceeds the threshold. You should fill out Form 26QB for TDS deduction to the government within 30 days of whenever you make the payment.
It’s important to note that the responsibility lies solely with the buyer to deduct and pay the TDS, not the seller. The seller can, however, check the TDS refund status using their PAN. Whether you’re buying for self-use or as an investment, factoring in this obligation helps avoid penalties. Alongside your investment in property, exploring savings options like ULIP plans by Canara HSBC Life Insurance can offer tax efficiency and wealth creation benefits over time.
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TDS on Property Sale Explained: Section 194IA
When purchasing property in India, buyers must be aware of the tax obligations that come into play under Section 194IA. This section ensures that tax is collected in advance on high-value property transactions, minimising evasion and improving compliance. Whether you’re a salaried individual or an investor, understanding the scope of this provision helps avoid errors during property registration or payment.
Transaction Value: TDS is applicable only if the amount of the property sale is more than ₹50 lakh.
Timing of Deduction: The deduction for TDS must be made during the payment or at the time of settling down the amount (whichever happens prior.)
Payment Deadline for Deducted TDS: It should be paid through Form 26QB and in less than 30 days to the government.
Who Has to Deduct TDS Under Section 194IA?
It is important to know who is liable to deduct TDS because a default would result in buyer penalties. It is not based on the tax status of the seller, but upon the role of the buyer in the transaction and the value of the property involved.
Buyer's Responsibility: The buyer, either an individual or a business organisation, is liable for TDS deduction and not the seller.
Joint Buyers: In case of joint buyers, if the aggregate value is more than ₹50 lakh, all such buyers have to deduct and deposit their share of TDS proportionately.
Applicable TDS Rate on Property Sales
The rate of these transactions is different depending on where the seller resides, which means Indian residents and Non-Resident Indians have different rates. The reason this differentiation is important is that the tax rate, forms required, and compliance rate vary significantly between the two.
Buyers must compute TDS on the total consideration value, not just the amount paid or the stamp duty value. Further, not obtaining PAN or assessing the accurate residential status of the seller can lead to excess deductions or penalties.
TDS Rate: TDS is charged for resident Indian sellers at 1% of the overall sale consideration.
No PAN Penalty: If the seller does not provide a valid PAN, TDS would be levied at 20% under Section 206AA.
The table below compares the rates applicable:
Seller Type
TDS Rate
PAN Mandatory?
Threshold
Resident Indian
1%
Yes
₹50 lakh and above
Non-Resident (NRI)
20%*
Yes
Any amount
*Subject to surcharge and cess. TDS would be up to 23.92% based on the transaction.
TDS Rules for Buyers Under Section 194IA
Buyers have to pay the TDS on the total amount received and not on each instalment unless otherwise stated in the agreement. You should cancel the TDS only with the help of Form 26QB. It should also be reported in the seller's Form 16B. The buyer should ensure compliance with TDS even when a home loan is being taken, as the disbursement of the loan is also included in the transaction.
NRI Selling Property in India: TDS Rules Applicable
If you are someone who lives abroad and holds the status of a Non-Resident Indian (NRI), and wish to sell property in India, the TDS is deducted differently for you. The rate here is 20% plus surcharge and cess as per the applicable rates. This does not vary depending on the value of the transaction. Buyers must hold a Tax Deduction Account Number (TAN) before the deduction or deposit is made for the TDS. NRIs can also approach the Income Tax Department for a lower TDS certificate, which can avoid over-deduction.
Did You Know?
From July 23 2024, TDS on property sales by NRIs dropped to 12.5% (plus surcharge & 4% cess) if held long‑term vs the previous 20%+ rate.
What You Need to Know About TDS on Property Sales?
TDS on property sales is not something that happens once. Hence, even a minor mistake, such as entering incorrect PAN details or failing to deposit TDS within the specified time limit, may result in notices or penalties. Furthermore, sellers must also remain aware that TDS is reflected in their tax records and affects refund eligibility and TDS refund status.
PAN Linking: The seller and buyer both need to have active PANs, and the buyer is required to mention the seller's PAN in Form 26QB.
TDS Form 16B Certificate: It is the responsibility of the buyer to deliver Form 16B to the seller within 15 days.
Claiming Refunds: In case of deduction of excess TDS, the seller can claim a refund while filing their ITR and check the TDS refund status through the income tax portal.
Form 26QB & 16B: TDS Compliance in Property Transactions
Form 26QB is a challan-cum-statement utilised to pay TDS on the sale of immovable property. It has to be submitted within 30 days of payment. Upon submission, the buyer has to download Form 16B from the TRACES website and furnish it to the seller as proof of deduction of TDS.
List of Documents Required to File TDS on Property:
Proper documentation is necessary to obtain precise filing of TDS and to prevent errors while submitting Form 26QB. These documents assist in verifying the transaction, specifying the parties involved, and facilitating successful payment and record creation.
Buyer & Seller PAN Cards: For precise deduction and disclosure of TDS.
Property Sale Agreement: Verifies the sale price and date of transaction.
Buyer's Bank Details: For online TDS payment through net banking.
Form 26QB Details: Contains property value, PAN information, and payment dates.
How to File Form 26QB for Property TDS?
Filing Form 26QB is an obligatory process once TDS is deducted on property purchases. The form serves as a payment challan and a declaration of TDS deducted, and needs to be filed within 30 days from the date of the transaction. Adhering to the right filing procedure makes the transaction tax-compliant and avoids penalties.
Go to TIN-NSDL or the e-filing portal.
Choose "TDS on Sale of Property (Form 26QB)" and enter the necessary details.
Choose your bank for payment and make the payment through net banking.
Save the acknowledgement receipt and wait for 5–10 days to download Form 16B.
What Happens If You Skip Filing Form 26QB?
It is mandatory to file Form 26QB within the prescribed time. This is a statutory requirement under the Income Tax Act for the buyer. Failure to do so will attract money penalties, interest payments, and even prosecution in extreme circumstances. Early filing keeps both seller and buyer tax-compliant and out of trouble in the future.
Penalty under Section 234E: ₹200 per day until the default is removed, subject to the TDS value.
Interest under Section 201: 1% per month for delay in deduction, 1.5% per month for delay in deposit.
Prosecution Risk: Continuous default may result in legal penalties and prosecution under the provisions of the income tax law.
Latest Updates on TDS Rules for Property Sales 2025
In 2025, the government strengthened digital compliance by making mandatory the e-filing of Form 26QB and releasing Form 16B only through the TRACES portal. Offline filing is not permitted anymore, making digital PAN verification mandatory.
The limit for compulsory TDS deduction is still ₹50 lakh for resident vendors, but the government is implementing enhanced scrutiny on several small transactions to evade tax deduction. With greater integration of property registries and income tax records, non-compliance will increasingly result in a notice. Timely filing and correct entry of vendor details by buyers are obligatory.
Wrapping It Up!
Knowledge of TDS on the sale of property is essential in every property deal over ₹50 lakh. Buyers are required to deduct and deposit 1% TDS through Form 26QB and furnish Form 16B to the sellers. In the case of NRIs, the provisions are different, with increased rates of TDS and more paperwork. Failure can lead to penalties, interest, or prosecution. Investing in property, don't forget financial diversification. Try ULIPs by Canara HSBC Life Insurance, which not just assist in long-term financial building but also supplement your tax plan, making your financial planning more complete and forward-looking.
Glossary
Form 26QB: A challan-cum-statement for TDS on property purchases; must be filed within 30 days of payment.
Form 16B: TDS certificate issued by the buyer to the seller as proof of tax deducted on property sale.
Section 194IA: Income Tax rule requiring 1% TDS on property transactions above ₹50 lakh by the buyer.
Tax Deduction Account Number: Mandatory for buyers purchasing property from NRIs to deposit TDS.
Section 206AA: A rule under which TDS is deducted at 20% if the seller fails to provide a valid PAN.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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