TDS on Property Purchase in India: The 1% Obligation That Surprises Most Buyers

Most homebuyers in India know about stamp duty. They know about registration charges. They budget for those because their broker tells them. What very few buyers know — until they are sitting at the sub-registrar’s office, documents ready, payment made — is that they were legally required to deduct 1% from every payment made to the seller and deposit it with the Income Tax Department before registering the property.

This is TDS under Section 194-IA of the Income Tax Act. It applies to every property purchase in India where the transaction value is ₹50 lakh or more. It is the buyer’s obligation, not the seller’s. And failure to comply — even unintentionally — attracts interest, penalty, and in some cases, prosecution.

This guide explains exactly what TDS on property is, when it applies, how to calculate it, how to deposit it, and what happens when it is not done correctly. It is written for buyers, but brokers who advise buyers without knowing this are exposing their clients to compliance risk they cannot afford.

What Is Section 194-IA and Who Does It Apply To?

Section 194-IA of the Income Tax Act, 1961, requires the buyer of immovable property to deduct tax at source at 1% of the total consideration (purchase price) at the time of making each payment to the seller. This provision was introduced in June 2013 to bring high-value property transactions into the tax reporting system.

Section 194-IA Applies When ALL of These Are True:

✓ The property is immovable property (residential or commercial — flat, plot, villa, office)

✓ The transaction value (sale consideration) is ₹50 lakh or more

✓ The seller is a resident Indian (different rules apply for NRI sellers)

✓ The buyer is any person — individual, company, HUF, partnership firm, etc.

Agricultural land is specifically exempt from Section 194-IA. Properties below ₹50 lakh are also exempt. There is no exemption for first-time buyers or self-occupied residential use.

Important — NRI sellers: If the seller is an NRI, a completely different provision applies — Section 195 of the Income Tax Act — with significantly higher TDS rates (20% on long-term capital gains, 30% on short-term capital gains). The NRI-seller scenario also requires a Tax Deduction Account Number (TAN) from the buyer. This guide covers only the resident-seller scenario under Section 194-IA.

How Much TDS Must Be Deducted?

The TDS rate under Section 194-IA is 1% of the total consideration. However, Finance Act 2022 introduced an important amendment: TDS is now deductible on the higher of the consideration stated in the agreement OR the stamp duty value (circle rate value) of the property.

When Must TDS Be Deducted — At Each Payment or Only at Registration?

TDS under Section 194-IA must be deducted at the time of payment — meaning at each payment made to the seller, not just at registration. If the buyer makes multiple payments — a booking amount, a progress payment, and a final payment at registration — TDS must be deducted at each stage.

This catches many buyers off guard. If a buyer pays a booking amount of ₹10 lakh on a ₹1 crore property, they must deduct ₹10,000 from that booking amount and deposit it as TDS before handing over the balance. Then when they pay the next tranche, they deduct 1% from that, and so on. The total TDS across all payments will equal 1% of the total consideration.

Step-by-Step: How to Pay TDS on Property

1

Go to the TIN NSDL website (tin.tin.nsdl.com) → e-payment → Form 26QB (TDS on Sale of Property)

2

Fill in Form 26QB: buyer PAN, seller PAN, property address, total consideration, TDS amount being deposited, payment date

3

Pay the TDS amount online via net banking or at an authorised bank branch. You do NOT need a TAN for Section 194-IA — only the buyer and seller PAN are required.

4

Download Form 16B (TDS certificate) from the TRACES portal after payment is processed. This typically takes 5–7 working days.

5

Give Form 16B to the seller. This is their proof of TDS deduction, used to claim credit against their capital gains tax liability.

Deadline for TDS Deposit

TDS under Section 194-IA must be deposited within 30 days from the end of the month in which the deduction is made. If TDS is deducted in June 2026, the deposit deadline is July 30, 2026. This deadline applies to each payment tranche separately.

Missing the deadline triggers interest at 1.5% per month from the date of deduction to the date of actual payment — compounding. A ₹1 lakh TDS obligation left unpaid for 6 months accrues ₹9,000 in interest before any penalty is considered.

What Happens If TDS Is Not Deducted or Not Deposited?

Consequences of Non-Compliance with Section 194-IA:

Late deduction interest: 1% per month from the date when TDS should have been deducted to the date of actual deduction.

Late deposit interest: 1.5% per month from date of deduction to date of actual deposit.

Penalty under Section 271C: A penalty equal to the amount of TDS not deducted — up to 100% of the TDS amount — can be levied by the tax officer.

Prosecution under Section 276B: For non-deposit of TDS after deduction — rigorous imprisonment of 3 months to 7 years plus fine. Rarely applied but on the statute.

Registration blocked: Many sub-registrars now require proof of Form 26QB filing before processing property registration. Arriving without TDS compliance can delay or block the transaction.

The Four Mistakes Brokers See Most Often

1. Forgetting the booking amount. The TDS obligation begins with the very first payment to the seller — including token or booking advance. If the total consideration is ₹50 lakh or more, TDS applies from payment one.

2. Using the wrong consideration figure. Since Finance Act 2022, TDS is on the higher of agreement price or circle rate value. Check the circle rate before calculating TDS.

3. Assuming one Form 26QB covers everything. A separate Form 26QB must be filed for each payment instalment. If there are joint sellers, each seller’s PAN must be addressed separately — one Form 26QB per seller, per instalment.

4. Not generating Form 16B for the seller. The seller needs Form 16B to claim TDS credit when filing their capital gains return. If the buyer does not provide it, the seller faces difficulty — and resentment is directed at whoever failed to manage this correctly.

Sirf Broker POV: TDS Is Not an Add-On. It Is Part of the Transaction.

The most reliable indicator of a broker’s transaction competence is what they tell their client before the deal is signed — not after the problem appears. TDS on property purchase has existed since 2013. Thirteen years on, it remains one of the most commonly mishandled compliance requirements in Indian residential transactions, because most buyers are first-time buyers who simply do not know it exists, and most brokers treat their role as ending when the deal is agreed.

Real estate brokerage in India is professionalising. The brokers who will command higher commission and repeat business are those who make the entire transaction — from LOI to registration — seamless for their clients. That means knowing TDS intimately: when it applies, how to file it, what the deadlines are, and what happens when it goes wrong. A client who registers their property without a compliance issue is a client who refers you to three others. A client who receives a tax department notice six months after registration for TDS default is a client who tells everyone what happened — including who their broker was.

Conclusion

TDS under Section 194-IA applies to every property purchase above ₹50 lakh in India. The rate is 1% of the higher of the transaction price or the circle rate value. Deposit via Form 26QB on the TIN NSDL portal within 30 days of the end of the payment month. Issue Form 16B to the seller. Non-compliance attracts interest, penalty, and can block registration. For buyers trying to understand what circle rate means for their transaction, our guide explains government valuations in property deals. For a complete view of what payments are made at each stage, see our guide on booking amount, advance payment, and token money. For post-purchase ownership transfer records, see our explainer on property mutation.

Frequently Asked Questions

Q: What is TDS on property purchase in India and when does it apply?
A: TDS (Tax Deducted at Source) under Section 194-IA of the Income Tax Act requires the buyer of immovable property to deduct 1% of the total purchase consideration and deposit it with the Income Tax Department. It applies when the total consideration is ₹50 lakh or more and the seller is a resident Indian. Agricultural land is exempt. The obligation is entirely on the buyer — not the seller.

Q: What is the TDS rate on property purchase in India?
A: The TDS rate is 1% of the higher of the agreed sale consideration or the stamp duty (circle rate) value of the property, as amended by Finance Act 2022. If the agreed price is ₹80 lakh but the circle rate value is ₹90 lakh, TDS of ₹90,000 (1% of ₹90 lakh) must be deducted and deposited.

Q: How do I pay TDS on property purchase in India?
A: File Form 26QB on the TIN NSDL portal (tin.tin.nsdl.com). You need only the PAN of the buyer and seller — no TAN is required for Section 194-IA. After payment, download Form 16B from the TRACES portal within 5 to 7 working days and give it to the seller as their TDS certificate.

Q: When must TDS on property be deposited?
A: Within 30 days from the end of the month in which the deduction was made. If TDS was deducted in June 2026, the deposit deadline is July 30, 2026. A separate Form 26QB must be filed for each payment instalment — TDS is not a one-time deduction only at registration.

Q: What happens if TDS on property is not deducted or deposited on time?
A: Late deduction attracts interest at 1% per month. Late deposit attracts interest at 1.5% per month. A penalty under Section 271C of up to 100% of the TDS amount can be levied. Many sub-registrars now require Form 26QB proof before processing registration — non-compliance can delay or block the transaction entirely.

Q: Does TDS apply on the booking amount or token money paid to the seller?
A: Yes. TDS applies from the very first payment — including booking amount or token money — if the total agreed consideration is ₹50 lakh or more. Each payment instalment triggers a separate TDS obligation and a separate Form 26QB filing. Assuming TDS is only required at the final registration payment is one of the most common and costly errors buyers make.

Q: Is TDS on property different if the seller is an NRI?
A: Yes, significantly. When the seller is an NRI, Section 195 of the Income Tax Act applies instead of Section 194-IA. The TDS rates are much higher — typically 20% on long-term capital gains and 30% on short-term capital gains. The buyer also needs a TAN. NRI-seller transactions require a qualified Chartered Accountant to handle the TDS component correctly.

Sources:
Income Tax Act, 1961 — Section 194-IA
Finance Act 2022 — Amendment (TDS on higher of agreement price or stamp duty value)
Income Tax Department, Government of India — TIN NSDL Form 26QB Guidelines
CBDT Circular No. 4/2020 — Clarifications on Section 194-IA

Note: This article covers Section 194-IA for resident Indian sellers only. NRI-seller transactions involve different provisions and significantly higher TDS rates. Consult a qualified Chartered Accountant for transactions involving NRI sellers or complex joint ownership structures.

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Tax laws are subject to change. Consult a qualified Chartered Accountant or tax professional for advice on your specific property transaction.