TDS on Property Purchase: Section 194-IA and Form 26QB
The buyer deducts the tax. Not the seller, not the builder, not the lawyer who drafted the deed. If you are buying a flat priced at Rs 50 lakh or more, Section 194-IA makes you a tax collector for the government, and the penalty for forgetting lands on you rather than on the person who received the money.
Most first-time buyers find this out three months after registration, when a demand notice arrives from the CPC-TDS centre in Ghaziabad. Here is the whole mechanism, including the joint-buyer rule that changed in October 2024 and still trips up conveyancing lawyers.
Key takeaways
- 1% of the full consideration, deducted by the buyer, on any transfer of immovable property other than agricultural land where the price or the stamp duty value is Rs 50 lakh or more.
- The Rs 50 lakh is a threshold, not an exemption. On Rs 60 lakh you deduct Rs 60,000, not Rs 10,000.
- Since 1 October 2024 the threshold is tested on aggregate consideration across all buyers and all sellers. Two buyers paying Rs 30 lakh each for a Rs 60 lakh flat are both caught.
- Form 26QB is due within 30 days from the end of the month of deduction, and you need one form per buyer-seller pair — two buyers and two sellers means four forms.
- Late filing costs Rs 200 a day under Section 234E, plus 1% or 1.5% a month of interest, plus a Section 271H penalty of Rs 10,000 to Rs 1 lakh.
What Section 194-IA actually says
Any person who is a transferee — the buyer — must deduct 1% of the consideration when paying a resident transferor for immovable property that is not rural agricultural land, provided the consideration or the stamp duty value is Rs 50 lakh or more.
Four details do the damage:
- Higher of price or stamp duty value. Since April 2022 the 1% applies to whichever is greater. If you buy at Rs 90 lakh and the circle-rate value is Rs 95 lakh, you deduct Rs 95,000. There is no 10% tolerance band here, unlike Sections 43CA and 50C.
- "Consideration" is defined widely. Car parking, club membership, electricity and water connection charges, maintenance advance and any similar charge incidental to the transfer all count towards both the threshold and the deduction. Builders often invoice these separately, which does not remove them.
- Instalments are covered. On an under-construction purchase you deduct 1% of every payment as you make it, not one lump at possession.
- No TAN needed. You quote your PAN and the seller's PAN. That is the entire point of Form 26QB — an ordinary buyer is not expected to run a TDS account.
Section 194-IA does not apply where the seller is a non-resident. That case falls under Section 195 at much higher rates and does require a TAN, which is set out separately in our guide for an NRI selling property in India. Confirm the seller's residential status in writing before you assume 1%.
The joint-buyer rule that changed
For years, a widely used device was to split a Rs 60 lakh flat between two buyers so each paid Rs 30 lakh, argue that neither crossed Rs 50 lakh, and deduct nothing. Some tribunals accepted it. The Finance (No. 2) Act 2024 ended the argument by inserting a proviso, effective 1 October 2024: where there is more than one transferor or more than one transferee, consideration means the aggregate of the amounts paid by all transferees to all transferors.
So the test is on the property, and the deduction is on each buyer's share.
Worked example: two buyers, one seller
A couple buys a flat in Sector 82, Gurgaon for Rs 90 lakh. Stamp duty value is Rs 88 lakh, so the higher figure of Rs 90 lakh governs. Buyer A funds 60%, Buyer B funds 40%. There is one seller.
| Step | Buyer A | Buyer B |
|---|---|---|
| Share of consideration | Rs 54,00,000 | Rs 36,00,000 |
| Does 194-IA apply? | Yes — aggregate is Rs 90 lakh | Yes — same test, even though the share is under Rs 50 lakh |
| TDS at 1% | Rs 54,000 | Rs 36,000 |
| Amount paid to the seller | Rs 53,46,000 | Rs 35,64,000 |
| Forms 26QB to file | 1 | 1 |
| Form 16B to hand over | 1 | 1 |
Total deposited: Rs 90,000. If the same flat had two sellers as well, the count becomes four Forms 26QB — one for each buyer-seller combination — each carrying that pair's slice of the money. The number of forms is buyers multiplied by sellers, every time.
Getting the funding split right matters beyond TDS, since the same ratio drives the rental income and capital gains position later — see how joint ownership is taxed.
Filing Form 26QB, step by step
- Deduct the 1% at the time of payment or credit, whichever is earlier. In practice, at each instalment or at the deed.
- File Form 26QB on the income tax e-filing portal under e-Pay Tax. It is a challan-cum-statement, so filing and paying happen together.
- Deadline: 30 days from the end of the month in which the deduction was made. Deduct on 12 September, file by 30 October.
- Keep the acknowledgement number. Nothing on TRACES works without it.
- Register on TRACES as a taxpayer, wait for the challan to process — usually five to seven working days — then download Form 16B.
- Hand Form 16B to the seller. It is their proof of credit, and a seller who does not get it will chase you for years.
Two practical warnings. Enter the seller's PAN character by character from the PAN card, not from the agreement — a wrong PAN means the credit lands with a stranger and correction requires the seller's approval on TRACES. And where the seller has no PAN, Section 206AA pushes the rate to 20%, which is a conversation to have before the token money moves.
What it costs when you get it wrong
| Failure | Provision | Cost |
|---|---|---|
| Did not deduct at all | Section 201(1A) | 1% a month from the date it was deductible to the date deducted |
| Deducted but did not deposit | Section 201(1A) | 1.5% a month from deduction to deposit |
| Filed Form 26QB late | Section 234E | Rs 200 a day, capped at the TDS amount |
| Did not file at all | Section 271H | Rs 10,000 to Rs 1,00,000, on top of fee and interest |
| Seller has no PAN | Section 206AA | Rate rises from 1% to 20% |
On a Rs 90 lakh purchase where nothing was deducted and the demand arrives 14 months after registration, the arithmetic runs roughly: Rs 90,000 of tax, about Rs 12,600 of interest at 1% a month, and a Rs 200-a-day fee that has run some 13 months from the Form 26QB due date — about Rs 79,000, still short of its Rs 90,000 ceiling. A shade over Rs 1.8 lakh, for a form that takes twenty minutes. The fee hits that ceiling at 450 days, so waiting does not cap the damage for long.
There is one relief. Under the proviso to Section 201(1), if the seller has filed their return, declared the sale and paid the tax, the buyer is not treated as an assessee-in-default — but you must produce a chartered accountant's certificate in Form 26A, and interest still runs until the seller's payment date. It is a rescue, not a plan.
The clauses to put in the agreement
- The seller's residential status, declared and warranted, with an indemnity if it is wrong.
- The exact funding split between joint buyers, in percentages.
- An acknowledgement that the price is quoted inclusive of TDS, so the seller cannot demand the full amount at the registration desk. This argument, in the sub-registrar's queue, is the single most common reason a completion gets delayed by a day.
- An obligation on the seller to furnish PAN and to approve TRACES corrections.
Sellers should plan for the deduction as working capital, not as tax — it is a credit against a liability computed on the gain, and the two rarely match. The gain side is covered in capital gains tax on a property sale, and if you are on the other side of the table, selling a flat quickly has the practical sequencing.
FAQ
Is TDS applicable if the property is exactly Rs 50 lakh?
Yes. The section applies where consideration or stamp duty value is Rs 50 lakh or more, so Rs 50,00,000 is caught and Rs 49,99,000 is not. TDS on a Rs 50 lakh flat is Rs 50,000.
Do joint buyers each need to file a separate Form 26QB?
Yes. One form per buyer-seller pair, each showing that buyer's share of the consideration and 1% of it. Two buyers and one seller means two forms; two buyers and two sellers means four.
What if my share is below Rs 50 lakh but the flat costs more?
You still deduct. Since 1 October 2024 the threshold is tested on the aggregate consideration paid by all buyers to all sellers, so a Rs 36 lakh share of a Rs 90 lakh flat carries Rs 36,000 of TDS.
How long do I have to file Form 26QB?
Thirty days from the end of the month in which you deducted. A deduction on 5 March is due by 30 April. Miss it and Section 234E charges Rs 200 a day until the TDS amount itself is reached.
Does TDS apply on a plot or agricultural land?
It applies to land, buildings and parts of buildings above the threshold, but rural agricultural land as defined in the Act is specifically excluded. Urban agricultural land is not excluded, and the classification is decided by the municipal-limit and population tests, not by what the revenue record calls it.
Before you sign the deed
Confirm the seller's residential status and PAN, agree the funding split in writing, and diarise the 26QB deadline on the day you pay rather than the day you register. If you are working through a purchase and want the TDS, stamp duty and funding structure checked together before the agreement to sell is signed, send us the draft and we will mark it up.
