TDS on Property Purchase and Sale Transactions
Buying or selling property in India involves not just legal paperwork but also tax compliance. One key requirement is the deduction of Tax Deducted at Source (TDS) on certain property transactions. This tax is collected at the time of sale to ensure that the government receives its share of tax revenue without delay. If you’re planning to buy or sell a property worth ₹50 lakh or more, itis essential to understand how TDS on property purchase works, including its applicability, rates, and filing process. This guide provides comprehensive information on how to stay compliant and avoid penalties.
BOOK A FREE DEMO
What is TDS in property transactions?
TDS (Tax Deducted at Source) in property deals ensures tax is collected when a property is sold, rather than after the seller files their return. The buyer deducts a percentage of the property’s sale price and deposits it directly with the government.
Applicability under Section 194IA
Section 194IA mandates that if a property (other than rural agricultural land) is purchased for ₹50 lakh or more, the buyer must deduct and deposit TDS before making full payment to the seller.
Applicability of TDS on Property Transactions
Minimum threshold – ₹50 lakh rule
TDS applies only if the sale consideration is ₹50 lakh or above. Any transaction below this threshold is exempt.
Who deducts TDS – Buyer or Seller?
The buyer is responsible for deducting TDS and depositing it with the Income Tax Department.
When should TDS be deducted?
TDS must be deducted at the time of payment or credit to the seller’s account, whichever occurs first. If payments are made in instalments, TDS is deducted on each instalment.
TDS Rate and Calculation
Current TDS rate under Section 194IA
- 1% of the total sale consideration if the seller provides a valid PAN.
- 20% if the seller does not furnish PAN.
Example – TDS on property worth ₹75 lakh
If a property is sold for ₹75 lakh, TDS = 1% of ₹75 lakh = ₹75,000. The buyer will pay ₹74,25,000 to the seller and ₹75,000 to the government.
Example – Multiple buyers/sellers
For joint ownerships, each buyer must deduct TDS on their share and file separate Form 26QB for every buyer-seller combination.
TDS Rate Table
| Transaction Type | Section | Threshold | TDS Rate |
|---|---|---|---|
| Purchase of property (resident seller) | 194IA | ₹50 lakh & above | 1% |
| Purchase of property (NRI seller) | 195 | Nil | 20%* |
| If seller’s PAN not provided | 194IA | ₹50 lakh & above | 20% |
*Rate varies depending on capital gains and surcharge.
Filing TDS on Property Transactions
- File Form 26QB within 30 days of the end of the month in which deduction occurs.
- Provide Form 16B (TDS certificate) to the seller as proof.
- Payment can be made online through the TIN NSDL portal or authorized banks.
Consequences of Non-Compliance
Penalty for not deducting TDS
Failure to deduct TDS can lead to penalties equal to the amount of tax not deducted.
Late filing fee & interest charges
Late payment or filing attracts interest under Section 201(1A) and fees under Section 234E.
Notices from IT department
The Registrar or Sub-Registrar sends details of all high-value property transactions to the Income Tax Department. If TDS is not reflected, the department can issue notices to recover tax, interest, and penalties from the buyer.
Special Cases in Property TDS
TDS on agricultural land (exemptions)
Rural agricultural land is exempt from TDS, even if sold for more than ₹50 lakh.
Joint ownership properties
Each buyer must deduct and deposit TDS on their respective share of the transaction.
TDS for NRI sellers (Section 195)
For NRI sellers , TDS is generally 20% or more depending on the nature of capital gains.
Conclusion
TDS on property purchase ensures smooth tax collection and compliance. Buyers must deduct and deposit 1% TDS on transactions of ₹50 lakh or more, file Form 26QB, and provide Form 16B to the seller. Correct deduction and timely filing prevent penalties and legal issues.
I am a chartered accountant with over 14 years of experience. I understand income tax, GST, and balancing financial records. I analyze financial statements and tax codes effectively. However, I also have a passion for writing, which is different from working with numbers. Recently, I started writing articles and blog posts. My goal is to make finance easier for everyday people to understand.
Frequently Asked Questions
-
Is TDS applicable on property purchases below ₹50 lakh?
No, TDS is not required if the property value is less than ₹50 lakh.
-
How do I file TDS if there are two buyers?
Each buyer must file a separate Form 26QB reflecting their share.
-
Can I claim a refund of TDS deducted on property?
Yes, the seller can claim a refund while filing their income tax return if excess TDS was deducted.
-
What happens if TDS is not deducted by the buyer?
The buyer may face interest, penalties, and a tax demand equal to the undeducted TDS.
-
Is agricultural land exempt from TDS provisions?
Yes, rural agricultural land is exempt from TDS under Section 194IA.
