Buying a property in India is not just a financial milestone—it is also a compliance-heavy event. One rule that often surprises first-time buyers is the requirement to deduct TDS (Tax Deducted at Source) when purchasing a property. Although it may sound intimidating, TDS on property purchases is a straightforward mechanism introduced by the government to track and regulate high-value real estate transactions.

This article breaks down the concept in a simple, original, and practical way so that you understand why it is payable, how it is paid, and the consequences of non-compliance.

Why Does TDS Apply to Property Purchases?

Real estate is one of the largest sources of unreported income. To curb under-reporting, the Income Tax Department introduced Section 194-IA, which mandates that a buyer must deduct TDS from the amount paid to the seller.

Think of TDS in this context as a reporting tool rather than being an additional tax; it is simply a portion withheld by the buyer as proof of the transaction. It ensures the seller’s PAN, the property value, and the flow of funds are officially recorded.

When Does TDS Become Mandatory?

TDS under Section 194-IA is applicable when:

a. You buy an immovable property (other than agricultural land).
b. The property’s sale consideration exceeds ₹50 lakhs.

Even if you make payments in instalments (such as during under-construction purchases), TDS must be deducted proportionately on each payment, not just at the end.

Rate of TDS

a. One percent of the sale consideration is deducted as TDS.
b. The seller must provide PAN; otherwise, the rate jumps to 20% (Section 206AA).
c. If there are multiple buyers or multiple sellers, the TDS responsibility is proportionateto each.

Important Rule Most Buyers Miss

From FY 2022–23, TDS must be deducted on the higher of:

a. Sale consideration, or
b. Stamp duty value

This eliminates undervaluation of property at the agreement stage.

How Does a Buyer Pay TDS? – Step-by-Step Walkthrough

Unlike many other taxes, paying TDS on property does not require a TAN (Tax Deduction Account Number). Instead, the buyer uses Form 26QB.

Step 1: Deduct TDS before making payment to the seller

For example:
If your flat costs ₹80 lakh, you pay the seller ₹79.2 lakh and deposit ₹80,000 as TDS to the government.

Step 2: File Form 26QB

This is a one-time challan-cum-statement filed online for each instalment payment.
If you pay the seller in five instalments, you must file five separate Form 26QB documents.

Step 3: Make a payment online

You can pay through net banking or generate a challan and pay physically.

Step 4: Provide the TDS certificate to the seller

After the payment is processed, you issue Form 16B to the seller.
The seller needs this to claim credit in their ITR.

What Happens to the Seller?

Once the buyer deposits the TDS:

a. It reflects in the seller’s Form 26AS.
b. The seller gets credit for the tax.
c. It reduces their tax liability at the time of filing the ITR.

In short, TDS is not a loss—it is merely an advance deduction.

Common Mistakes Buyers Should Avoid

1. Paying the full amount to the seller without deducting TDS
→ The buyer becomes liable to pay the entire TDS amount from their own pocket, along with interest.

2. Incorrect PAN or spelling mistakes in Form 26QB
→ Leads to a mismatch in the seller’s tax records.

3. Ignoring TDS for joint ownership
→ Every buyer-seller combination requires its own Form 26QB.

4. Missing the payment deadline
→ TDS must be paid within 30 daysfrom the month of deduction.

5. Assuming TDS is only on ready-to-move properties
→ Even under-construction properties qualify.

Illustrative Example (Simple and Relatable)

Imagine you are buying a property worth ₹60 lakh from Mr. Rao.

Step A: Deduction

TDS = 1% of ₹60,00,000
TDS = ₹60,000

You pay Mr. Rao: ₹59,40,000

Step B: Filing

You must file Form 26QB for ₹60,000 and remit the payment online.

Step C: TDS Certificate

You download Form 16B and give it to Mr. Rao.

Mr. Rao sees ₹60,000 reflected in his Form 26AS as a tax credit.

Consequences of Non-Compliance

If you don’t comply with TDS rules:

a. Interest @ 1% per monthfor failing to deduct TDS.
b. Interest @ 1.5% per monthfor deducting but not depositing.
c. Penalty up to ₹1 lakhfor not filing Form 26QB.
d. Demand notices can be issued to the buyer, not the seller.

The government is strict because TDS provides its primary visibility into property transactions.

Why Buyers Should Take TDS Seriously

Although the seller suffers the actual tax consequences, the buyer faces the compliance burden. Not completing TDS formalities can delay home loan disbursement, registration, and closing of the deal.

In today’s context of digital scrutiny, TDS on property acts as a compliance gateway safeguarding both the buyer and the tax system.

Final Thoughts

TDS on purchase of property is not an additional cost — it’s a compliance checkpoint woven into India’s real estate transaction system. Once you understand the sequence—deduct, file, deposit, issue certificate—the process becomes routine.

A well-informed buyer avoids penalties, protects the seller’s tax credits, and ensures the transaction remains clean and transparent.

For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com 

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