TDS on property under section 194-IA is a mandatory compliance for buyers of immovable property in India and must be followed strictly to avoid interest and penalties. This provision was introduced to track high-value real estate transactions and ensure reporting of capital gains. However, due to lack of awareness, many buyers end up paying TDS late or incorrectly, leading to interest, penalty, and avoidable disputes with sellers.
This guide explains when TDS is applicable, the correct rate, step-by-step compliance, Form 26QB and Form 16B process, and common mistakes to avoid.
What Is Section 194-IA?
Section 194-IA of the Income-tax Act mandates that the buyer of immovable property (other than agricultural land) must deduct tax at source at the time of payment or credit to the seller.
Key points:
- Responsibility lies entirely on the buyer
- Seller’s capital gains are irrelevant for buyer’s TDS obligation
- Applies even if seller is a resident individual
When Is TDS on Property Applicable?
TDS under section 194-IA applies if all the following conditions are met:
- Property is immovable property (land, building, or part thereof)
- Property value is ₹50 lakh or more
- Seller is a resident of India
- Buyer makes payment to the seller
Once the threshold of ₹50 lakh is crossed, TDS applies on the entire consideration, not just the excess amount.
Rate of TDS under Section 194-IA
- Standard rate: 1% of sale consideration
- If seller does not provide PAN: 20%
Incorrect PAN or mismatch can lead to higher deduction and refund issues for the seller.
When Should TDS Be Deducted?
TDS must be deducted at the time of payment or credit, whichever is earlier.
This includes:
- Advance payment
- Instalments
- Final payment
TDS is required to be deducted on every instalment, not only on the last payment.
Step-by-Step Compliance under Section 194-IA
Step 1: Deduct TDS
At the time of making payment to the seller, deduct TDS at the applicable rate.
Example:
Purchase price ₹80 lakh → TDS ₹80,000
Step 2: Deposit TDS Using Form 26QB
- Deposit TDS using Form 26QB (challan-cum-statement)
- Payment must be made within 30 days from the end of the month in which TDS is deducted
- No TAN is required for the buyer
Step 3: Download and Issue Form 16B
- After Form 26QB is processed, buyer can download Form 16B from TRACES
- Form 16B must be issued to the seller within 15 days from the due date of Form 26QB
This is essential for seller to claim TDS credit.
Important Practical Points Buyers Often Miss
Multiple Buyers or Sellers
- Separate Form 26QB is required for each buyer-seller combination
- TDS must be proportionately deducted
Instalment Payments
- TDS applies on each instalment
- Delaying TDS till final payment attracts interest
Booking through Builder
- TDS applies even on under-construction properties
- Payments to builders are also covered
Interest and Penalty for Non-Compliance
Failure to comply attracts consequences:
Interest
- 1% per month for non-deduction
- 1.5% per month for late deposit
Penalty
- Late filing fee under section 234E
- Penalty under section 271H in extreme cases
These costs can quickly exceed the original TDS amount.
Common Mistakes to Avoid
- Not deducting TDS on advance payments
- Deducting TDS only on last instalment
- Using wrong PAN of seller
- Filing Form 26QB with incorrect assessment year
- Assuming builder or seller will handle TDS
- Ignoring Form 16B issuance
Most disputes arise due to procedural ignorance, not tax evasion.
Special Note: Seller Is Non-Resident
If the seller is a non-resident, section 194-IA does not apply.
Instead, section 195 applies, and TDS rates can be much higher.
Buyers must never assume residency—always verify.
Conclusion
TDS on property under section 194-IA is simple but strict. The law places full responsibility on the buyer, and ignorance is not accepted as an excuse. Correct deduction, timely payment, accurate filing of Form 26QB, and issuance of Form 16B ensure smooth compliance and prevent future disputes.
For high-value or complex transactions, professional guidance before payment is far safer than correction later.
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