TDS on Property Purchase — Section 194IA Step-by-Step Guide FY 2025-26

Section 194IA of the Income Tax Act 1961 was introduced with effect from 1 June 2013 to bring high-value immovable property transactions into the TDS framework. Under this section, any person buying immovable property other than agricultural land for a consideration of Rs.50 lakh or more must deduct TDS at 1% of the total consideration at the time of payment to the seller. This TDS obligation rests entirely with the buyer — not the seller — creating a compliance requirement that many first-time home buyers are unaware of.nnThe term immovable property under Section 194IA covers residential flats, independent houses, bungalows, villas, commercial properties, offices, shops, industrial plots, and non-agricultural land. Agricultural land in rural areas as defined under Section 2(14) of the Income Tax Act is specifically excluded. The Rs.50 lakh threshold applies to the total consideration agreed between buyer and seller — not the stamp duty value or circle rate. Where the consideration is below Rs.50 lakh but the stamp duty value exceeds it, no TDS is required under Section 194IA.nnA critical simplification under Section 194IA is that no TAN is required for the buyer. The buyer uses their PAN and the seller's PAN to file Form 26QB and deposit TDS. This challan-cum-statement format means a single online form serves as both the payment challan and the TDS return, making compliance accessible to individual home buyers who would otherwise need to navigate the full TAN registration and quarterly return process.

The obligation to deduct and deposit TDS under Section 194IA rests entirely with the buyer of the property. This applies to all buyers regardless of their category — individual buyers, HUFs, companies, firms, NRIs, and any other legal entity. The seller plays no active role in the TDS process and simply receives sale consideration net of 1% TDS. Sellers who refuse to accept this deduction expecting the full agreed price are in error — the legal obligation is on the buyer, and the seller can claim full TDS credit in their ITR without any hardship.nnSection 194IA specifically applies only where the property seller is a resident of India. For NRI sellers, the applicable section is Section 195 rather than Section 194IA, and the TDS computation is significantly different — the buyer must deduct TDS on the capital gains amount at 20% for LTCG (property held more than 2 years) or 30% for STCG (held up to 2 years), not merely 1% of the sale consideration. The distinction between resident and NRI sellers is therefore critical and must be established by the buyer before deducting any TDS.nnFor joint buyers or joint sellers, a separate Form 26QB must be filed for each unique buyer-seller PAN combination. If two buyers jointly purchase from two joint sellers, four Form 26QBs are required. The consideration for each Form 26QB represents the respective buyer's share of payment to the respective seller's share. This requirement is a frequent source of errors in resale apartment transactions involving joint families.

Form 26QB is the challan-cum-statement that every property buyer must file under Section 194IA. It must be filed within 30 days from the end of the month in which the payment was made or TDS was deducted. For a payment made on 20 July 2025, Form 26QB must be filed by 31 August 2025.nnStep 1: Visit incometax.gov.in and navigate to e-Pay Tax then select TDS on Sale of Property Form 26QB. Step 2: Enter your PAN as buyer, the seller's PAN, complete property address including PIN code, property type such as land or building, financial year, and the month and year of deduction. Step 3: Enter total sale consideration and the TDS amount which is 1% of consideration. Step 4: Choose payment mode — net banking or debit card of authorised banks — and complete payment. Step 5: Note the 9-digit acknowledgement number generated on successful payment. Step 6: Log into the TRACES portal at tdscpc.gov.in using this acknowledgement number together with buyer and seller PANs. Step 7: Navigate to Downloads then Form 16B and generate the TDS certificate to provide to the seller.nnForm 16B must be provided to the seller within 15 days of the due date for filing Form 26QB. For payments made in July with Form 26QB due by 31 August, Form 16B must be issued to the seller by 15 September. The seller uses Form 16B to claim the 1% TDS credit against their capital gains tax liability when filing their ITR.

Under-construction property purchases through construction-linked payment plans are one of the most common areas of inadvertent non-compliance under Section 194IA. Many buyers incorrectly assume that TDS must be deducted only at the time of property registration or on the final possession payment. This assumption is wrong — TDS at 1% must be deducted on each instalment payment made to the builder, provided the total property consideration exceeds Rs.50 lakh.nnFor each instalment payment, a separate Form 26QB must be filed and TDS deposited within 30 days from the end of the month of payment. Over a typical construction-linked payment plan spanning 3 to 5 years with 10 to 20 instalments, this results in 10 to 20 individual Form 26QB filings. The total TDS across all instalments equals 1% of the total agreed consideration. Reputable builders include TDS deduction reminders in their instalment demand letters, but the legal obligation remains entirely with the buyer.nnIf a buyer discovers mid-way through a project that they missed TDS on earlier instalments, the correct approach is to deduct the shortfall from a subsequent instalment, file the applicable Form 26QBs for missed periods with applicable interest under Section 201(1A), and deposit interest at 1% per month for the non-deduction period. Proactively correcting past defaults before receiving a scrutiny notice generally results in the AO limiting consequences to interest without imposing penalties under Section 271C.

The penalty structure for Section 194IA non-compliance mirrors that of other TDS sections but the monetary amounts are large given the high property values involved. Interest under Section 201(1A) at 1% per month accrues from the date of non-deduction to the date of actual deduction. For a Rs.1 crore property where the buyer delayed TDS for 6 months, interest on Rs.1,00,000 TDS at 1% per month for 6 months equals Rs.6,000 — modest relative to the property value but avoidable.nnLate filing of Form 26QB attracts Rs.200 per day under Section 234E from the day after the due date. For a Form 26QB due 31 August but filed on 30 November, the late fee is Rs.200 per day for 91 days = Rs.18,200. Additionally, the seller cannot claim TDS credit in their ITR if the buyer has not deposited TDS and filed Form 26QB, creating a significant friction point between buyer and seller in post-registration dealings. Some sub-registrar offices now require proof of TDS compliance before registering the property, though this is not yet uniform across all states.nnA penalty equal to the TDS amount not deducted may be levied under Section 271C. For a Rs.2 crore property this would be Rs.2,00,000 in potential penalty on top of interest. Buyers receiving income tax notices for Section 194IA non-compliance should file Form 26QB immediately with interest to stop the running of further penalties and prevent escalation to demand and prosecution proceedings.