TDS on Property Purchase: Section 194-IA Compliance — Form 26QB, Rate & Threshold
Quick Answer
Under Section 194-IA of the Income Tax Act, 1961, every buyer of immovable property (other than agricultural land) is required to deduct TDS at 1% of the consideration or stamp duty value (whichever is higher) if the amount equals or exceeds Rs.50 lakhs. The TDS must be deposited with the government through Form 26QB within 30 days from the end of the month in which the deduction was made. At Virtual Auditor, we handle end-to-end Section 194-IA compliance for property buyers and sellers — from TDS computation (including stamp duty value comparison introduced by Finance Act 2022) to Form 26QB filing, Form 16B generation, and resolution of demand notices arising from non-compliance.
Definition — Section 194-IA: Introduced by the Finance Act, 2013 (effective 01-06-2013), Section 194-IA requires any person (the transferee/buyer), at the time of credit or payment (whichever is earlier) of consideration for transfer of any immovable property (other than agricultural land), to deduct income-tax at the rate of 1% of the consideration or the stamp duty value of such property, whichever is higher — provided such consideration (or stamp duty value) is Rs.50 lakhs or more.
Definition — Immovable Property (for Section 194-IA): Any land (other than agricultural land as defined in Section 2(14)(iii)) or any building or part of a building. This includes residential flats, commercial offices, plots (non-agricultural), shops, villas, and any built-up structure or part thereof.
When Does Section 194-IA Apply?
The Rs.50 Lakh Threshold
TDS under Section 194-IA is triggered only when the consideration for the transfer of immovable property or the stamp duty value of such property is Rs.50 lakhs or more. This threshold applies to the total consideration for the property, not to each instalment or payment separately.
Key aspects of the threshold:
- Consideration vs stamp duty value: Following the Finance Act 2022 amendment (effective 01-04-2022), TDS is deducted on the higher of the actual consideration and the stamp duty value. If a property is purchased for Rs.48 lakhs but its stamp duty value is Rs.55 lakhs, TDS applies because the stamp duty value exceeds Rs.50 lakhs. The TDS is computed at 1% of Rs.55 lakhs (the higher value).
- Total consideration: The Rs.50 lakh threshold is tested against the aggregate consideration for the property. If a flat costs Rs.60 lakhs payable in 4 instalments of Rs.15 lakhs each, TDS must be deducted on each instalment (1% of Rs.15 lakhs = Rs.15,000 per instalment) because the total consideration exceeds Rs.50 lakhs.
- Inclusive of all charges: “Consideration” includes all payments — base price, club membership fees, car parking charges, advance maintenance charges, and any other amounts paid in connection with the transfer. GST, however, is excluded from the TDS computation as per CBDT Circular No. 23/2017.
Exclusions from Section 194-IA
Section 194-IA does not apply in the following situations:
- Agricultural land: Transfer of agricultural land (as defined in Section 2(14)(iii)) is excluded. This includes land situated in any area outside the jurisdiction of a municipality, cantonment board, or notified area committee, where the population does not exceed the specified thresholds.
- Consideration below Rs.50 lakhs: If both the actual consideration and stamp duty value are below Rs.50 lakhs, no TDS obligation arises.
- NRI seller: When the seller is a non-resident, Section 194-IA does not apply. Instead, Section 195 governs TDS on payments to non-residents, with significantly higher rates based on the nature of income (capital gains rates apply).
- Compulsory acquisition: Where the transfer is by way of compulsory acquisition under any law, and the consideration is determined or approved by the Central Government, State Government, RBI, or NCLT, Section 194-IA does not apply.
TDS Computation Under Section 194-IA
Rate of TDS
| Scenario | TDS Rate | Basis of Computation |
|---|---|---|
| Seller furnishes PAN | 1% | Higher of consideration or stamp duty value |
| Seller does not furnish PAN (Section 206AA) | 20% | Higher of consideration or stamp duty value |
| Seller is a specified person with non-filer status (Section 206AB) | 5% (double the applicable rate or 5%, whichever is higher) | Higher of consideration or stamp duty value |
No surcharge or cess: TDS under Section 194-IA is deducted at the flat rate of 1% without adding surcharge or health and education cess. This is because Section 194-IA requires deduction “at the rate of one per cent” — no provision for grossing up with surcharge/cess exists for this section.
Computation Example
Consider a property transaction with the following details:
- Agreement value (consideration): Rs.85,00,000
- Stamp duty value (circle rate/guideline value): Rs.90,00,000
- GST (applicable on under-construction property): Rs.4,25,000
TDS computation: The higher of consideration (Rs.85 lakhs) and stamp duty value (Rs.90 lakhs) is Rs.90 lakhs. GST of Rs.4.25 lakhs is excluded from TDS computation (CBDT Circular No. 23/2017). TDS = 1% of Rs.90,00,000 = Rs.90,000.
Expert Insight — CA V. Viswanathan, FCA, ACS, CFE (IBBI/RV/03/2019/12333)
The Finance Act 2022 amendment introducing the stamp duty value comparison was a significant change that many property buyers remain unaware of. Before this amendment, TDS was computed only on the actual consideration paid. Now, even if you negotiate a below-market price, TDS must be computed on the stamp duty value if it is higher. At Virtual Auditor, we advise buyers to obtain the stamp duty valuation (circle rate) from the sub-registrar’s office before executing the sale deed. This is particularly important in states like Tamil Nadu and Karnataka where guideline values have been revised upwards significantly in recent years — the gap between negotiated price and stamp duty value can be substantial, directly impacting TDS computation and the seller’s capital gains computation under Section 50C.
Form 26QB: Filing Process
Step-by-Step Filing Procedure
Form 26QB is the challan-cum-statement for reporting TDS deducted under Section 194-IA. The filing process is entirely online:
- Navigate to the e-filing portal: Go to incometax.gov.in and access the “e-Pay Tax” section. Login is not mandatory — the e-Pay Tax facility is available to non-registered users as well.
- Select Form 26QB: Under the TDS on Sale of Property section, select Form 26QB (TDS on Sale of Immovable Property).
- Fill buyer details: PAN of buyer(s), name, address, contact details, and category (individual/HUF/company/firm/others).
- Fill seller details: PAN of seller(s), name, address, and category.
- Property details: Address of the property, type (land/building/flat), date of agreement, total consideration, stamp duty value, and date of payment/credit.
- TDS details: Amount of TDS deducted, date of deduction, and amount being paid.
- Make payment: Pay the TDS through net banking, debit card, or at authorised bank branches using a print of the filled Form 26QB.
- Download acknowledgement: After successful payment, download the acknowledgement and CIN (Challan Identification Number) for records.
Multiple Buyers or Sellers
When a property has multiple buyers or multiple sellers, a separate Form 26QB must be filed for each unique buyer-seller combination. For instance, if 2 buyers purchase property from 3 sellers, a total of 6 Form 26QB filings are required (2 x 3 = 6). Each Form 26QB reports the proportionate consideration and TDS attributable to that specific buyer-seller combination.
Time Limit for Filing Form 26QB
Form 26QB must be filed and TDS must be deposited within 30 days from the end of the month in which the TDS was deducted. For example, if TDS is deducted on 15th August 2026, Form 26QB must be filed and TDS deposited by 30th September 2026.
Form 16B: TDS Certificate for the Seller
After filing Form 26QB and depositing TDS, the buyer must issue Form 16B (TDS certificate under Section 194-IA) to the seller. Form 16B is generated from the TRACES portal (tdscpc.gov.in) after the TDS details are processed.
Key points on Form 16B:
- Time limit: Form 16B must be issued to the seller within 15 days from the due date of filing Form 26QB.
- Generation: The buyer must register on TRACES, link PAN, and download Form 16B from the “Downloads” section.
- Importance for seller: The seller needs Form 16B to claim credit for TDS deducted in their income tax return. The TDS reflected in Form 26AS/AIS of the seller is based on the Form 26QB filed by the buyer.
Consequences of Non-Compliance
Failure to Deduct TDS
If the buyer fails to deduct TDS under Section 194-IA, the following consequences arise:
- Section 201(1) — Assessee-in-default: The buyer is deemed to be an assessee-in-default. The TDS amount becomes recoverable from the buyer.
- Section 201(1A)(i) — Interest for non-deduction: Interest at 1% per month (or part thereof) from the date TDS was deductible to the date of actual deduction.
- Section 201(1A)(ii) — Interest for non-payment: Interest at 1.5% per month (or part thereof) from the date of deduction to the date of deposit with the government.
- Section 271C — Penalty: A penalty equal to the amount of TDS not deducted may be levied by the Joint Commissioner. This penalty is in addition to the interest under Section 201(1A).
- Section 276B — Prosecution: Failure to deposit TDS after deduction is punishable with rigorous imprisonment of 3 months to 7 years and a fine. Prosecution proceedings require prior sanction of the appropriate authority.
Failure to File Form 26QB
Late filing of Form 26QB attracts a late filing fee under Section 234E of Rs.200 per day for the period of delay, subject to a maximum of the TDS amount. Additionally, a penalty under Section 271H may be levied — minimum Rs.10,000 and maximum Rs.1,00,000 — for failure to file the TDS statement within the prescribed time.
Section 194-IA and Under-Construction Property
For under-construction properties, TDS under Section 194-IA must be deducted on each payment or instalment made to the builder/developer, provided the total consideration for the property exceeds Rs.50 lakhs. The TDS obligation arises at the time of credit or payment, whichever is earlier.
Practical considerations for under-construction property:
- GST exclusion: Under-construction properties attract GST (currently 5% without ITC for non-affordable housing and 1% for affordable housing). CBDT Circular No. 23/2017 clarifies that TDS under Section 194-IA is not required on the GST component.
- Instalment payments: A separate Form 26QB must be filed for each instalment/payment. Many buyers incorrectly file a single Form 26QB at the time of registration — this exposes them to interest and penalty for delayed TDS on earlier instalments.
- Booking amount: TDS must be deducted even on the initial booking amount/token money if the total consideration is expected to exceed Rs.50 lakhs.
Expert Insight — CA V. Viswanathan, FCA, ACS, CFE (IBBI/RV/03/2019/12333)
The most common mistake we encounter at Virtual Auditor is buyers of under-construction flats deducting TDS only at the time of final payment or registration, ignoring the TDS obligation on earlier instalments. Section 194-IA triggers TDS “at the time of credit of such sum to the account of the payee or at the time of payment thereof, whichever is earlier.” Each demand-letter payment to the builder constitutes a separate taxable event. We recommend setting up a compliance calendar at the time of booking — map every expected instalment with the corresponding Form 26QB filing deadline. This prevents the accumulation of interest under Section 201(1A) and the per-day late fee under Section 234E, which can be significant over a 3-4 year construction period.
Joint Property Purchases
When property is purchased jointly (which is common for married couples availing joint home loans), the TDS compliance becomes proportionate:
- Each co-buyer must file a separate Form 26QB for their share of the consideration.
- If there are 2 buyers and 1 seller, 2 Form 26QB filings are required — each buyer reports their proportionate share.
- The ownership ratio mentioned in the sale deed determines the share of each buyer. If the sale deed specifies 60:40 ownership, the TDS obligation is split 60:40.
- Each co-buyer must independently generate and issue Form 16B to the seller.
TDS on Property from NRI Sellers: Section 195
When the property seller is a non-resident Indian (NRI) or a person not ordinarily resident in India, Section 194-IA does not apply. The buyer must deduct TDS under Section 195 at the rates applicable to the nature of capital gains:
| Nature of Gain | TDS Rate (Section 195) |
|---|---|
| Long-term capital gains (property held > 24 months) | 12.5% (plus surcharge and cess) on capital gains amount |
| Short-term capital gains (property held <= 24 months) | At slab rates applicable to non-residents (plus surcharge and cess) |
The NRI seller may apply for a lower or nil TDS certificate under Section 197 from their jurisdictional Assessing Officer. The buyer should insist on obtaining a copy of this certificate before applying a lower TDS rate. Without such certificate, TDS at the full capital gains rate (not 1%) must be deducted on the entire sale consideration — not just the gain — which results in significant blocked funds for the seller.
Summary — Section 194-IA Compliance Checklist
- Who deducts: The buyer (transferee) of immovable property.
- When: At the time of credit or payment, whichever is earlier.
- Rate: 1% of the higher of consideration or stamp duty value. 20% if seller’s PAN is not furnished.
- Threshold: Applies when consideration or stamp duty value is Rs.50 lakhs or more.
- Form: Form 26QB (challan-cum-statement) filed online on the e-filing portal.
- Deadline: Within 30 days from the end of the month of deduction.
- Certificate: Form 16B issued to seller within 15 days from the due date of Form 26QB.
- Exclusion: Agricultural land, NRI sellers (Section 195 applies instead).
- At Virtual Auditor, we provide complete Section 194-IA compliance services. Contact us for assistance with Form 26QB filing, NRI property TDS, and TDS demand notice resolution.
Frequently Asked Questions
1. Do I need a TAN to deduct TDS under Section 194-IA?
No. Unlike other TDS provisions where the deductor requires a Tax Deduction and Collection Account Number (TAN), Section 194-IA explicitly provides that the buyer need not obtain a TAN. The TDS is deposited using the buyer’s PAN through Form 26QB. This is one of the key simplifications — individual property buyers are not expected to obtain TAN registration merely for a one-time property transaction.
2. Is TDS under Section 194-IA applicable on purchase from a government authority?
Section 196 provides that no TDS is required on payments to the Government, RBI, certain corporations, or mutual funds. However, most property transactions from development authorities (like DDA, CMDA, BDA) involve allotment, not transfer from the government directly. In practice, payments to government development authorities for allotment of plots/flats are generally subject to Section 194-IA if the consideration exceeds Rs.50 lakhs, unless the specific authority qualifies for exemption under Section 196.
3. What if the buyer pays TDS in excess — how to claim refund?
If excess TDS is deducted under Section 194-IA (for instance, due to an error in computation), the refund process depends on the circumstances. The buyer cannot directly claim a refund — the TDS is credited to the seller’s PAN. The seller claims the TDS credit in their income tax return against their capital gains liability, and any excess TDS (beyond the actual tax liability on the capital gains) is refunded to the seller by the Income Tax Department in the regular assessment process.
4. Is TDS applicable on property purchased through a power of attorney (GPA)?
Yes. Section 194-IA applies to the “transfer” of immovable property, and “transfer” is defined broadly under Section 2(47) of the Income Tax Act, which includes any transaction allowing possession of immovable property under Section 53A of the Transfer of Property Act, 1882. A transaction through General Power of Attorney (GPA), where possession is handed over and consideration is paid, qualifies as a transfer. TDS under Section 194-IA must be deducted on such transactions if the consideration exceeds Rs.50 lakhs.
5. Can the seller request the buyer not to deduct TDS by furnishing a lower deduction certificate?
Yes. The seller may apply to their jurisdictional Assessing Officer under Section 197 for a certificate authorising the buyer to deduct TDS at a lower rate or nil rate. This is useful when the seller has no capital gains (for instance, when the property is being sold at a loss or the gains are fully exempt under Section 54/54EC/54F). The application is filed in Form 13 online. Once the certificate is issued, the buyer deducts TDS at the rate specified in the certificate instead of the standard 1%.
6. How does Section 194-IA interact with Section 50C (stamp duty valuation for seller)?
Section 50C deems the stamp duty value as the full value of consideration for computing the seller’s capital gains if the actual consideration is less than the stamp duty value. Section 194-IA (post-2022 amendment) aligns with this by requiring TDS on the higher of consideration or stamp duty value. This ensures consistency — the buyer deducts TDS on the same value that forms the basis of the seller’s capital gains computation. If the stamp duty value exceeds the consideration by more than 10%, Section 50C deems the stamp duty value as the sale consideration for the seller (the 10% tolerance was introduced by Finance Act 2020).
Virtual Auditor — AI-Powered CA & IBBI Registered Valuer Firm
Valuer: V. VISWANATHAN, FCA, ACS, CFE, IBBI/RV/03/2019/12333
Chennai (HQ): G-131, Phase III, Spencer Plaza, Anna Salai, Chennai 600002
Bangalore: 7th Floor, Mahalakshmi Chambers, 29, MG Road, Bangalore 560001
Mumbai: Workafella, Goregaon West, Mumbai 400062
Phone: +91 99622 60333 | Email: support@virtualauditor.in
Book a Free Consultation
