TDS on Property Purchase: Section 194-IA Explained

Buying a home is, for most people, the largest financial transaction of their lives — and one of the few where the tax law makes the buyer responsible for deducting tax on the seller's behalf. Section 194-IA requires anyone purchasing immovable property worth ₹50 lakh or more to withhold 1% of the price as TDS and deposit it with the government. It sounds simple, but it trips up an enormous number of buyers who do not know the obligation exists, miscalculate the amount, or miss the deadline and face interest and penalties. Because property deals are large, the consequences of getting it wrong are large too. This guide explains exactly how Section 194-IA works for FY 2025-26 — who deducts, how much, how to file Form 26QB, and the mistakes that cause trouble.

What Section 194-IA Requires

Section 194-IA says: when you buy any immovable property (other than agricultural land) for a consideration of ₹50 lakh or more, you, the buyer, must deduct 1% TDS on the amount paid to the seller and deposit it with the government.

A few core features define the section:

• The threshold is ₹50 lakh. If the sale consideration or the stamp duty value is ₹50 lakh or more, 194-IA applies. Below ₹50 lakh, no TDS under this section.
• The rate is 1% of the consideration (or stamp duty value, if higher).
• The buyer deducts and deposits — the obligation sits entirely on the purchaser.
• Agricultural land is excluded. Rural agricultural land is outside the scope of 194-IA.
• No TAN is required. Unlike most TDS provisions, the buyer uses their PAN, not a Tax Deduction Account Number.

This applies to all kinds of immovable property — flats, houses, commercial units, and land (other than agricultural land) — whether ready-to-move or under construction.

The ₹50 Lakh Threshold Is Not a Slab

This is the single most misunderstood point. The ₹50 lakh figure decides whether TDS applies — it is not an exemption you subtract before computing the 1%.

If a property costs ₹80 lakh, you deduct 1% on the full ₹80 lakh = ₹80,000. You do not deduct 1% on only the ₹30 lakh above ₹50 lakh. The moment the value hits ₹50 lakh or more, the entire consideration is subject to the 1%.

There is one more refinement, aligned with how stamp duty works: TDS is computed on the higher of the sale consideration or the stamp duty value of the property. If the agreement value is ₹55 lakh but the stamp duty (circle rate) value is ₹60 lakh, the 1% applies on ₹60 lakh.

Instalments and Under-Construction Property

Property is rarely paid in one shot. For under-construction flats or staged payments, the consideration is paid across several instalments. Section 194-IA requires you to deduct 1% on each instalment as it is paid, not all at once at the end.

So if you are paying a builder ₹70 lakh across ten instalments, you deduct 1% from each instalment and file a Form 26QB for each payment. The ₹50 lakh threshold is judged on the total value of the property, so even early instalments attract TDS once the total crosses ₹50 lakh — you cannot wait until cumulative payments exceed ₹50 lakh to start deducting.

How to Deposit: Form 26QB and Form 16B

The mechanics are designed to be doable by an ordinary individual without a TAN:

Form 26QB is a combined challan-cum-statement. You fill it online on the income tax portal (or the TIN/NSDL system), entering the buyer's PAN, the seller's PAN, property details, the consideration, and the TDS amount. You then pay the TDS — this is the deposit and the return rolled into one.

The deadline: Form 26QB must be filed, and the TDS deposited, within 30 days from the end of the month in which the deduction was made. For an instalment paid in, say, June, the form is due by 30 July.

Form 16B is the TDS certificate the buyer must issue to the seller. After filing Form 26QB, the buyer downloads Form 16B from the TRACES portal and gives it to the seller, who uses it to claim TDS credit in their own return.

If there are multiple buyers or sellers, you file Form 26QB for each buyer-seller combination, so the TDS credit maps correctly to each party's PAN. A jointly owned property bought by a couple from a couple may require several filings.

You can sanity-check the TDS amount before filing using the TDS calculator.

The No-PAN Penalty: 20%

If the seller does not provide a valid PAN, the TDS rate jumps from 1% to 20%. This is a powerful incentive to ensure the seller's PAN is correct and linked. Always collect and verify the seller's PAN before the transaction. A 20% deduction on a multi-crore property is enormous, so this is not a detail to overlook — confirm the PAN is valid and that the seller's PAN is operative (linked with Aadhaar) so the higher rate does not get triggered.

A Worked Example

Take Vikram, buying a ready flat in Pune from a resident seller for ₹85 lakh. The stamp duty (circle rate) value is ₹82 lakh. He pays in two tranches: ₹25 lakh as an advance in May and ₹60 lakh on registration in July.

Step 1 — Does 194-IA apply? The consideration is ₹85 lakh, well above the ₹50 lakh threshold. Yes, TDS applies.

Step 2 — On what value? The higher of consideration (₹85 lakh) and stamp duty value (₹82 lakh) is ₹85 lakh. TDS is 1% of ₹85 lakh = ₹85,000 in total.

Step 3 — Deduct on each instalment:

Payment	Date	Amount	1% TDS	Net Paid to Seller	Form 26QB Due
Advance	May	₹25,00,000	₹25,000	₹24,75,000	30 June
Registration	July	₹60,00,000	₹60,000	₹59,40,000	30 August
Total		₹85,00,000	₹85,000	₹84,15,000

For each instalment, Vikram deducts 1%, pays the seller the net amount, files Form 26QB within 30 days of month-end, and then downloads Form 16B from TRACES to hand to the seller. The seller claims the ₹85,000 as TDS credit when filing their own return, against their capital gains on the sale — see our capital gains tax in India guide for how the seller's side works.

Note the deduction is on the full ₹85 lakh, not on ₹35 lakh above the threshold. And because Vikram paid in instalments, he filed two separate Form 26QB filings, not one.

The Seller's Side: Claiming the TDS Credit

While the buyer does the work, the seller has a stake in it being done correctly. The 1% deducted is not a cost to the seller — it is tax paid in advance against the seller's own liability on the sale. Here is how it flows back:

• The TDS appears in the seller's Form 26AS and AIS once the buyer files Form 26QB, credited against the seller's PAN.
• When the seller files their return and computes capital gains on the property sale, they claim the 1% TDS as a credit against the tax due on that gain. If the actual capital gains tax is lower than the TDS deducted, the seller gets a refund.
• This is why the seller cares that the buyer enters the correct PAN in Form 26QB and issues Form 16B. An error means the credit lands against the wrong PAN or not at all, and the seller cannot claim it.

For a seller whose capital gain is small or who is reinvesting under an exemption (such as buying another house under Section 54), 1% of the sale value can far exceed the actual tax due, locking up cash until the refund comes through. Such sellers can apply to the Assessing Officer for a lower or nil deduction certificate under Section 197, which authorises the buyer to deduct less than 1%. If the seller gives you a valid certificate, deduct at the rate it specifies rather than the standard 1%.

Buyer Checklist Before You Pay

Because the obligation and the penalties sit with the buyer, a short discipline before each payment protects you:

1. Confirm the property value is ₹50 lakh or more (consideration or stamp duty value, whichever is higher).
2. Collect the seller's PAN and verify it is valid and operative (Aadhaar-linked).
3. Confirm the seller's residential status — resident (194-IA, 1%) or non-resident (Section 195, higher rates).
4. Check whether the seller holds a lower-deduction certificate under Section 197.
5. Deduct the correct amount, pay the seller the net, and diarise the 30-day Form 26QB deadline.

Running through this each time turns a once-in-a-lifetime transaction into a controlled process. The TDS calculator helps confirm the amount at step 5.

A Crucial Exception: Non-Resident Sellers

Section 194-IA applies only when the seller is a resident. If you buy property from a non-resident seller (an NRI), Section 194-IA does not apply. Instead, the transaction falls under Section 195, where TDS is deducted at the much higher capital gains rates applicable to the seller — not a flat 1%.

This is a serious trap. Buyers sometimes assume the comfortable 1% applies to every property purchase, deduct only 1% from an NRI seller, and later face a large demand because they under-deducted. Buying from an NRI requires deducting TDS on the seller's capital gains (often at 12.5% to 30% plus surcharge and cess, depending on the gain), and a TAN is needed for Section 195. If your seller is or may be a non-resident, get professional advice before closing — this is well outside the simple 194-IA process.

Common Mistakes

Deducting 1% only on the amount above ₹50 lakh. The 1% applies to the entire consideration once the value reaches ₹50 lakh, not just the excess. On an ₹80 lakh flat, that is the difference between deducting ₹80,000 (correct) and ₹30,000 (wrong).

Not deducting on instalments. For under-construction property, TDS must come out of each instalment, with a Form 26QB for each. Waiting until the end, or until cumulative payments cross ₹50 lakh, breaches the rule.

Missing the 30-day Form 26QB deadline. Late filing attracts interest at 1% per month for non-deduction and 1.5% per month for late deposit, plus a late-fee under Section 234E of ₹200 per day until the form is filed. These add up fast on a large transaction.

Forgetting to issue Form 16B. The buyer must download Form 16B from TRACES and give it to the seller. Without it, the seller cannot claim the TDS credit, leading to disputes.

Not verifying the seller's PAN. A missing or invalid seller PAN triggers 20% TDS, and an inoperative PAN can cause complications. Verify the PAN before the deal.

Treating an NRI seller like a resident. The flat 1% under 194-IA does not apply to non-resident sellers — that falls under Section 195 with higher rates and a TAN requirement. Misapplying 1% here is a costly error.

What to Do Next

1. Confirm the total consideration and the stamp duty value of the property — TDS is computed on the higher of the two, and only kicks in at ₹50 lakh or more.
2. Verify the seller is a resident and has a valid, operative PAN. If the seller is an NRI, stop and get advice on Section 195 before proceeding.
3. For each payment or instalment, deduct 1% and pay the seller the net amount. Use the TDS calculator to confirm the figures.
4. File Form 26QB online within 30 days of the end of the month of payment, using your PAN (no TAN needed), then download Form 16B from TRACES and give it to the seller.
5. Keep the sale agreement, payment proofs, Form 26QB challans and Form 16B organised with a tax document checklist, and fold the transaction into your overall tax planning — particularly if you are also the seller of another property in the same year.

Section 194-IA puts a real responsibility on the buyer, but it is a manageable one if you know the rules. Deduct 1% on the full value, do it on every instalment, file Form 26QB on time without needing a TAN, issue Form 16B, and watch out for non-resident sellers. Handle those, and the TDS on your property purchase becomes a clean administrative step rather than a source of penalties.

Disclaimer: This article is for educational purposes only and is not tax advice. Tax rules change frequently — verify current provisions on the official income tax portal or with a qualified CA before filing.