If you're buying or selling immovable property worth ₹50 lakh or more, a 1% TDS deduction under Section 194-IA is mandatory — and it's the buyer's responsibility to deduct and deposit it, not the seller's. Missing this step is a common and costly oversight in property transactions.
When Does Section 194-IA Apply?
Section 194-IA requires the buyer of immovable property (other than agricultural land) to deduct TDS at 1% of the sale consideration if the consideration is ₹50 lakh or more. Key points:
- The threshold applies to the total sale consideration, not the buyer's or seller's individual share — so if a property worth ₹60 lakh is jointly owned by two sellers and bought by two buyers, TDS still applies even though each buyer-seller pair's share may individually be below ₹50 lakh.
- TDS is deducted on the higher of the sale consideration or the stamp duty value of the property (effective from recent amendments), to prevent under-reporting of consideration.
- The seller does not need to have a PAN exemption or lower-deduction certificate for this to apply — 1% is the standard rate as long as the seller furnishes PAN; if the seller does not furnish PAN, TDS is deducted at 20%.
How the Buyer Deducts and Deposits TDS (Form 26QB)
Unlike salary or contractor TDS, the buyer in a property transaction does not need a TAN. The process is:
- At the time of payment (or credit, whichever is earlier — including for instalment payments), the buyer deducts 1% of that instalment/payment as TDS
- The buyer deposits this TDS using Form 26QB on the income tax e-filing portal, within 30 days from the end of the month in which the deduction was made
- The buyer then downloads and issues Form 16B (the TDS certificate) to the seller
⚠ Multiple buyers/sellers, multiple instalments: If there are multiple buyers, sellers, or instalment payments, a separate Form 26QB must generally be filed for each buyer-seller-instalment combination. Builders selling under-construction property with instalment-based payment plans require TDS deduction and Form 26QB filing for each instalment, not just the final payment.
What the Seller Should Check
As a seller, you should:
- Confirm the buyer has deducted exactly 1% (not more, not less) and obtain Form 16B
- Verify the TDS appears in your Form 26AS against the buyer's TAN-less Form 26QB filing — see our Form 26AS vs AIS vs TIS guide
- Report the full sale consideration and compute capital gains correctly — the 1% TDS is only an advance deduction, not the final tax on the capital gain, which may be higher or lower depending on indexation (for applicable assets), holding period and exemptions claimed under Sections 54/54EC/54F
Special Case: NRI Sellers — Section 195, Not 194-IA
If the seller is a non-resident, Section 194-IA does not apply at all — instead, Section 195 applies, which requires TDS at a much higher rate (based on the applicable capital gains tax rate plus surcharge and cess, often in the 20-30%+ range on the entire gain or sale value depending on a lower-deduction certificate), and the buyer in this case does need a TAN and must file TDS returns (Form 27Q) rather than Form 26QB. Buyers should always confirm the seller's residential status before assuming the 1% Section 194-IA rate applies — deducting only 1% when Section 195 applies can make the buyer liable for the shortfall, interest and penalty.
Frequently Asked Questions
Who is responsible for deducting TDS on a property sale — the buyer or the seller? ▼
The buyer is responsible for deducting TDS under Section 194-IA at the time of making payment to the seller, and for depositing it with the government using Form 26QB within the prescribed deadline. The seller's role is to provide PAN and verify that the correct TDS has been deducted and reflected in their Form 26AS.
Does the ₹50 lakh threshold apply per buyer or per transaction? ▼
The threshold is generally assessed on the total sale consideration for the property, not on each buyer's individual contribution. Courts and tax authorities have taken varying views on joint buyer/seller situations, but the safer and commonly followed approach is that if the overall property value is ₹50 lakh or more, TDS under Section 194-IA applies even if each buyer-seller share, taken individually, is below ₹50 lakh.
What happens if the buyer forgets to deduct or deposit TDS under Section 194-IA? ▼
If the buyer fails to deduct TDS, they may be treated as an "assessee in default" and become liable to pay the TDS amount themselves along with interest under Section 201, and a penalty may also apply. If TDS is deducted but not deposited within the deadline using Form 26QB, interest and late filing fees apply. The seller may also face difficulty in getting credit for TDS in their Form 26AS, which can delay their refund or create a mismatch when filing their ITR.