A Comprehensive Guide to TDS on Property Sale: Understanding Section 194-IA and Form 26QB Compliance
- Nikhil hirani
- Sep 28, 2025
- 16 min read
By Nikhil Jain, TAXPATH INDIA FOUNDER
Executive Summary: Understanding Your TDS Obligations on Property Purchase
The acquisition of immovable property in India involves significant financial and legal obligations, chief among them being the buyer's responsibility concerning Tax Deducted at Source (TDS). This report provides an exhaustive analysis of the legal framework under Section 194-IA of the Income Tax Act, 1961, and offers a practical, step-by-step guide for compliance through Form 26QB. The objective is to equip property buyers with the necessary knowledge to navigate these tax requirements accurately, ensuring legal adherence and avoiding financial penalties.
The core mandate, as stipulated by Section 194-IA, places a non-negotiable legal duty on any person purchasing immovable property (excluding rural agricultural land) from a resident seller to deduct tax at source if the transaction value meets a specified threshold. This provision is triggered when the sale consideration or the stamp duty value of the property is ₹50 lakh or more. The tax must be deducted at the time of making the payment to the seller, whether in a lump sum or in instalments, or at the time of crediting the seller's account, whichever occurs earlier. The prescribed TDS rate is a flat 1% of the higher of the sale consideration or the stamp duty value.
Compliance is executed through two primary instruments. First is Form 26QB, a challan-cum-statement used to deposit the deducted TDS amount with the Central Government. Following the successful deposit, the buyer must issue
Form 16B, the official TDS certificate, to the seller. This certificate serves as the seller's proof of tax payment, which is then used to claim a credit against their capital gains tax liability when filing their income tax return.
It is crucial to recognize that Form 26QB transcends its function as a mere payment challan. It is a pivotal reporting instrument that formally establishes a data link between the buyer, the seller, and the specific property transaction within the government's financial surveillance systems. The form's designation as a "challan-cum-statement" underscores this dual role of facilitating payment and reporting comprehensive transactional data. By mandating the Permanent Account Numbers (PANs) of both parties and detailed property information, the form creates a unique, traceable record of the transaction. The Income Tax Department actively cross-references this information with data received from property registrar offices, which submit Annual Information Returns (AIR) for high-value transactions. A failure by the buyer to file Form 26QB directly prevents the tax credit from appearing in the seller's Form 26AS, thereby breaking the tax credit chain and potentially leading to double taxation for the seller. This elevates the buyer's compliance task from a simple financial transaction to a critical act of data reporting, positioning the buyer as an essential agent in the tax authority's mechanism for tracking high-value deals, verifying capital gains, and scrutinizing the source of funds.
INDEX
The Legal Mandate: A Deep Dive into Section 194-IA
A granular understanding of the provisions of Section 194-IA is essential for ensuring precise compliance. This section dissects the applicability, calculation methodology, and timing requirements stipulated by the law.
Applicability and Thresholds
The applicability of TDS under Section 194-IA is determined by three key factors: the transaction's value, the type of property, and the residential status of the seller.
The primary trigger for this provision is the transaction value. TDS is mandatory if the sale consideration or the stamp duty value of the property is ₹50 lakh or more. If both values are below this threshold, the provision does not apply.
The law applies to the transfer of any immovable property, which includes land (other than agricultural land), a building, or any part of a building. A specific exemption is provided for "rural agricultural land". A parcel of land is not considered agricultural if it is situated within the jurisdiction of a municipality or cantonment board with a population of more than 10,000, or if it falls within specified aerial distances from such municipal limits, depending on the population density of the area.
A critical and often overlooked condition is the residential status of the seller. Section 194-IA is applicable exclusively to transactions where the seller is a resident of India. If the seller is a Non-Resident Indian (NRI), the transaction falls under the purview of Section 195, which imposes different, more stringent TDS rules, including significantly higher tax rates and a mandatory requirement for the buyer to obtain a Tax Deduction Account Number (TAN).
TDS Calculation Demystified
The calculation of TDS under Section 194-IA is straightforward but requires careful attention to the base value and the components included in the 'consideration'.
The base value for the TDS calculation is the higher of the sale consideration (the amount paid by the buyer) or the stamp duty value (the value assessed by the state's stamp valuation authority). This rule is an anti-abuse measure designed to prevent the undervaluation of property in official agreements to reduce tax liability.
A common point of confusion is whether the TDS applies to the entire value or only the amount exceeding the threshold. The law is clear: the 1% TDS is calculated on the entire transaction value once the ₹50 lakh threshold is breached. For instance, if a property is purchased for ₹60 lakhs, the TDS is ₹60,000 (1% of ₹60 lakh), not ₹10,000 (1% of the ₹10 lakh excess).
Furthermore, the definition of 'consideration' was expanded by an amendment effective from September 1, 2019. For properties purchased on or after this date, the term includes not only the basic sale price but also any ancillary charges incidental to the transfer of the property. This encompasses fees for club membership, car parking, electricity and water facilities, maintenance, or any other advance fee of a similar nature. This amendment reflects a broader legislative intent to counter tax avoidance by focusing on the economic substance of a transaction rather than its legal form. Previously, property deals could be structured with an artificially low sale price supplemented by high ancillary charges, a practice that could reduce the TDS base or even help avoid the ₹50 lakh threshold entirely. By mandating the aggregation of all such payments, the law places a greater due diligence burden on the buyer, who must now obtain a complete cost breakdown from the seller to ensure the TDS calculation is comprehensive and compliant.
Deduction Timeline and Instalments
The timing of the TDS deduction is explicitly defined to prevent any deferral of the tax liability. The buyer must deduct the tax at the time of making the payment to the seller (through any mode, including cash, cheque, or electronic transfer) or at the time of crediting the sum to the seller's account in their books, whichever event occurs earlier.
This rule extends seamlessly to transactions involving instalment payments. If the total consideration for a property exceeds ₹50 lakhs and the payment is structured in instalments, TDS must be deducted proportionately from each instalment paid. This applies regardless of the individual instalment amount. For example, in a ₹70 lakh transaction paid over seven instalments of ₹10 lakhs each, the buyer must deduct ₹10,000 (1% of ₹10 lakh) from every instalment payment made to the seller.
A Practical Guide to Filing Form 26QB
This section provides a detailed, actionable walkthrough of the process for filing Form 26QB and depositing the associated TDS. It is designed to guide the buyer through each stage of compliance, from preparation to final payment.
Pre-Filing Checklist
Before initiating the online filing process, the buyer should gather all the necessary information and documents to ensure a smooth and error-free submission. The following details are mandatory:
PAN of Buyer(s) and Seller(s): The Permanent Account Number for all parties involved is the most critical piece of information. An incorrect PAN can lead to compliance issues for both the buyer and the seller.
Property Details: The complete and accurate address of the property being transferred.
Transaction Details:
Date of the Sale Agreement or Booking.
Total Sale Consideration amount.
Stamp Duty Value of the property.
Date of payment or credit to the seller.
Amount paid or credited on that date.
It is important to note that the government's tax administration infrastructure has evolved. While older guides may direct users to the TIN-NSDL website, the current and correct procedure begins on the centralized Income Tax e-Filing portal (incometax.gov.in). This consolidation is part of a broader strategy to create a unified platform for all taxpayer services, enhancing user experience and data integration. Following the updated procedure is crucial to avoid confusion and potential filing errors.
Step-by-Step Online Filing and Payment Procedure
The process for filing Form 26QB and making the TDS payment is conducted online through the official Income Tax portal.
Step 1: Navigate to the e-Pay Tax Service
Log in to the Income Tax e-Filing portal (https://www.incometax.gov.in/) using your PAN and password. On the dashboard, navigate to the menu e-File > e-Pay Tax.
Step 2: Initiate New Payment
On the e-Pay Tax page, click the + New Payment button. You will be presented with various tax payment tiles. Locate the tile labelled 26QB (TDS on Sale of Property) and click Proceed.
Step 3: Enter Buyer and Seller Details
The system will open the Form 26QB application. In the first section, you will need to provide details of the Transferee (Buyer) and the Transferor (Seller). This includes their respective PANs, residential status, and complete addresses. Ensure the PANs are entered correctly, as the system validates them in real-time.
Step 4: Enter Property and Transaction Details
In the next section, provide the details of the immovable property being transferred, including its full address. You must also enter the key financial details of the transaction:
Date of Agreement/Booking.
Total Value of Consideration (Sale Price).
Stamp Duty Value.
Whether the payment is made in a lump sum or in instalments.
Date of Payment/Credit.
Amount Paid/Credited.
The system will automatically calculate the 1% TDS amount based on the higher of the consideration or stamp duty value.
Step 5: Select Payment Mode
After filling in all the details and confirming their accuracy, you will be directed to the payment page. Select your preferred mode of payment from the available options 20:
Net Banking: For direct payment from your bank account.
Debit Card: For payment using a debit card.
Pay at Bank Counter: To generate a challan that can be paid physically at an authorized bank branch via cash or cheque.
RTGS/NEFT: For large value transfers.
Payment Gateway: Which includes options for Credit Card, UPI, and other net banking facilities.
Step 6: Payment and Challan Generation
Proceed with the payment through your chosen mode. Upon successful completion of the transaction, the portal will generate a challan counterfoil containing a Challan Identification Number (CIN) or a Challan Reference Number (CRN). This document is the official proof of TDS payment. It is essential to save a digital copy and print a physical copy of this challan for your records. The TDS must be deposited within 30 days from the end of the month in which the deduction was made.
Illustrative Example: A Worked-Out Scenario
To clarify the process, consider the following imaginary transaction:
Buyer: Mr. Rohan Verma
Seller: Mrs. Priya Singh
Property: A residential flat in Bengaluru.
Sale Agreement Date: 15th June 2024
Total Sale Consideration: ₹88,00,000
Stamp Duty Value: ₹92,00,000
Ancillary Charges (Parking & Amenities): ₹3,00,000
Payment Date: 20th June 2024
Calculation and Compliance Steps:
Determine the Base Value for TDS: The base value is the higher of the sale consideration (₹88 lakh) and the stamp duty value (₹92 lakh). Therefore, the base value is ₹92,00,000.
Calculate Total Consideration for TDS: Since the property was agreed upon after September 1, 2019, the ancillary charges must be included.
Total Value= Stamp Duty Value+ Ancillary Charges= ₹92,00,000+ ₹3,00,000= ₹95,00,000.
Calculate TDS Amount: The TDS is 1% of the total value.
TDS Amount = 1%×₹95,00,000=₹95,000.
Calculate Net Amount Payable to Seller:
Net Payment = Total Agreed Price - TDS = (₹88,00,000+₹3,00,000) −₹95,000=₹90,05,000.
Determine Due Date for TDS Deposit: The deduction was made in June 2024. The due date for depositing the TDS of ₹95,000 is 30 days from the end of June, which is 30th July 2024.
Mr. Verma would log in to the e-Filing portal and fill out Form 26QB, entering his and Mrs. Singh's PANs and addresses. In the property details section, he would enter the Bengaluru address. In the transaction details, he would enter ₹88,00,000 as the Sale Consideration and ₹92,00,000 as the Stamp Duty Value. The system would correctly base the TDS calculation on the higher value. He would then proceed to pay the calculated TDS of ₹95,000 before the July 30th deadline.
Post-Payment Compliance: The Role of Form 16B
The buyer's responsibility does not end with the payment of TDS. The final step in the compliance cycle is the issuance of the TDS certificate, Form 16B, to the seller. This step is critical as it completes the transaction from a tax perspective and enables the seller to claim their due tax credit.
Buyer's Responsibility to Issue Form 16B
After successfully depositing the TDS via Form 26QB, the buyer is under a legal obligation to download Form 16B and provide it to the seller. This certificate is the seller's official proof that tax has been deducted and remitted to the government on their behalf. The timeline for this is strict: Form 16B must be furnished to the seller within 15 days from the due date of filing Form 26QB.
Guide to Downloading Form 16B from TRACES
Form 16B is generated and can only be downloaded from the TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal, which is managed by the Income Tax Department. The buyer does not need a TAN to access this facility; registration and login can be done using their PAN.
The step-by-step process is as follows:
Register on TRACES: If not already registered, the buyer must first register on the TRACES portal (https://www.tdscpc.gov.in/) as a 'Taxpayer' using their PAN. The registration process will require details from the Form 26QB challan to validate the user.
Log in to TRACES: Once registered, log in to the portal with the user ID (which is the PAN) and password.
Navigate to Downloads: Go to the 'Downloads' tab in the main menu and select 'Form 16B (For Buyer)' from the dropdown list.
Enter Transaction Details: To request the form, you will need to enter the following details:
Assessment Year for the transaction.
Acknowledgment Number of the corresponding Form 26QB.
PAN of the Seller.
Click 'Proceed' after entering the details.
Submit Request: A confirmation screen will display the details of the transaction. Verify the information and click 'Submit Request'. A request number will be generated for tracking purposes.
Download the Form: The request typically takes a few hours to process. To check the status, navigate to Downloads > Requested Downloads. Once the status shows as 'Available', you can download the file. The file is usually a password-protected ZIP file. The password to open it is the buyer's date of birth in DDMMYYYY format.
Seller's Entitlement and Use of Form 16B
For the seller, Form 16B is a document of paramount importance. It serves as the official evidence that the TDS has been paid and is the primary document used to claim tax credit. When filing their Income Tax Return (ITR), the seller declares their capital gains from the property sale and claims the TDS amount mentioned in Form 16B as a credit against their final tax liability.
The entire compliance process—from the buyer filing Form 26QB to the seller claiming credit—is part of a sophisticated, interlocking tripartite verification system. The buyer's filing of Form 26QB acts as the initial declaration to the tax department. The department's systems process this payment and data, which is then reflected in the seller's Form 26AS (Annual Tax Statement). The generation of Form 16B on TRACES is the system's formal acknowledgment of this process. Finally, the seller uses this system-generated proof (Form 16B and the entry in Form 26AS) to claim the tax credit in their ITR. This automated, three-way check between the buyer's declaration, the government's record, and the seller's claim minimizes tax leakage and fraud. It also highlights the critical importance of accuracy; a simple data entry error by the buyer, such as an incorrect PAN, will cascade through this system, creating a mismatch that directly jeopardizes the seller's ability to claim their rightful tax credit.
Consequences of Non-Compliance: Penalties and Interest
Failure to comply with the provisions of Section 194-IA can lead to significant financial penalties for the buyer. The law imposes a structured set of consequences for various types of defaults, including delays in deduction, delays in payment, and failures in reporting.
The penalties are as follows:
Interest for Late Deduction: If the buyer fails to deduct the TDS on the due date, simple interest at the rate of 1% per month, or part of a month, is levied on the TDS amount. The interest is calculated from the date the tax was supposed to be deducted until the date it is actually deducted.
Interest for Late Payment: If the buyer deducts the TDS but fails to deposit it with the government by the deadline, a higher rate of simple interest—1.5% per month, or part of a month—is charged on the TDS amount. This is calculated from the date of deduction to the date of actual payment.
Late Filing Fee: Under Section 234E, a late fee of ₹200 is imposed for every day of delay in filing the Form 26QB statement. This fee continues to accrue until the default is rectified, but the total fee cannot exceed the amount of TDS that was payable.
Penalty for Non-Filing/Incorrect Filing: In addition to interest and late fees, the Assessing Officer has the authority under Section 271H to levy a penalty for failing to file Form 26QB or for furnishing incorrect information (such as an incorrect PAN). This penalty can range from a minimum of ₹10,000 to a maximum of ₹1,00,000.
To provide a clear overview, the following table summarizes the financial consequences of non-compliance.
Table 1: Schedule of Penalties and Interest for Non-Compliance
Nature of Default | Applicable Section | Financial Consequence |
Delay in Deducting TDS | Section 201 | Interest @ 1% per month (or part thereof) on the TDS amount. |
Delay in Depositing TDS (after deduction) | Section 201 | Interest @ 1.5% per month (or part thereof) on the TDS amount. |
Delay in Filing Form 26QB | Section 234E | Late fee of ₹200 per day, capped at the total TDS amount. |
Non-Filing or Incorrect Filing of Form 26QB | Section 271H | Discretionary penalty from ₹10,000 to ₹1,00,000. |
Frequently Asked Questions (FAQ) and Special Scenarios
Property transactions can involve complexities that go beyond a simple one-buyer, one-seller scenario. This section addresses common queries and special cases to provide nuanced guidance.
Handling Transactions with Joint Parties
When a property is purchased or sold by multiple parties, the compliance process must be handled meticulously. The rule is that a separate Form 26QB must be filed for each unique buyer-seller combination, corresponding to their respective shares in the property.
For example, if two buyers (B1 and B2) purchase a property from two sellers (S1 and S2), and each party has a 50% share, a total of four Form 26QBs must be filed to cover all transactional relationships: B1-S1, B1-S2, B2-S1, and B2-S2. Each form would reflect the proportionate share of the sale consideration and the corresponding TDS amount. Similarly, if there is one buyer and two sellers, two separate Form 26QBs must be filed.
The Critical Exception: Transactions with Non-Resident Indian (NRI) Sellers
It is imperative for buyers to understand that the rules discussed thus far under Section 194-IA apply only when the seller is a resident of India. Transactions involving a Non-Resident Indian (NRI) seller are governed by a different and more stringent legal framework under Section 195 of the Income Tax Act. Mistaking the two can lead to severe non-compliance issues.
The key differences are substantial:
Higher TDS Rates: The TDS rates for NRI sellers are significantly higher. They are generally 20% (plus applicable surcharge and cess) on long-term capital gains and 30% (plus surcharge and cess) on short-term capital gains, deducted from the sale consideration.
No Threshold: Unlike Section 194-IA, there is no minimum threshold of ₹50 lakhs. TDS is applicable on the entire sale value, regardless of the amount.
TAN is Mandatory: The buyer must obtain a Tax Deduction Account Number (TAN) before deducting and depositing the tax. This is a crucial procedural departure from Section 194-IA, where the buyer's PAN is sufficient.
Different Forms: The TDS is deposited using Challan ITNS-281, and the compliance is reported by filing a TDS return in Form 27Q. The TDS certificate issued to the NRI seller is Form 16A, not Form 16B.
Lower Deduction Certificate: An NRI seller can apply to their Assessing Officer using Form 13 to obtain a certificate for a lower or nil rate of TDS deduction. This is typically done when their actual capital gains tax liability is projected to be significantly less than the TDS calculated at the default high rates.
The following table provides an at-a-glance comparison to highlight these critical distinctions.
Table 2: Key Differences in TDS Rules: Resident Seller vs. NRI Seller
Parameter | Resident Seller (Section 194-IA) | NRI Seller (Section 195) |
Applicable Section | 194-IA | 195 |
TDS Rate | 1% | 20% on LTCG / 30% on STCG (+ Surcharge & Cess) |
Threshold | Transaction value ≥ ₹50 Lakh | No minimum threshold |
Buyer's TAN Requirement | Not Required (PAN is sufficient) | Mandatory |
Applicable Form for TDS Deposit | Form 26QB | Form 27Q (TDS Return) & Challan ITNS-281 |
TDS Certificate | Form 16B | Form 16A |
Lower TDS Provision | Not applicable | Yes, via application in Form 13 |
Procedure for Correcting Errors in Form 26QB
If an error is discovered after filing Form 26QB, an online correction facility is available on the TRACES portal. The correction request can only be initiated by the buyer. The approval mechanism for the correction depends on the nature of the error:
Minor changes, such as corrections to the buyer's or seller's address, are generally auto-approved.
Corrections to critical fields like the PAN of the buyer or seller, the transaction amount, or the date of payment require a more rigorous approval process. This may involve obtaining approval from the other party (the seller or, in case of a buyer PAN change, the new buyer) and, in some cases, from the jurisdictional Assessing Officer (AO). When AO approval is needed, the buyer may be required to submit physical documents for verification.
Other Common Queries
What if the seller does not provide a PAN?
If the seller fails to furnish their PAN, the buyer is obligated under Section 206AA of the Income Tax Act to deduct TDS at a penal rate of 20%. This underscores the importance for the buyer to insist on obtaining the seller's PAN before the transaction.
Can a seller claim a refund of TDS?
Yes. The TDS deducted is essentially an advance tax paid on behalf of the seller. If the seller's final capital gains tax liability (after considering exemptions or losses) is less than the TDS amount deducted, they can claim a refund for the excess amount by filing their Income Tax Return.
What is the seller's recourse if the buyer fails to deposit the deducted TDS?
If the buyer deducts the TDS but fails to deposit it with the government, the tax credit will not appear in the seller's Form 26AS. The seller's first step should be to immediately follow up with the buyer and demand proof of deposit (the Form 26QB challan). If the buyer remains non-compliant, the seller may have to pay their full tax liability to avoid interest and penalties and then pursue legal recourse against the buyer to recover the amount that was deducted but not deposited. The sale agreement and communication records are crucial in such a scenario.
About the Author
Nikhil Jain is a Founder and CEO of TAXPATH INDIA with over 7 years of experience in taxation and compliance. He specializes in GST implementation and has helped numerous businesses navigate the complexities of indirect tax compliance
Contact Information:
Email: contact@taxpathindia.com
Phone: +91-9042364130
Website: www.taxpathindia.com
Disclaimer:
This article is for informational purposes only and should not be considered as professional tax advice. Readers are advised to consult qualified tax professionals for specific compliance requirements and business decisions.
