TDS on Property
TDS on property refers to the tax deducted at source under Section 194-IA of the Income Tax Act, 1961, requiring a buyer of immovable property worth Rs 50 lakh or more to deduct 1 percent of the purchase consideration from the payment made to the seller and remit it to the government.
Section 194-IA was introduced in the Income Tax Act with effect from June 2013, as part of the Finance Act 2013. Before this provision, large high-value property transactions frequently occurred with significant portions of the consideration being paid in cash and the declared sale price being underreported to evade taxes. Section 194-IA made the buyer directly responsible for ensuring that 1 percent TDS was deducted from the payment and deposited with the government, creating a third-party compliance check on property transactions.
The threshold triggering TDS applicability was Rs 50 lakh — any purchase of residential or commercial property (excluding agricultural land) at a price of Rs 50 lakh or more required TDS compliance. The TDS was calculated on the total consideration paid (including any parking charges, club membership, or other amenities included in the sale agreement, as clarified by CBDT circulars). If the property price was Rs 75 lakh, the buyer deducted Rs 75,000 (1 percent of Rs 75 lakh) from the payment to the seller and remitted this to the government.
The mechanics of compliance required the buyer to file Form 26QB (a challan-cum-statement) online through the TIN-NSDL portal and deposit the TDS within 30 days from the end of the month in which the TDS was deducted. After depositing, the buyer was required to issue Form 16B (TDS certificate) to the seller within 15 days of due date of filing Form 26QB. The seller could claim credit for TDS deducted in their income tax return, offsetting it against the tax liability on the capital gain.
For instalment-based payments in under-construction properties — common in developer projects — TDS was required to be deducted on each instalment individually. If an instalment was Rs 5 lakh and the total property price was Rs 80 lakh, TDS of 1 percent of Rs 5 lakh (Rs 5,000) was to be deducted from each instalment as and when paid. This cumulative compliance was frequently misunderstood and missed by buyers, creating default positions that could attract interest under Section 201 of the Income Tax Act.
For non-resident sellers, the TDS rules were different and significantly more complex. Under Section 195, TDS on sale by non-resident Indians was levied not at a flat 1 percent but at the applicable long-term capital gains tax rate (currently 12.5 percent for LTCG, post Budget 2024) on the capital gain portion. Since the buyer might not know the seller's cost of acquisition (needed to compute the capital gain), the seller was required to obtain a lower TDS deduction certificate under Section 197 from the income tax department to limit TDS to the actual tax on gain, rather than the full sale consideration.