When you buy immovable property (other than agricultural land) for more than Rs 50 lakh, you must deduct 1% of the sale consideration as TDS under Section 194-IA and deposit it with the government. This applies regardless of whether the seller is an individual, HUF, partnership firm, or company. The TDS is a small operational step in the registration process, but missed deposits or returns can lead to interest, penalties, and disallowance of credit to the seller. This guide explains the rules, deposit timelines, and how to claim TDS credit.
When does 194-IA apply?
Section 194-IA applies when:
- You, as a transferee (buyer), acquire any immovable property (other than agricultural land).
- The consideration for transfer is Rs 50 lakh or more.
- The transfer is by way of sale or exchange, or by way of compulsory acquisition under any law, or by way of lease for 12 months or more of any right in any building or part of a building.
Agricultural land in a rural area is exempt. "Rural area" is defined under the relevant state or Union Territory records — the classification is critical. A property that appears rural but is classified as urban or non-agricultural will attract TDS.
TDS rate and base
The TDS rate is 1% of the total consideration paid for the transfer. The base is the entire sale consideration, not the gain, not the stamp duty value, and not the cost to the seller. There is no threshold below which 194-IA does not apply — the only threshold is the Rs 50 lakh consideration above which 194-IA is triggered at all.
Example: You buy a flat for Rs 75 lakh. The seller is eligible for a long-term capital gain exemption under Section 54, but the buyer must still deduct 1% of Rs 75 lakh = Rs 75,000 as TDS.
Excluded categories of property
194-IA does not apply to the following transactions, even if the consideration exceeds Rs 50 lakh:
- Transfer of agricultural land in a rural area.
- Transfer by way of gift (no consideration).
- Transfer under a will or by way of inheritance.
- Compulsory acquisition under any Central or State Act (different TDS under Section 194-IC applies).
- Shares in a company whose main asset is immovable property (covered under Section 194-IC, not 194-IA).
When to deposit TDS and how
The buyer must deposit the TDS to the credit of the central government within 30 days from the end of the month in which the deduction is made. The deduction happens at the time of credit of the consideration to the seller (or at the time of payment, whichever is earlier). Typically, the deduction happens on the date of registration or the date of payment — whichever is earlier.
Use Challan 26QB on the TDS Online portal (tin-nsdl.com / e-filing portal). The challan requires:
- Buyer's PAN, address, and email.
- Seller's PAN, address, and email.
- Property details — address, type, date of agreement, total consideration.
- Amount of TDS deducted.
On successful deposit, a Form 16B (TDS certificate) is generated within 2-3 days. The buyer must download Form 16B and issue it to the seller within 15 days from the date of the TDS deposit. The seller can use Form 16B to claim credit for the TDS in their ITR.
TDS return filing by the buyer
The buyer must file a Form 26QB (TDS return for property transactions) within the prescribed time. There is no separate quarterly return — for 194-IA, the form is filed once per transaction. The due date is 30 days from the end of the month in which the TDS was deposited. For example, if TDS is deposited on 10 May, Form 26QB is due by 30 June.
After filing Form 26QB, the buyer should download the acknowledgement (token number / receipt number) and retain it for at least 6 years (the statutory retention period for TDS records).
How the seller claims TDS credit
The seller can claim credit for the TDS deducted in their ITR by:
- Downloading Form 16B from the TDS portal (issued by the buyer).
- Reconciling the TDS with Form 26AS and AIS on the e-filing portal.
- Reporting the sale under "Capital gains" in the ITR, and claiming the TDS under "Taxes paid" — the credit flows into the refund computation.
If the TDS does not appear in Form 26AS within 7-10 days of the deposit, the buyer should be reminded to file Form 26QB.
Consequences of non-compliance
- Interest under Section 201(1A) — 1% per month on the TDS amount, from the date of deduction to the date of deposit. Interest under Section 201(1A)(ii) — 1.5% per month — applies if TDS is not deducted at all.
- Penalty under Section 271H — Rs 10,000 to Rs 1,00,000 for failure to file Form 26QB or for filing with incorrect particulars.
- Disallowance of credit to the seller until the TDS is reflected in Form 26AS — a delayed deposit can hold up the seller's refund.
- Prosecution under Section 276B in rare cases of repeated wilful default.
Property bought jointly or with co-buyers
When two or more buyers jointly purchase a property, each buyer is treated as a separate transferee for the purpose of 194-IA. The threshold of Rs 50 lakh is per buyer. If buyer A pays Rs 35 lakh and buyer B pays Rs 40 lakh, no buyer crosses the threshold, and no TDS is deductible. If buyer A pays Rs 35 lakh and buyer B pays Rs 60 lakh, buyer B must deduct TDS on his Rs 60 lakh share. Each buyer files a separate Form 26QB for his share of the consideration.
Property bought from an NRI
For properties bought from a Non-Resident Indian (NRI) or a person resident outside India, the TDS rate is 20% under Section 195, not 1% under 194-IA. The buyer must obtain a Tax Clearance Certificate or use the lower deduction certificate (Form 13) to apply a lower rate. The deposit is under Challan 271, and the return is in Form 27Q. This is a separate regime and the rules are tighter — engage a CA for NRI property sales.
FAQ
Is TDS applicable if the agreement value differs from the circle rate?
Yes. 194-IA applies on the actual sale consideration, not the stamp duty value. However, if the stamp duty value exceeds 110% of the sale consideration, the difference is treated as income of the seller under Section 43CA / 50C, and the buyer must deduct TDS on the higher of the two.
Can the buyer deposit TDS after the date of registration?
Yes, as long as it is within 30 days from the end of the month in which the deduction is made. The deduction happens on the date of credit / payment / registration — whichever is earliest. If you register in May and deposit TDS in June, you are well within the deadline.
What if I am a non-resident buying Indian property?
194-IA still applies — the buyer is the deductor, and the seller (NRI or not) is the deductee. The 1% rate applies. Only the reverse case (NRI seller) is governed by Section 195 with the 20% rate.
For help with TDS on property, issuance of Form 16B, or NRI property sales, talk to a CA at ABMCO.
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