Tax Deducted at Source (TDS) is an important aspect of real estate transactions in India. Section 194IA of the Income Tax Act, 1961, mandates buyers to deduct TDS when purchasing a property above a certain value threshold. Understanding the applicability, calculation, and compliance requirements of TDS ensures smooth property transactions while avoiding legal complications.

This guide provides a detailed overview of TDS on real estate, including rates, payment procedures, and key considerations.

What is TDS on Property Transactions?

TDS on property transactions is a tax deduction mechanism where the buyer deducts a portion of the payment before transferring the remaining amount to the seller. This helps the government track high-value real estate transactions and curb tax evasion.

Applicability of TDS on Property Purchases

• TDS applies under Section 194IA of the Income Tax Act.
• The buyer must deduct 1% TDS when purchasing an immovable property (land, residential, or commercial) worth ₹50 lakh or more.
• This applies to properties acquired from resident sellers (for non-resident sellers, Section 195 applies).

Exemptions from TDS

• If the property value is below ₹50 lakh, TDS is not applicable.
• Agricultural land transactions are exempt from this provision.
• TDS does not apply to inherited or gifted properties, as no sale consideration is involved.

TDS on Sale of Property by Non-Residents (NRI Sellers)

If the seller is an NRI, Section 195 applies instead of Section 194IA. The buyer must deduct TDS at 20-30% on capital gains, not just on the sale price. NRIs can apply for a lower TDS certificate from the Income Tax Department to reduce this burden.

• When a buyer purchases property from a Non-Resident Indian (NRI), TDS must be deducted at higher rates:
  • 20% on long-term capital gains (property held for more than 2 years).
  • 30% on short-term capital gains (property held for less than 2 years).
  • Additional surcharge and cess may apply.
• Unlike Indian sellers, TDS in such cases is deducted on the entire sale consideration instead of just the profit component.

Joint Property Ownership

In cases of joint ownership, each buyer must deduct TDS in proportion to their share of the property. Compliance by all parties ensures adherence to tax regulations.​

Properties Under Construction vs. Ready-to-Move-In Properties

• Under Construction: TDS is deducted on each instalment paid to the builder.​
• Ready-to-Move-In: TDS is deducted on the lump sum payment made at the time of purchase.

Also Read: Relief for Property Owners: Government Amends Indexation Proposal for Real Estate Taxation

Case Studies: Full Payment vs. Instalment Payments in TDS on Property

When purchasing a property, the method of payment—whether full payment or instalments—determines how TDS is deducted. Here’s a detailed comparison:

1. Full Payment Scenario

If a property is purchased through a one-time payment, TDS is calculated on the total transaction amount and deducted at the time of payment.

Example:

• Property Price: ₹70 lakh
• TDS Calculation: 1% of ₹70 lakh = ₹70,000
• Payment Deadline: The deducted TDS must be deposited with the government within 30 days of payment.
• Compliance: The buyer must file Form 26QB to report the deduction and issue Form 16B to the seller as proof of tax payment.

2. Instalment Payment Scenario

When purchasing an under-construction or resale property with payments structured in instalments, TDS must be deducted on each instalment, provided the total property value exceeds ₹50 lakh.

Example:

• Property Price: ₹80 lakh (paid in instalments).
• First Instalment: ₹30 lakh – Since the total value exceeds ₹50 lakh, 1% of ₹30 lakh (₹30,000) must be deducted.
• Subsequent Instalment: ₹10 lakh – The buyer must deduct 1% of ₹10 lakh (₹10,000) as TDS.
• Payment Deadline: TDS must be deposited within 30 days of each deduction.
• Compliance: Form 26QB must be filed for every instalment where TDS is deducted.

Also Read: Comprehensive Guide to Long-Term Capital Gains Tax on Property for High-Net-Worth Individuals in India

How to Calculate the TDS Amount?

Following the correct TDS deduction process ensures compliance with tax regulations. Here’s how:

Step 1: Determine the Property Value

Identify the agreed sale price, as TDS is calculated on the total consideration amount.

Step 2: Calculate the TDS Amount

• TDS is deducted at 1% of the property value.
• Example: If the property is worth ₹70 lakh, the TDS amount will be ₹70,000 (1% of ₹70 lakh).

Step 3: Verify the Seller’s PAN

Before making the payment, verify the seller’s PAN details. If the seller does not provide a PAN, the TDS rate increases to 20%.

Step 4: Deposit the TDS

The deducted TDS must be deposited within 30 days using the official income tax portal or authorized banks.

Step 5: Obtain a TDS Certificate (Form 16B)

Once TDS is deposited, the buyer must generate Form 16B from the TRACES website and provide it to the seller as proof of deduction.

Using a TDS Calculator for Easy Computation

A TDS calculator simplifies the deduction process. Enter the property value and seller’s PAN, and the tool will calculate the exact TDS amount due.

Following these steps ensures compliance with TDS regulations on property transactions, preventing penalties and legal issues.

Also Read: Comprehensive Guide to GST on Real Estate in India

Important Compliance and Deadlines

• TDS Deduction: At the time of payment to the seller.​
• Deposit Deadline: Within 30 days from the end of the month in which TDS was deducted.​
• Form 16B Issuance: After depositing TDS, Form 16B should be downloaded and provided to the seller promptly.

Process of TDS Deduction and Payment

Step 1: Deduct TDS

• The buyer must deduct TDS at the applicable rate when making the payment to the seller.

Step 2: Deposit TDS with the Government

• The deducted amount must be deposited through challan 26QB (for resident sellers) or challan ITNS 281 (for NRIs).
• Payment must be made within 30 days from the end of the month in which TDS was deducted.

Step 3: File TDS Return and Issue Form 16B

• The buyer must file a TDS return and generate Form 16B from the TRACES portal.
• The buyer should provide Form 16B to the seller as proof of TDS deduction.

Penalties for Non-Compliance

Failing to deduct or deposit TDS can result in:

• Interest Penalty: 1% per month for late deduction, 1.5% per month for late deposit.
• Late Filing Fee: ₹200 per day until Form 26QB is filed.
• Additional Penalties: Under Section 271H, a fine ranging from ₹10,000 to ₹1 lakh may apply for failure to file TDS returns.
• Disallowance of Expenses: If TDS is not deducted, the buyer may be unable to claim the property cost as an expense for tax purposes.

Benefits of Compliance with TDS Rules

Adhering to TDS regulations ensures legal compliance, prevents potential penalties, and facilitates a smooth property transfer process. It also contributes to the transparency and integrity of real estate transactions.

Understanding and complying with TDS provisions in property transactions is essential for buyers in India. By following the outlined steps and being aware of special scenarios, buyers can navigate the process effectively, ensuring a hassle-free and legally compliant property acquisition. TDS on property transactions is a crucial compliance requirement that buyers must follow. Deducting, depositing, and filing TDS correctly prevents legal issues and ensures a smooth transaction process. Buyers must stay updated on tax laws to avoid penalties and streamline their real estate investments.