Section 194IA of Income Tax Act - TDS on Purchase of Immovable Property

Introduction

Buying a home is one of the biggest financial decisions you will ever make. Between finalizing the deal, arranging the down payment, and securing a home loan, the tax compliance part often gets overlooked. Most buyers assume that paying the builder or the seller is the end of the transaction. However, the Income Tax Department has assigned you, the buyer, a specific responsibility: the role of a tax collector.

If you are purchasing a property worth ₹50 Lakhs or more, you cannot pay the full amount to the seller. You are legally required to deduct 1% of the value as TDS (Tax Deducted at Source) and deposit it with the government. This is governed by Section 194IA of the Income Tax Act.

Ignoring this rule is dangerous. Not only can you face a penalty equal to the tax amount, but the registrar may also refuse to register your sale deed without proof of TDS payment. In 2025, the rules have tightened further with amendments regarding joint owners and stamp duty value. In this guide, we will walk you through the entire process, from deduction to filing Form 26QB.

Table of Contents

1. What is Section 194IA?
2. Threshold Limit: The ₹50 Lakh Rule
3. Rate of TDS: 1% or 20%?
4. The "Stamp Duty Value" vs. "Consideration" Rule
5. 2025 Amendment: The Aggregate Value Rule for Joint Owners
6. What Constitutes "Consideration"? (Hidden Charges)
7. How to File Form 26QB (Step-by-Step)
8. Issuing Form 16B to the Seller
9. Penalties for Non-Compliance
10. FAQs

What is Section 194IA?

Section 194IA mandates that any person (being a transferee/buyer) responsible for paying a resident seller (transferor) for the transfer of immovable property must deduct tax at source.

Key Features:

• Applicability: Purchase of any immovable property (Building, Flat, Land, Plot).
• Exemption: It does NOT apply to the purchase of Rural Agricultural Land.
• Buyer's Liability: The responsibility for deducting and paying the tax lies entirely with the buyer, not the seller.
• No TAN Required: Unlike businesses that need a Tax Deduction Account Number (TAN) to deduct TDS, an individual property buyer does not need a TAN. You can file this using your standard PAN.

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Threshold Limit: The ₹50 Lakh Rule

TDS under Section 194IA is applicable only if the consideration for the transfer of the immovable property is ₹50 Lakhs or more.

• Below ₹50 Lakhs: No TDS is required. You can pay the full amount to the seller.
• ₹50 Lakhs or Above: TDS is deducted on the entire amount, not just the excess.

Example: If you buy a flat for ₹60 Lakhs, you deduct 1% on ₹60 Lakhs (i.e., ₹60,000). You do not calculate it on the excess of ₹10 Lakhs.

Rate of TDS: 1% or 20%?

The standard rate of TDS for compliant transactions is 1%.

However, there is a critical catch involved with the seller's PAN.

• Seller provides PAN: TDS Rate is 1%.
• Seller Does Not Provide PAN: TDS Rate jumps to 20% (under Section 206AA).
• Seller's PAN is Inoperative: If the seller has not linked their PAN to their Aadhaar, the PAN is considered inoperative, and the 20% rate applies.

Tip: Always verify the seller's PAN status on the income tax portal before making the payment.

The "Stamp Duty Value" vs. "Consideration" Rule

In the past, buyers would pay TDS only on the actual sale price (consideration), even if the government's guidance value (Stamp Duty Value or SDV) was higher. This loophole has been closed.

Current Rule:

TDS of 1% must be deducted on the Higher of the following two amounts:

1. Actual Sale Consideration (The price you pay).
2. Stamp Duty Value (The value assessed by the Stamp Valuation Authority).

Example:

• Sale Price: ₹80 Lakhs.
• Stamp Duty Value: ₹90 Lakhs.
• TDS Base: ₹90 Lakhs.
• TDS Amount: 1% of ₹90 Lakhs = ₹90,000.

Note: You deduct ₹90,000 from the ₹80 Lakhs payment you make to the seller.

2025 Amendment: The Aggregate Value Rule for Joint Owners

This is the most critical update in recent years. Previously, if a property was worth ₹80 Lakhs but bought by two joint buyers (₹40 Lakhs each) or sold by two joint sellers, taxpayers argued that since the individual share was less than ₹50 Lakhs, no TDS was applicable.

The Amendment:

The law now clarifies that the threshold of ₹50 Lakhs applies to the Aggregate Value of the Property, regardless of the number of buyers or sellers.

• Scenario: Two brothers buy a property together for ₹80 Lakhs. Share is ₹40 Lakhs each.
• Old Interpretation: No TDS (since share < ₹50L).
• Current Rule: TDS Applicable. Since the property value (> ₹50L) triggers the section, both brothers must deduct 1% on their respective payments.

What Constitutes "Consideration"? (Hidden Charges)

The term "Consideration" is not just the basic cost of the flat. As per the explanation added to the section, it includes all incidental charges such as:

• Club Membership Fees.
• Car Parking Fees.
• Electricity or Water Facility Fees.
• Maintenance Fees (Advance).
• Any other fee incidental to the transfer.

You must add all these values to the base price. If the total crosses ₹50 Lakhs, TDS applies to the whole bundle.

How to File Form 26QB (Step-by-Step)

Form 26QB is a "Challan-cum-Statement." You do not file a separate return; filing this form completes the process.

Step 1: Go to the Portal

Visit the Income Tax e-filing portal (e-Pay Tax section).

Step 2: Select Form 26QB

Choose "TDS on Property (Form 26QB)" under the New Payment options.

Step 3: Fill Details

• Taxpayer Details: Enter Buyer's PAN and Seller's PAN.
• Address: Enter the address of the buyer, seller, and the property being purchased.
• Values: Enter the Total Consideration, Stamp Duty Value, and the Amount Paid/Credited currently.
• Tax: The system calculates 1% tax automatically.

Step 4: Make Payment

Pay the tax using Net Banking, UPI, or RTGS.

Step 5: Generate Acknowledgment

Once paid, a Challan Identification Number (CIN) is generated. Save this.

Issuing Form 16B to the Seller

Your job is not done after paying the tax. You must give proof to the seller so they can claim this tax credit in their own Income Tax Return.

1. Wait for 3-5 days after filing Form 26QB.
2. Log in to the TRACES portal (tdscpc.gov.in) as a Taxpayer.
3. Request for "Form 16B."
4. Download the certificate and hand it over to the seller.

Penalties for Non-Compliance

Failing to follow Section 194IA attracts three types of financial hits:

1. Interest: 1% per month for late deduction and 1.5% per month for late payment (Section 201).
2. Late Fee: ₹200 per day for late filing of Form 26QB (Section 234E).

Penalty: The Assessing Officer can levy a penalty equal to the amount of TDS not deducted (Section 271C).