Most Indians assume that tax on a property sale is the seller's headache. In reality, when you buy a flat, plot, or commercial unit worth ₹50 lakh or more, the law turns you — the buyer — into a tax collector. You are required to deduct a small slice of the price, pay it to the government, and hand the seller a certificate. Miss it, and the penalty lands on you, not the seller.
This guide explains the 1% TDS rule under Section 194-IA of the Income-tax Act, 1961 — who deducts, when, how much, and the exact deduct-deposit-certificate timeline. It also flags the most common trap: buying from a Non-Resident Indian (NRI) seller, where a completely different and much heavier set of rules applies.
Who must deduct, when, and how much
Under Section 194-IA, the buyer (transferee) of any immovable property — other than agricultural land — must deduct TDS at 1% of the sale consideration if the consideration (or the stamp-duty value of the property) is ₹50 lakh or more.
Three practical points decide whether the rule bites:
- The ₹50 lakh threshold is on the full property value, not your down payment. A ₹75 lakh flat triggers TDS even if you pay only ₹10 lakh upfront and take a home loan for the rest.
- TDS is 1% of the entire consideration once the threshold is crossed — not 1% of only the amount above ₹50 lakh.
- The higher of sale price or stamp-duty value governs both the threshold and the base. If the agreement value is ₹48 lakh but the stamp-duty (circle-rate) value is ₹52 lakh, the rule applies.
When the deduction happens
You deduct at the time of payment or credit to the seller, whichever is earlier. For installment purchases (common in under-construction projects), you deduct 1% on each installment as you pay it, not in one lump sum at the end.
Agricultural land is outside the net
Section 194-IA specifically excludes rural agricultural land. But the definition of "agricultural land" for this purpose is narrow and location-dependent — don't assume a green-zone plot qualifies without checking with a CA.
The deduct-deposit-certificate timeline
The compliance chain has three stages with strict deadlines. Filing and paying are done together through Form 26QB, a challan-cum-statement available on the income-tax e-filing / TIN portal.
| Step | What you do | Form / document | Deadline |
|---|---|---|---|
| 1. Deduct | Withhold 1% at the time of payment/credit to the seller | — | At each payment |
| 2. Deposit + report | Pay the deducted TDS and file the challan-cum-statement online | Form 26QB | Within 30 days from the end of the month of deduction |
| 3. Certificate | Download and issue the TDS certificate to the seller | Form 16B | About 15 days after filing Form 26QB |
Example: if you make a payment on 10 May 2026, the deduction is in May. You then have until 30 June 2026 (30 days from the end of May) to deposit the TDS and file Form 26QB. Form 16B can be generated from the TRACES portal a couple of weeks after the Form 26QB is processed.
No TAN needed — but PAN is non-negotiable
Normally, anyone deducting TDS needs a Tax Deduction Account Number (TAN). Section 194-IA is a deliberate exception: an ordinary home buyer does not need a TAN to deduct and deposit this TDS. That keeps the process accessible to individuals who will never deduct TDS again.
What you absolutely need is the PAN of both the buyer and the seller. Form 26QB is keyed to these PANs. If the seller does not furnish a valid PAN, Section 206AA kicks in and you must deduct at the higher rate of 20% instead of 1% — a strong reason to insist on a correct PAN before you release any payment.
Multiple buyers or multiple sellers
Joint purchases are routine — a couple buying a flat together, or a property held by two siblings being sold. The rule scales by share:
- Each buyer files a separate Form 26QB for their share of the consideration paid to each seller. Two buyers and one seller means two Form 26QBs.
- Each seller's share is reported separately. Two sellers and one buyer means the buyer files two Form 26QBs — one per seller PAN.
- The ₹50 lakh threshold is judged on the total property value, not each person's share. A ₹90 lakh flat split between two buyers still attracts TDS, even though each buyer's ₹45 lakh share is individually below ₹50 lakh.
Getting the share split right matters — a mismatch between what is reported and what is actually paid can cause the seller's Form 26AS / Annual Information Statement to under-reflect the credit, leading to disputes at the seller's assessment.
The NRI-seller exception — a different, heavier regime
This is where buyers most often go wrong. The 1% Section 194-IA rule applies only when the seller is a resident of India. If you are buying from an NRI seller, Section 194-IA does not apply at all. Instead, TDS is governed by Section 195, and the rates are far higher because they are pegged to the seller's capital-gains liability, not a flat 1%.
Broadly, where the property was held by the NRI for more than 24 months, the gain is long-term and TDS is deducted on that basis; where held for 24 months or less, it is short-term and taxed at the seller's slab rate. Surcharge and cess are added on top, pushing the effective deduction well into double digits. Crucially, under Section 195 the TDS is, in principle, on the capital gain, but unless a certificate says otherwise, the buyer is expected to deduct on the full sale consideration — which can mean a very large amount withheld.
Lower / Nil Deduction Certificate
To avoid excessive withholding, the NRI seller can apply to the Assessing Officer under Section 197 for a Lower or Nil Deduction Certificate. This certificate tells the buyer the exact (reduced) rate to deduct, based on the actual computed gain. As a buyer, you should ask the NRI seller for this certificate before closing — without it, you must deduct at the full statutory rate.
Other NRI-purchase differences
| Aspect | Resident seller (194-IA) | NRI seller (195) |
|---|---|---|
| TDS rate | 1% of consideration | 20%+ (long-term) or slab (short-term), plus surcharge & cess |
| Threshold | ₹50 lakh+ | No ₹50 lakh threshold — applies to any value |
| Buyer needs TAN? | No | Yes — buyer must obtain a TAN |
| Form to file | Form 26QB | Form 27Q (TDS return) + challan |
| Certificate to seller | Form 16B | Form 16A |
| Reduce TDS | Not applicable | Section 197 Lower/Nil Deduction Certificate |
Because the NRI-seller process needs a TAN, Form 27Q, and careful capital-gains computation, do not attempt it without professional help. A mistake here can leave you liable for the seller's tax.
Penalties for getting it wrong
Non-compliance under Section 194-IA carries real cost, all of which falls on the buyer:
- Interest for non-deduction — 1% per month under Section 201(1A) from the date the tax was deductible to the date it is deducted.
- Interest for late deposit — 1.5% per month from the date of deduction to the date of payment.
- Late-filing fee — ₹200 per day under Section 234E for delay in filing Form 26QB, capped at the TDS amount.
- Penalty — under Section 271H, a penalty ranging from ₹10,000 up to ₹1,00,000 for failure to file the statement, in addition to the fee above.
If you are funding the purchase with a home loan, factor the TDS into your closing math early — see our guide to home and personal loans — because the deducted 1% must come out of the amount you pay the seller, not on top of it.
Frequently Asked Questions
Is the ₹50 lakh limit per buyer or per property?
It is judged on the total property value. A ₹90 lakh flat bought jointly by two buyers crosses the threshold even though each buyer's ₹45 lakh share is below ₹50 lakh, so TDS applies and each buyer files a separate Form 26QB.
Do I need a TAN to deduct TDS on my flat purchase?
No. Section 194-IA specifically waives the TAN requirement for buyers. You only need the PAN of both yourself and the seller. (A TAN is required if the seller is an NRI, because that case falls under Section 195.)
What if the seller refuses to share their PAN?
Without a valid seller PAN, Section 206AA forces you to deduct at 20% instead of 1%. Always obtain the correct PAN before releasing payment, and verify it before filing Form 26QB.
When exactly must Form 26QB be filed?
Within 30 days from the end of the month in which you deducted the TDS. So a deduction made any time in May 2026 must be deposited and reported via Form 26QB by 30 June 2026.
How do I give the seller proof that I deducted the TDS?
After Form 26QB is processed, download Form 16B (the TDS certificate) from the TRACES portal — usually available about 15 days after filing — and hand it to the seller. It lets them claim the 1% credit against their tax.
Is the TDS on property different from TDS on FD interest?
Yes — entirely separate provisions. Property TDS is under Section 194-IA; bank deposit TDS sits under different sections and rates, which we cover in our explainer on whether FD interest is taxable and the TDS rules.
The takeaway: if you are the buyer of a property worth ₹50 lakh or more from a resident seller, deduct 1%, deposit it via Form 26QB within 30 days, and issue Form 16B — no TAN needed, but both PANs essential. If your seller is an NRI, stop and treat it as a Section 195 case with professional help. Because tax law turns on the exact facts of your transaction, confirm your specific situation with a qualified Chartered Accountant before closing.