TDS on Buying Property Over Rs 50 Lakh: Section 194-IA Explained
The buyer, not the seller, must deduct 1% tax on any property worth Rs 50 lakh or more and file Form 26QB. Here is what Section 194-IA means for Mumbai redevelopment sales.
If you buy any immovable property in Mumbai — a flat, shop, office or plot, anything except agricultural land — and the price you agree, or the Government’s stamp-duty valuation of it, is Rs 50 lakh or more, the law makes you, the buyer, hold back 1% of the value as tax before paying the seller, deposit that 1% with the Income-tax Department, and file a short online form called Form 26QB. This is Section 194-IA of the Income-tax Act, 1961, and it is one of the most commonly missed steps in an Indian property deal. In a redevelopment setting it can arise more than once — when a member resells a flat, when someone buys a developer’s free-sale flat, or when you pay for extra area — so it pays to understand it clearly.
The tax you deduct is not an extra cost to you. It is an advance instalment of the seller’s income tax, collected through you. The seller later adjusts it against their own tax bill (often against their capital gains) or claims a refund if too much was collected. Your job as the buyer is simply to deduct the right amount, deposit it on time, and give the seller a certificate. Get this wrong and you — not the seller — face the interest and penalties, so it is worth doing properly.
Source: Section 194-IA of the Income-tax Act, 1961, read with Section 206AA for the no-PAN rate. The threshold and the rate are set by Parliament and can be changed by any Finance Act. Confirm the figures in force on your payment date on incometax.gov.in or with your chartered accountant before you deduct — never rely on a number printed on a website, including this one, as current law.
What Section 194-IA actually says
Stripped of jargon, Section 194-IA has four moving parts:
- Who deducts: the buyer (the law calls the buyer the “transferee”).
- When it applies: the property must be a building or land other than agricultural land, and the consideration or the stamp-duty value must be Rs 50 lakh or more.
- How much: 1% of the value, deducted at the time you pay or credit the seller, whichever happens first.
- The paperwork: deposit the amount and file Form 26QB within 30 days from the end of the month in which you deducted it, then download and hand the seller Form 16B as proof.
One feature makes this rule unusually easy for ordinary buyers. You do not need a TAN (Tax Deduction Account Number), the special number businesses must have to deduct TDS. An individual buyer simply uses the PAN of both sides. You will need your own PAN and the seller’s PAN to complete Form 26QB — so collect the seller’s PAN early.
The Rs 50 lakh threshold — where buyers slip up
Three details about the threshold catch out even experienced buyers.
1% is charged on the whole value, not the excess
As the callout above warns, once the value reaches Rs 50 lakh, the 1% applies to the full amount. Below Rs 50 lakh, no TDS is due at all under this section. At exactly Rs 50 lakh, it applies. There is no tapering — you either cross the line or you do not.
Compare the price with the stamp-duty value, and use the higher figure
The Rs 50 lakh test, and the 1% itself, look at both the agreed price (the “consideration”) and the stamp-duty value — the Government’s Ready Reckoner rate for that property, fixed under the Maharashtra Stamp Act, 1958. The current rule requires you to take the higher of the two. So a flat bought at Rs 48 lakh can still attract TDS if its Ready Reckoner value is Rs 52 lakh, because the higher figure is above the threshold. Our guide to Ready Reckoner rates in redevelopment explains how that official valuation is arrived at and why it often differs from the price on paper.
Joint buyers and joint sellers
The Rs 50 lakh is tested on the total value of the property, not on each person’s share. A Rs 90 lakh flat bought jointly by two spouses is above the threshold even though each “half” is Rs 45 lakh — TDS applies, and each buyer files a separate Form 26QB for their portion of the payment. The reason sits in the wording of the section itself: the let-off in sub-section (2) switches off only where the consideration for the transfer and the stamp-duty value of the property are both below Rs 50 lakh. The test is written on the property, not on each buyer’s share. So on that Rs 90 lakh flat, two buyers file two Form 26QBs of Rs 45,000 each — Rs 90,000 in all — not nil.
| Higher of price or Ready Reckoner value | Rs 50 lakh test | 1% TDS the buyer must deduct |
|---|---|---|
| Rs 48,00,000 | Below threshold | Nil |
| Rs 50,00,000 | Meets threshold | Rs 50,000 |
| Rs 75,00,000 | Above | Rs 75,000 |
| Rs 1,20,00,000 | Above | Rs 1,20,000 |
| Rs 60,00,000 (seller has no PAN) | Above | Rs 12,00,000 (20%) |
The last row shows an important exception: if the seller cannot give a valid PAN, the rate jumps from 1% to 20% under Section 206AA. On a Rs 60 lakh flat that is the difference between Rs 60,000 and Rs 12,00,000, payable by you. Ask the seller in writing for a self-attested copy of the PAN card before the first rupee moves, and check the name and number on the Income-tax portal’s “Verify PAN” utility.
A worked example
Suppose you agree to buy a redeveloped flat for Rs 75 lakh, and its Ready Reckoner (stamp-duty) value is Rs 82 lakh. Because you must use the higher of the two figures, the 1% is calculated on Rs 82 lakh — not on the Rs 75 lakh you actually pay.
Worked example — paid in one go
Agreed price = Rs 75,00,000
Ready Reckoner (stamp-duty) value = Rs 82,00,000
Higher of the two = Rs 82,00,000, which is above Rs 50,00,000, so Section 194-IA applies
TDS = 1% × Rs 82,00,000 = Rs 82,000
Released to the seller = Rs 75,00,000 − Rs 82,000 = Rs 74,18,000
Deposit Rs 82,000 against the seller’s PAN and file one Form 26QB
If you pay in instalments — say part on booking and the balance at registration — the total tax does not change. You deduct 1% from each payment as you make it and top up on the last instalment so the total reaches 1% of the higher value, filing a separate Form 26QB for every deduction.
Worked example — the same flat paid in two instalments
Total TDS is still Rs 82,000 — the payment schedule does not change it
Instalment 1, on booking: Rs 20,00,000 → deduct Rs 20,000, release Rs 19,80,000
Instalment 2, at registration: Rs 55,00,000 → deduct the balance Rs 62,000, release Rs 54,38,000
Two Form 26QB filings, each with its own 30-day clock
Rs 20,000 + Rs 62,000 = Rs 82,000 deposited; seller receives Rs 74,18,000 in all
How to deduct and deposit the tax, step by step
The process is entirely online and takes most buyers under half an hour:
- Confirm the value. Take the higher of the agreed price and the Ready Reckoner value; if it is Rs 50 lakh or more, TDS applies.
- Deduct 1% at payment. Hold back 1% of that value from each payment to the seller.
- Fill Form 26QB. On incometax.gov.in, go to e-Pay Tax and pick the 26QB challan (TDS on sale of property). Enter both PANs, the property details, the value and the amount deducted, then pay the TDS online.
- Meet the 30-day deadline. File and pay within 30 days from the end of the month in which you deducted.
- Download Form 16B. Register as a taxpayer on the TRACES website, then download the TDS certificate (Form 16B) and give it to the seller.
- Keep records. File the challan, the Form 26QB acknowledgement and Form 16B with your purchase papers — the seller will need them to claim credit.
The three dates that matter, worked through on a single deduction made on 5 August:
| Step | Deadline | If you deduct on 5 August |
|---|---|---|
| Deduct the 1% | At payment or credit, whichever is earlier | 5 August |
| Deposit the tax and file Form 26QB | Within 30 days from the end of the month of deduction | 30 September |
| Hand Form 16B to the seller | Within 15 days of the Form 26QB due date (Rule 31, Income-tax Rules, 1962) | 15 October |
What this means for your society’s redevelopment
Redevelopment involves several kinds of transaction, and Section 194-IA touches only some of them. Knowing which is which prevents both accidental non-compliance and unnecessary panic.
When a member resells the new flat
The clearest case. Once you receive your new flat and later sell it, if the sale price or Ready Reckoner value is Rs 50 lakh or more — and in most Mumbai suburbs a redeveloped flat easily clears that — your buyer must deduct 1% and give you Form 16B. As the seller, insist on that certificate; it is how you claim credit against the capital-gains tax on the sale.
When a buyer purchases a developer’s free-sale flat
The flats a developer sells in the open market to fund the project (the “free-sale” component) are ordinary purchases. Each buyer of such a flat priced at Rs 50 lakh or more must deduct 1% and file Form 26QB, with the developer as the seller. If you are buying one of these, do not assume the builder will handle it — the legal duty to deduct sits on you, the buyer.
The flat you receive in exchange, and your corpus
When existing members receive a new, larger flat in exchange for the old one, there is usually no cash “purchase” by the member, so Section 194-IA generally does not apply to that swap. The tax on that transaction is dealt with separately as capital gains under Section 45(5A) of the Income-tax Act, 1961, which lets an individual or HUF pay tax only in the year the completion certificate is issued, taking the consideration as the stamp-duty value of the member’s new share plus any cash received — explained in our guide to capital gains on redevelopment. Likewise, the corpus, rent and hardship compensation a developer pays you are not payments to buy property, so this 1% TDS does not apply to them; see possession and corpus for how those amounts are treated. However, if you pay the developer for area beyond your entitlement and the value of that additional purchase is Rs 50 lakh or more, treat it like any other property purchase and check the TDS position — the additional area calculator helps you size that payment first.
If the seller has no PAN, or is a non-resident
Two situations change the rate entirely. First, as noted, a seller who cannot provide a valid PAN triggers 20% instead of 1% — a huge difference on a crore-plus flat, so never skip the PAN check. Second, Section 194-IA applies only where the seller is a resident Indian. If the seller is a non-resident (an NRI), a different and generally much higher TDS rule applies, and the buyer’s obligations are more involved. In both cases, and especially with an NRI seller, take advice from a chartered accountant before you release any money.
Penalties for getting it wrong — with the numbers
Because the duty falls on the buyer, so do the consequences of missing it. Two charges can run at the same time, and they are separate from the tax itself:
| What went wrong | Charge | Section |
|---|---|---|
| You never deducted at all | Interest at 1% per month, or part of a month, from the date the tax was deductible to the date you finally deduct it | 201(1A)(i) |
| You deducted but deposited late | Interest at 1.5% per month, or part of a month, from the date of deduction to the date it is actually paid | 201(1A)(ii) |
| Form 26QB filed after the due date | Fee of Rs 200 for every day of delay, capped at the amount of the TDS itself | 234E |
Worked example — what a 51-day delay costs
TDS of Rs 82,000 deducted on 5 August; Form 26QB therefore due 30 September
You actually pay and file on 20 November — 51 days past the due date
Interest, s.201(1A)(ii): August, September, October and November count as 4 part-months → Rs 82,000 × 1.5% × 4 = Rs 4,920
Late-filing fee, s.234E: 51 days × Rs 200 = Rs 10,200 (under the Rs 82,000 cap, so payable in full)
Cost of the delay = Rs 4,920 + Rs 10,200 = Rs 15,120, roughly 18% of the tax itself
A separate penalty of Rs 10,000 to Rs 1,00,000 can also be levied under Section 271H for a late statement, though it is not levied where the tax, interest and late-filing fee are paid and the Form 26QB is filed within one year of the due date. The practical point is simple: budget for the deduction, deposit it inside the window, and diarise the date the day you pay.
Source: Income-tax Act, 1961 — Sections 194-IA, 201(1A), 206AA, 234E and 271H; Form 16B timeline under Rule 31 of the Income-tax Rules, 1962. Rates, fees and the Rs 50 lakh threshold are amended by Finance Acts from time to time, and the part-month interest count can be read differently by an assessing officer. Verify every figure above against incometax.gov.in, or with your chartered accountant, for the dates of your own transaction.
Where to find the official rule
The provision itself is Section 194-IA of the Income-tax Act, 1961; Form 26QB and Form 16B are generated on the Income-tax Department’s e-filing portal and the TRACES website. The stamp-duty value used in the higher-of test comes from the Ready Reckoner (Annual Statement of Rates) published under the Maharashtra Stamp Act, 1958. Because rates, forms and thresholds are updated periodically, treat the Income-tax portal as the authoritative source and have a CA confirm the position for your specific deal.
If your society is heading into redevelopment and you want the tax and documentation handled in the right order from the start, you can register your society for a structured review.
Related guides & tools
- Capital gains on redevelopment (Section 45(5A)) — how the flat you receive is taxed.
- Ready Reckoner rates in redevelopment — the stamp-duty value used in the higher-of test.
- Possession and corpus — why corpus and rent are not caught by this TDS.
- Offer comparison tool — compare developer offers side by side.
- All government policies — the rules that shape a redevelopment deal.
- Downloads — checklists and formats for your redevelopment file.
Common questions
Do I need a TAN to deduct TDS when I buy a flat?
No. Unlike businesses, an individual buyer does not need a TAN to deduct TDS under Section 194-IA. You simply use your own PAN and the seller's PAN to fill and file Form 26QB online. Make sure you collect a valid PAN from the seller before you pay.
Is the 1% charged only on the amount above Rs 50 lakh?
No. Once the value reaches Rs 50 lakh, the 1% is charged on the entire value, not just the part above the threshold. This is different from income-tax slabs. A Rs 60 lakh flat means Rs 60,000 of TDS, not 1% of Rs 10 lakh.
My flat is exactly Rs 50 lakh. Does TDS apply?
Yes. The rule applies when the consideration or the stamp-duty value is Rs 50 lakh or more, so exactly Rs 50 lakh meets the threshold. Only values below Rs 50 lakh are outside Section 194-IA. Remember to compare the price with the Ready Reckoner value and use the higher figure.
Who has to deposit the TDS, the buyer or the seller?
The buyer. Under Section 194-IA the buyer deducts 1%, deposits it with the Income-tax Department, and files Form 26QB within 30 days from the end of the month of deduction. The buyer then gives the seller Form 16B as proof, which the seller uses to claim credit.
Does this TDS apply to the new flat I get from the developer in redevelopment?
Generally no, because receiving a flat in exchange for your old one is not a cash purchase, so Section 194-IA usually does not apply to that swap. That gain is taxed separately as capital gains under Section 45(5A). But if you buy a free-sale flat or pay for extra area worth Rs 50 lakh or more, treat it as a purchase and check the TDS position with a CA.
What if I pay for the property in instalments?
You deduct 1% from each instalment as you pay it, so that the total deducted across all payments equals 1% of the higher of the price or stamp-duty value. File a Form 26QB for each deduction. The seller receives every payment net of the TDS.
What happens if I forget to deduct or deposit the TDS?
You pay, not the seller. Interest runs at 1% a month if you never deducted (Section 201(1A)(i)) and 1.5% a month if you deducted but deposited late (Section 201(1A)(ii)), counting every part-month as a full month. A late Form 26QB also draws a fee of Rs 200 for each day of delay under Section 234E, capped at the TDS amount. On a Rs 82,000 deduction filed 51 days late that works out to about Rs 4,920 of interest plus Rs 10,200 of fee, or Rs 15,120. Confirm the current rates on incometax.gov.in, because Finance Acts change them.
By when must I give the seller Form 16B?
Within 15 days of the Form 26QB due date, under Rule 31 of the Income-tax Rules, 1962. So a deduction made on 5 August has a Form 26QB due date of 30 September and a Form 16B due date of 15 October. You download it from the TRACES website after registering there as a taxpayer. If you are the seller, ask the buyer in writing for Form 16B by that date, because it is what lets you claim credit for the tax.
Does the 1% TDS apply if the seller is an NRI?
No. Section 194-IA applies only when the seller is a resident. If the seller is a non-resident, a different and usually much higher TDS rule applies, with more involved obligations for the buyer. Always take advice from a chartered accountant before releasing money to an NRI seller.
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