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TDS on Property Purchase – Section 194-IA Explained
Introduction
Section 194-IA of the Income Tax Act, 1961 was introduced by the Finance Act, 2013 and came into effect from 1st June 2013. It mandates the deduction of 1% TDS (Tax Deducted at Source) on the purchase of immovable property exceeding a specified value.
This page explains the applicability, key rules, exceptions, and legal interpretation of Section 194-IA — especially in cases where the property was booked before the law came into force.
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Section 194-IA
“Any person being a transferee (buyer), responsible for paying to a resident transferor (seller) any sum by way of consideration for the transfer of any immovable property (other than agricultural land), shall deduct an amount equal to 1% of such sum as income-tax thereon at the time of payment or credit, whichever is earlier.”
Applicability of Section 194-IA
Criteria Condition
Date of transaction On or after 1st June 2013
Property type Immovable property (excluding agricultural land)
Property value ₹50,00,000 or more
Seller Must be a resident Indian
TDS rate 1%
Deposit of TDS Through Form 26QB online
TDS certificate to seller Buyer must issue Form 16B
When is TDS Not Applicable?
- If the agreement to sell or sale deed was executed before 1st June 2013
- If the total consideration is less than ₹50 lakh
- If the seller is a non-resident (then Section 195 applies)
- If the property is agricultural land
Know more ABout tds
Common Misunderstanding: TDS Based on Possession or Builder’s Demand
Common Misunderstanding: TDS Based on Possession or Builder’s Demand
Common Misunderstanding: TDS Based on Possession or Builder’s Demand
Many buyers believe that TDS must be deducted when the builder issues a demand letter or hands over possession. This is incorrect.
As clarified by the CBDT Circular No. 1/2014 (dated 13.01.2014):
“TDS shall be deducted at the time of payment or credit, for transactions executed on or after 01.06.2013.”
So, the transaction date, not possession or demand, triggers TDS liability.
Judgment Supporting This View
Common Misunderstanding: TDS Based on Possession or Builder’s Demand
Common Misunderstanding: TDS Based on Possession or Builder’s Demand
Shubhankar Estates Pvt. Ltd. v. Senior Sub-Registrar (Karnataka High Court, 2015)
Held: If payment for a property was made before 1st June 2013, the Sub-Registrar cannot insist on proof of TDS at the time of registration done later.
This confirms that TDS is not applicable retrospectively.
Case Example
Common Misunderstanding: TDS Based on Possession or Builder’s Demand
How to Calculate 1% TDS on Property Transactions
A flat was booked in 2010 and 80% of the payment was made before 1st June 2013. Due to delays and insolvency, no sale deed was executed until 2024.
Legal Position:
TDS is not applicable, as the transaction occurred before Section 194-IA came into effect.
How to Calculate 1% TDS on Property Transactions
How to Calculate 1% TDS on Property Transactions
How to Calculate 1% TDS on Property Transactions
How to Calculate 1% TDS on Property Transactions
Under Section 194-IA, the buyer must deduct 1% of the total sale consideration and deposit it with the Income Tax Department using Form 26QB.
Formula:
TDS Amount = 1% of Total Consideration
Important Notes for Buyers:
How to Calculate 1% TDS on Property Transactions
Important Notes for Buyers:
- TDS is calculated on the entire amount, not just the excess above ₹50 lakh.
- If the seller does not have a PAN, TDS must be deducted at 20% instead of 1%.
- TDS must be deposited using Form 26QB within 30 days from the end of the month of deduction.
- Buyer must issue Form 16B (TDS certificate) to the seller after filing Form 26QB.
Example:
How to Calculate 1% TDS on Property Transactions
Important Notes for Buyers:
You are buying a flat for ₹60,00,000.
- TDS = ₹60,000 (1% of ₹60,00,000)
- You pay the seller ₹59,40,000
- You deposit ₹60,000 via Form 26QB
- You generate and issue Form 16B to the seller
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