TDS on property purchase: What buyers need to know

TDS on property purchase: When buyers can get into trouble

Buying a home or investing in property in India requires one to navigate the complex tax system of India. The Income Tax Act requires buyers to deduct TDS at the time of making payment and deposit the same to the central government.
Here’s a roadmap to deduct TDS on property purchase

• While purchasing property worth more than Rs. 50 lakhs, a buyer has to pay 1% under section 194-IA of the Income Tax act. From April 1, 2025, the deduction must be made on the greater of either the transaction price or the circle rate (also the value for stamp duty).
• The buyer must fill Form 26QB within days from the transaction date after the amount is deducted
• In case the buyer fails to deposit their PAN card or not mapped to Aadhaar, 20% TDS can be levied. The amount deducted by the buyer must be deposited with The withheld amount must be deposited with the government on Form 26QB within 30 days from the transaction date.
• The buyer must furnish the certificate of deduction of tax at source in Form No. 16B to the payee within fifteen days from the due date for furnishing form 26QB.

In case the seller is NRI

When purchasing property from an NRI, the transaction shifts under the purview of Section 195 of the Income Tax Act. If the seller has held the property for over two years(long-term capital asset) the applicable Tax Deducted at Source (TDS) will be 20% of the total sale value. However, for transactions finalized on or after July 23, 2024, the baseline rate drops significantly to 12.5%. In both instances, buyers must remember to calculate and add the applicable surcharge and the mandatory 4% health and education cess onto the final tax amount.
Afterwards, the resident buyer must obtain a Tax Deduction Account Number (TAN) to deduct and deposit TDS which is done at the time of payment and deposited via e-challan by the 7th of the next month. Then, Form 27Q is to be submitted to file the TDS.

While filing TDS on property purchase, it crucial to remember that Non compliance may attract a penalty at the rate of 1% on the amount of the tax unpaid for every month under section 201 till the amount is paid. The defaulter may also be made liable to pay a penalty under section 271C which is equal to the amount of taxes that were liable to be withheld under section 195.
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