TDS on Property Purchase: Rates & Rules
TDS (Tax Deducted at Source) on property is a mandatory tax deduction that buyers must make when purchasing immovable property in India valued above Rs 50 lakh. Under Section 194-IA of the Income Tax Act, the buyer deducts 1 percent of the sale consideration and deposits it with the government on behalf of the seller.
When Does TDS Apply?
- The property value or sale consideration exceeds Rs 50 lakh (or the stamp duty value, whichever is higher).
- Applicable to all immovable property transfers except agricultural land.
- The buyer is responsible for deducting and depositing TDS, regardless of whether the buyer is an individual or a company.
- For luxury properties like Fab Luxe Residences (starting Rs 2.96 crore), TDS applies to each instalment payment during construction-linked plans.
TDS Rates
- Resident Indian seller: 1% of the sale consideration or stamp duty value, whichever is higher.
- NRI seller: 20% on long-term capital gains (property held over 2 years) or at the applicable slab rate for short-term gains. Higher TDS rates for NRI sellers reflect the additional compliance requirements under FEMA.
How to Comply: Form 26QB
The buyer must file Form 26QB online through the TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal within 30 days from the end of the month in which the TDS was deducted. The form captures details of the buyer, seller, property, and transaction amount. After filing and payment, the buyer receives a TDS certificate (Form 16B) which must be provided to the seller.
Penalties for Non-Compliance
- Non-deduction: Interest at 1% per month from the date TDS was deductible until actual deduction.
- Non-deposit: Interest at 1.5% per month from the date of deduction until actual deposit.
- Late filing of Form 26QB: Penalty of Rs 200 per day of delay, capped at the TDS amount.
For luxury property transactions, the TDS amount can be significant. On a Rs 3 crore property, TDS of 1 percent amounts to Rs 3 lakh. Ensure your payment schedule accounts for TDS compliance to avoid penalties. Related topics include capital gains tax and NRI property buying rules.
For full details on tax optimisation, read our Tax Benefits of Property Investment guide.