A recent ruling by the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has underscored the complexity of tax deduction at source (TDS) obligations when purchasing property. The case involved a Mumbai resident who jointly purchased a residential flat in Haji Ali worth ₹1.9 crore with her husband, holding a 15% share valued at ₹28.50 lakh. She deducted TDS of ₹28,500 under Section 194-IA on her share of the purchase price, but the tax department later raised a demand exceeding ₹5.8 lakh, alleging short deduction of tax on the ground that the seller's PAN was inoperative and higher TDS provisions under Section 206AA should have applied. However, the ITAT deleted the demand, noting that the seller had subsequently linked Aadhaar with PAN and regularised the PAN within the timeline prescribed by a circular issued by the Central Board of Direct Taxes (CBDT) in July 2025. The ITAT also observed that the seller had disclosed the capital gains in his tax return and paid the applicable taxes, making it inappropriate to treat the buyer as an 'assessee in default'.
Tax Deducted at Source (TDS) on property purchase falls specifically under Section 194-IA of the Income Tax Act, 1961, where tax is collected at the point of transaction itself rather than at year-end. According to the latest guidelines, TDS is applicable when the total property consideration exceeds ₹50 lakhs, with rates varying based on seller PAN availability. When purchasing a property in India, buyers must determine the applicable TDS based on property value and seller documentation. If the property value is ₹50 lakhs or more and the seller's PAN is available, TDS is 1%. However, if the seller's PAN is not available, TDS applies at 20% of the total consideration. The provision covers all immovable property types including residential flats, apartments, independent houses, commercial units, plots, and non-agricultural land, with no TDS required for agricultural land. Importantly, TDS is calculated on the higher of sale consideration or stamp duty value, not just the amount above ₹50 lakhs. For example, if a property is valued at ₹60 lakhs but has a stamp duty value of ₹65 lakhs, TDS applies to the entire ₹65 lakhs, not just the ₹15 lakhs difference.
Form 26QB serves as the challan-cum-TDS return filed by the property buyer, recording transaction details and facilitating TDS payment to the government. Unlike regular TDS returns, buyers must file Form 26QB within 30 days from the end of the month in which they deduct TDS. The filing process can be completed entirely online through the Income Tax e-filing portal without requiring a TAN, as PAN of both buyer and seller is sufficient. Form 16B is the TDS certificate issued by the buyer to the seller as proof that TDS has been deducted and deposited with the government. The seller requires Form 16B to claim TDS credit while filing their income tax return, with buyers needing to provide it within 15 days from the due date for furnishing Form 26QB. Form 26QB has now been renumbered as Form 141 under the Income Tax Act 2025, with the revised form coming into effect from 1st April 2026.
TDS on property purchase is calculated on the total consideration paid for the property, including society transfer charges, parking fees, and other amounts forming part of the agreed sale consideration. The government introduced this provision in 2013 to formally bring residential and commercial real estate transactions within India's TDS framework. For buyers making multiple payments, TDS applies to each instalment payment, not just the final amount. As per the latest guidelines, TDS under Section 194-IA applies to both new purchases and resale property, with buyers required to deduct TDS on every instalment they pay, not just at the time of registration. Neither the buyer nor the seller is required to procure a TAN for making TDS payment on the purchase of immovable property. The buyer must take the seller's PAN beforehand and visit the NSDL site to choose TDS on sale of property, fill all details, make payment, and take a print of Form 26QB generated and submitted to the bank.
Non-compliance with TDS requirements carries significant penalties under the Income Tax Act. Taxpayers will be liable to pay interest @1% as the case may be, and a penalty which may extend to ₹1 lakh under section 271H. The penalty structure includes a penalty of 1% interest on the amount not deducted for TDS, penalty of 1.5% of the deducted amount per month for non-remittance of TDS to the government, and penalty of ₹200 per day for each day of default in filing TDS returns. For example, if TDS of ₹50,000 was deducted but not deposited, the penalty would be ₹750 for the first month, ₹1,125 for the second month, and ₹1,500 for the third month. Corrections under Form 26QB are possible to understand in detail, with the form being generated by logging into the Traces site and corrected versions being submitted to the bank. Form 16B must be issued to the seller within 15 days from the due date for furnishing Form 26QB, and buyers must provide Form 26QB within the specified due date to avoid penalties. Tax experts point out that many buyers are unaware of their TDS obligations and often require professional assistance to navigate procedures such as obtaining a TAN, filing forms, depositing tax and obtaining TDS certificates.
