TDS on Property Purchase (Section 194-IA): A Builder's Guide

Quick answer: Under Section 194-IA of the Income Tax Act, when a buyer purchases immovable property in India from a resident seller at a consideration of 50 lakh rupees or more, the buyer must deduct 1 percent TDS on the payment and deposit it to the government using Form 26QB. Missing this creates a compliance problem for the buyer and downstream friction for the builder. This guide walks through the mechanics, the joint owner and multiple buyer cases, and how a real estate CRM keeps the paperwork clean.

TDS on property purchase is one of those obligations that looks simple in the text of the Act but produces friction in practice. Buyers do not always know it applies. Builders can end up with disputes on payment reconciliation because the amount received is 99 percent, not 100 percent, of what was demanded. Joint ownership adds another layer. This is a practical guide for builders and buyers alike, framed around what a real estate CRM should record so nothing falls through.

What Section 194-IA says, in plain English

Section 194-IA of the Income Tax Act was inserted from 1 June 2013. It requires:

• Any person (individual, HUF, company, others) who is a buyer of any immovable property, other than agricultural land, from a resident seller.
• Where the consideration for the transfer is 50 lakh rupees or more.
• Must deduct 1 percent TDS at the time of credit of the sum to the seller's account or at the time of payment, whichever is earlier.
• The 1 percent is on the total consideration (or on stamp duty value, whichever is higher), not just on the amount above 50 lakh.
• The buyer must deposit the TDS to the government using Form 26QB, and issue a TDS certificate in Form 16B to the seller.
• TAN (Tax Deduction Account Number) is not required for the buyer; PAN of the buyer and seller is required.

This applies to under-construction property, ready-to-move-in property, and resale property, so long as it is not agricultural land and the consideration crosses the 50 lakh threshold.

What counts as consideration

The 1 percent is applied to the higher of the actual consideration and the stamp duty value of the property. Consideration includes:

• The base price of the unit, including PLC, floor rise, and any premium adders shown on the cost sheet.
• Any additional payments to the seller directly related to the transfer of the property.
• It does not include separately paid GST (GST is not part of consideration for TDS calculation), stamp duty, or registration charges.

Confirm the specific treatment of any bundled charge (like club membership, one-time maintenance deposit, or car parking) with a tax advisor. Some are treated as part of consideration; others are separate.

How and when the buyer deducts and deposits TDS

The mechanics for a buyer, in sequence:

1. Buyer receives the demand letter from the builder for a CLP milestone or a booking amount.
2. Buyer verifies whether the total consideration for the property is 50 lakh or more. If yes, TDS applies on every payment.
3. Buyer computes 1 percent of the payment amount (excluding GST).
4. Buyer pays 99 percent of the demanded amount to the builder and 1 percent as TDS via Form 26QB on the income tax portal.
5. Buyer downloads Form 16B from TRACES portal after processing and issues it to the seller.
6. Buyer shares the Form 26QB acknowledgement and Form 16B with the builder for reconciliation.

Form 26QB must be filed within 30 days from the end of the month in which TDS was deducted. Delays attract interest and penalty.

What the builder should record in the CRM

For every buyer whose consideration exceeds 50 lakh, the CRM should carry a clear TDS view alongside the payment ledger. That view should show:

• Consideration total that triggers TDS applicability.
• For each demand and each collected instalment, the base amount, GST amount, and the expected TDS at 1 percent.
• Whether the buyer has deposited TDS via Form 26QB and shared the acknowledgement.
• Form 16B receipts uploaded and linked to the buyer record.
• Any TDS pending reconciliation, so finance can chase without paging through spreadsheets.

This visibility is what prevents the classic dispute: buyer paid 99 percent, builder's collections show a 1 percent shortfall, and no one knows why until Form 26QB is produced. See how documents and reconciliation are structured in documents and compliance and payment plans and collections.

Joint owners and multiple buyers

Joint ownership complicates the calculation. Two common patterns:

• Two joint buyers with equal share of a 60 lakh unit. Each buyer's share is 30 lakh, which is under the 50 lakh threshold. However, the property consideration itself is 60 lakh, which is above 50 lakh, so TDS applies. Practice has evolved to apply TDS on the property level, not the buyer share level. Confirm the current position with a tax advisor.
• Buyer purchases from joint sellers. Each seller's share of the consideration may be under 50 lakh, but if the property total is over 50 lakh, TDS applies and the buyer must file separate Form 26QB for each seller.

The CRM should let you configure a booking with multiple buyer PANs and multiple seller PANs where applicable, and produce the correct Form 26QB expectation per party.

NRI sellers: Section 195 instead of 194-IA

Section 194-IA applies only when the seller is a resident. If the seller is a non-resident (NRI), the TDS provision changes to Section 195, and the rates are materially higher (typically 20 percent plus surcharge and cess for long-term capital gains, higher for short-term). The buyer needs a TAN for Section 195 TDS. This is a specialised area; always get professional advice before buying property from an NRI.

For a builder receiving payment from a buyer, this section usually does not apply because the builder is a resident seller. But it becomes relevant on resale transactions your channel partners might facilitate.

Common TDS mistakes and how to prevent them

• Buyer does not know 194-IA applies and pays the full amount. The builder's collections show 100 percent but the buyer has an income tax compliance gap.
• Buyer deducts TDS but does not deposit via Form 26QB. Interest and penalty accrue for the buyer.
• Builder does not track TDS receipts on the buyer ledger. Finance ends up chasing paperwork weeks later.
• TDS applied on GST amount by mistake. TDS is on consideration, not on GST.
• Form 26QB filed with wrong PAN or wrong property details. Correction is possible but painful.
• Joint buyer scenarios handled incorrectly, with TDS deducted on only one share instead of the property level.

How this fits with a Construction-Linked Payment Plan

On a CLP with certified-milestone-triggered demands, TDS applies to each instalment paid, not just to the booking amount. That means every demand letter should:

• Show the base amount clearly.
• Show GST as a separate line.
• Include a note that the buyer must deduct 1 percent TDS on the base amount (excluding GST) and pay the balance to the builder.
• Note the Form 26QB requirement and the 30-day deposit window.

That single addition to the demand letter template saves a lot of downstream confusion. See our demand letter automation guide and CLP explainer for the surrounding workflow.

Interaction with home loans

Where the buyer is financing via a home loan, the bank typically disburses the full demanded amount to the builder, and the buyer separately deposits the TDS from their own funds. Some banks now assist with the TDS payment at the time of disbursement. The buyer should confirm the process with their bank, and the CRM should track TDS status against each disbursement so the reconciliation stays clean.

Interaction with GST

TDS is on the consideration for the property. GST is on the same base but charged separately. The typical sequence on a single instalment:

• Base amount for the milestone: X.
• GST at applicable rate: Y (5 percent of X for non-affordable residential, 1 percent for affordable, or 12 percent for commercial).
• TDS deducted by buyer: 1 percent of X (only the base, not the GST).
• Amount transferred to builder: X + Y minus 1 percent of X.
• Amount deposited by buyer to government: 1 percent of X via Form 26QB.

Our GST explainer for real estate walks through the GST side; the two need to be shown together on the cost sheet and demand letter so both buyer and builder are aligned.

Two practical scenarios that trip up first-time buyers

Scenario 1: a 55 lakh unit with buyer new to property purchase

The buyer books the unit and pays the 10 percent booking amount without deducting TDS. Reason: they did not know Section 194-IA applied. Builder's finance shows the full amount received. Weeks later, the buyer's chartered accountant flags the missed TDS. The buyer now has to file Form 26QB late, pay the TDS with interest, and reconcile with the builder for the amount that was not deducted at source. If your team had flagged the 194-IA obligation on the demand letter itself, this would not have happened.

Scenario 2: joint buyers, one is an NRI

A property is jointly purchased by a resident spouse and an NRI spouse. Both are sellers or buyers of their respective shares? The TDS position becomes materially more complex because Section 195 governs the NRI leg. This is not a scenario to handle with general guidance; a tax opinion is essential before finalising the transaction. The CRM should let you tag one buyer as resident and one as NRI so downstream documents flag the mixed treatment.

Reconciliation workflow: how finance stays clean

1. Every buyer above the 50 lakh threshold is flagged in the CRM at booking.
2. Every demand letter for that buyer includes the TDS note and computes the 1 percent guidance amount.
3. The buyer pays 99 percent of the base amount plus GST to the builder.
4. The buyer deposits 1 percent to the government via Form 26QB within 30 days.
5. The buyer uploads the Form 26QB acknowledgement to the CRM (or emails it to finance, who uploads it).
6. Finance reconciles: the collection ledger shows 99 percent, the TDS ledger shows the corresponding 1 percent linked to a Form 26QB receipt.
7. The buyer downloads Form 16B from TRACES and shares it with finance.
8. At year end, the builder's accountant matches all Form 16Bs against expected TDS on the collections ledger.

This workflow prevents the two common pain points: buyers who paid 100 percent without deducting (creating a compliance issue for them), and builders who cannot explain a 1 percent shortfall to their auditor.

What good looks like on a builder's finance team

• Every buyer above 50 lakh consideration flagged in the CRM at booking.
• Every demand letter includes the TDS note and computed 1 percent amount as guidance.
• Buyer uploads Form 26QB acknowledgement into the CRM within a week of payment.
• Finance reconciles TDS receipts monthly and flags exceptions.
• Form 16B receipts stored against the buyer record.
• Annual audit works from CRM reports, not manual spreadsheets.

Where to go from here

If your finance team spends time reconciling 1 percent shortfalls or chasing Form 26QB acknowledgements every month, that is the workflow to move into the CRM. To see how Makanify handles TDS visibility alongside payment plans and demand letters, book a free demo. A specialist will walk through it on your project structure.

Buyer's simple summary

For buyers reading this: if you are purchasing property in India at 50 lakh or more from an Indian resident seller, you are responsible for deducting 1 percent TDS and depositing it via Form 26QB within 30 days of the end of the month in which you deducted it. The builder cannot deduct on your behalf; the compliance is on you. Ask your builder's finance team to provide the base amount clearly on every demand letter, deduct 1 percent from the base, and pay the balance plus GST to the builder. Keep the Form 26QB receipts and Form 16Bs for your records.

Related reading

Companion posts that fit alongside this one: the GST guide, the CLP explainer, the demand letter automation post, and the RERA compliance checklist.

This article is a general explainer, not tax or legal advice. Rates, thresholds, and procedural rules are updated by the government periodically. Always confirm the current position with a qualified tax professional before deducting or depositing TDS.