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Section 194-IA of the Income Tax Act makes the buyer of a property responsible for deducting tax at source when paying the seller. In a new project, the seller is the developer. The buyer deducts 1% from each payment and deposits it with the government.
Many first-time buyers do not know this. If they pay the full amount and forget TDS, both sides have a problem later. If they deduct but do not deposit, the developer's ledger shows a shortfall. Builders should explain TDS at booking and track it with every payment.
This is a summary for sales and CRM teams. It is not tax advice. Buyers should confirm their own position with a tax adviser. Section references are to the Income Tax Act, 1961 as amended.
01The rule in brief
| Point | What the law says |
|---|---|
| Who deducts | The buyer (transferee) paying a resident seller |
| Property covered | Immovable property other than agricultural land |
| Threshold | Consideration of ₹50 lakh or more |
| Value used | Higher of the consideration and the stamp duty value (from 1 April 2022) |
| Several buyers or sellers | Threshold tested on total consideration, not each share (from 1 October 2024) |
| Rate | 1% (higher rate under Section 206AA if the seller's PAN is not available) |
| When | At the time of payment or credit, whichever is earlier, on each instalment |
| How deposited | Form 26QB challan-cum-statement on the e-filing portal; no TAN required |
| Due date | Within 30 days from the end of the month in which tax is deducted |
| Certificate | Buyer downloads Form 16B from TRACES and gives it to the seller |
Consideration includes charges incidental to the transfer, such as club membership, car parking, electricity or water facility fees and maintenance fees. This was clarified by an Explanation added to Section 194-IA from 1 September 2019.
02How it works with instalments
For an under-construction flat, the buyer deducts 1% from every instalment. Each payment needs its own Form 26QB.
| Demand | Amount (₹) | TDS 1% (₹) | Paid to developer (₹) |
|---|---|---|---|
| Booking | 7,50,000 | 7,500 | 7,42,500 |
| Plinth | 11,25,000 | 11,250 | 11,13,750 |
| First slab | 3,00,000 | 3,000 | 2,97,000 |
If the buyer has a home loan, the bank usually pays the developer directly. Lenders handle TDS differently. Often the bank disburses the full amount and the buyer deposits 1% of it through Form 26QB from their own funds. The buyer remains responsible for the deduction either way. Agree in advance how this will be handled and reflected in the ledger.
03The stamp duty value rule
Since 1 April 2022, if the stamp duty value of the property is higher than the agreed price, TDS is computed on the stamp duty value. The threshold of ₹50 lakh is also tested against the higher of the two.
Example: a flat is sold at ₹48 lakh, but its stamp duty value under the ready reckoner is ₹52 lakh. TDS applies, at 1% of ₹52 lakh, even though the price is below ₹50 lakh.
04Consequences of getting it wrong
- Interest (Section 201(1A)). 1% per month for late deduction, and 1.5% per month for late payment after deduction.
- Late fee (Section 234E). ₹200 per day for late filing of the statement, up to the amount of TDS.
- Penalty (Section 271H). Possible for failure to file or for incorrect statements.
- Seller's records. If TDS is not deposited correctly, it does not appear in the developer's Form 26AS, and the developer cannot take credit for it.
05What builders should tell buyers
- At booking, give a one-page note on Section 194-IA with the developer's name and PAN exactly as registered, and the property address as in the agreement.
- Explain that 1% must be deducted from every payment and deposited through Form 26QB within 30 days from the end of the month.
- Mention that the stamp duty value rule may apply even below ₹50 lakh price.
- For joint buyers, explain how to file: each buyer files for their share.
- Ask the buyer to send the 26QB acknowledgement and, later, Form 16B for each payment.
- Include a TDS reminder on every demand letter.
06Reconciling TDS in the buyer's ledger
For each payment, the ledger should record the amount received and the TDS claimed by the buyer. TDS should be marked as verified only after it appears in the developer's Form 26AS or the buyer's Form 16B is received.
| Status | Meaning | Action |
|---|---|---|
| Claimed | Buyer says TDS was paid | Request 26QB acknowledgement |
| Acknowledged | 26QB acknowledgement received | Wait for it to appear in 26AS |
| Verified | Visible in developer's 26AS or 16B received | Clear against the demand |
| Mismatch | Wrong PAN, amount or year | Ask buyer to file a correction |
LeadOne AI keeps demands, receipts and the buyer ledger for each unit in its collections module, which makes this reconciliation a routine monthly task.
07Special cases your team should recognise
- Token and booking payments. TDS applies to every payment toward a property whose consideration crosses the threshold, including the first token. Buyers often forget it on the earliest payments.
- Joint buyers. Each buyer deducts and files Form 26QB for the share they pay. Since 1 October 2024, the ₹50 lakh threshold is tested on the total consideration, so joint buyers of a ₹60 lakh flat must deduct even if each share is below ₹50 lakh.
- NRI buyers. When the developer is a resident seller, an NRI buyer deducts under Section 194-IA in the usual way.
- Resale by an NRI. If the seller is a non-resident, Section 195 applies instead, with different rates and a TAN requirement. This matters for transfers and resales in your project.
- Agricultural land. Section 194-IA does not apply to agricultural land, which is rarely relevant for apartments but may matter for plotted projects on unconverted land.
08What to include in the booking kit
- Developer's legal name and PAN, exactly as registered with the Income Tax Department
- Property address and unit details as they should appear in Form 26QB
- A short note on the 1% rule, the stamp duty value rule and the 30-day deadline
- A request to share each 26QB acknowledgement and Form 16B
- A contact person in the CRM team for TDS questions
