When you buy an immovable property worth Rs. 50 lakh or more in India, the law makes you, the buyer, responsible for deducting tax at source and depositing it with the government. It is not the seller’s job, and getting it wrong exposes the buyer — not the seller — to interest and penalty. The rule sits in Section 194-IA, the mechanism is Form 26QB, and there is one trap that can turn a routine 1% deduction into a demand of several lakh rupees: buying from a seller who is a non-resident.
This article explains the 1% resident rule and the Form 26QB process cleanly, and then walks through the NRI-seller situation under Section 195, which works on a completely different basis. If you are buying property, read the NRI section carefully — it is the part that most often goes wrong.
The 1% rule under Section 194-IA (resident seller)
Section 194-IA applies when a buyer pays a resident seller Rs. 50 lakh or more for immovable property (other than agricultural land). The buyer must deduct 1% of the consideration — or of the stamp duty value, whichever is higher — and pay it to the government. A few practical points that catch people out:
The 1% applies to the entire consideration once you cross Rs. 50 lakh, not just the amount above Rs. 50 lakh. If you pay in instalments, you deduct 1% on each instalment. You do not need a TAN for this — your PAN and the seller’s PAN are enough. If the seller does not give a valid PAN, the rate jumps to 20%.
The multiple buyer/seller change from 1 October 2024
Earlier, some buyers split a property among two or three names so each share fell below Rs. 50 lakh and argued no TDS was due. That loophole is closed. From 1 October 2024, the Rs. 50 lakh threshold is tested on the aggregate consideration for the whole property, adding up all buyers and all sellers. So if a flat sells for Rs. 90 lakh to two joint buyers at Rs. 45 lakh each, TDS still applies because the total crosses Rs. 50 lakh — each buyer deducts 1% on their share.
Form 26QB and Form 16B: the process
Form 26QB is a combined challan-cum-statement. You file it and pay the TDS within 30 days from the end of the month in which the deduction is made. Where there are multiple buyers or sellers, a separate Form 26QB is filed for each buyer-seller combination. After paying, you download Form 16B from TRACES and hand it to the seller as their TDS certificate, so they can claim credit in their return.
| Step | What to do | Deadline |
|---|---|---|
| 1. Deduct | 1% of consideration / stamp duty value (higher) at the time of payment | At each payment |
| 2. Pay & file 26QB | Deposit TDS with challan-cum-statement Form 26QB | Within 30 days from end of month of deduction |
| 3. Issue 16B | Download Form 16B from TRACES and give to seller | Within 15 days of the 26QB due date |
Miss the 26QB deadline and you face interest at 1% or 1.5% per month plus a late-filing fee of Rs. 200 per day under Section 234E. You can work out the exact deduction for your purchase with our TDS on Property Sale Calculator.
The NRI trap: Section 195, not 194-IA
Here is the single most important thing a buyer must check before deducting a rupee: is the seller a resident or a non-resident? If the seller is an NRI, Section 194-IA does not apply at all. The transaction instead falls under Section 195, and everything changes.
Under Section 195, TDS is not a flat 1%. It is deducted at the capital-gains tax rate: for long-term gains (property held over 24 months, sold on or after 23 July 2024) that is 12.5% without indexation, plus surcharge and 4% health & education cess. Short-term gains are deducted at slab rates, effectively up to about 30% plus surcharge and cess. Because the surcharge depends on the amount, the effective long-term rates work out roughly as below:
| Amount band | Base LTCG rate | Surcharge | Effective rate (incl. 4% cess) |
|---|---|---|---|
| Up to Rs. 50 lakh | 12.5% | Nil | 13.00% |
| Rs. 50 lakh to Rs. 1 crore | 12.5% | 10% | 14.30% |
| Above Rs. 1 crore | 12.5% | 15% | 14.95% |
And now the real sting: by default, TDS under Section 195 is deducted on the entire sale consideration, not just on the capital gain. Unlike a resident deal where 1% is a small cash-flow item, deducting ~14% of the full sale price locks up a very large sum — refundable to the NRI only after they file a return, which can be a year away.
Worked example
An NRI sells a flat for Rs. 1.5 crore, with an actual long-term gain of Rs. 60 lakh. If the buyer deducts TDS on the full consideration, the surcharge applies at 15% (consideration above Rs. 1 crore), so TDS = 14.95% × Rs. 1.5 crore = Rs. 22.4 lakh. That is far more than the seller’s real tax of roughly Rs. 8.5 lakh on the Rs. 60 lakh gain — the excess sits with the department until the NRI files and claims a refund.
The fix is the lower/nil deduction certificate under Section 197. The NRI applies to the Assessing Officer (Form 13) before the sale, and the officer certifies that TDS need only be deducted on the actual gain (Rs. 60 lakh here), or at a lower rate. Deducting on Rs. 60 lakh at 14.30% gives about Rs. 8.58 lakh — a fraction of Rs. 22.4 lakh, and no long wait for a refund. This certificate is the difference between a smooth deal and a large sum stuck for a year.
What the buyer must do differently for an NRI seller
An NRI purchase is not a Form 26QB transaction. The buyer must obtain a TAN (PAN is not enough here), deduct at the Section 195 rate, deposit the TDS by the 7th of the following month, file a quarterly Form 27Q, and issue Form 16A to the seller. A buyer who mistakenly files Form 26QB and deducts only 1% on an NRI seller is treated as an assessee-in-default and is personally liable for the shortfall plus interest and penalty — even though the seller received the money. Always confirm the seller’s residential status in writing before closing.
Key takeaways
- Resident seller, property Rs. 50 lakh or more: buyer deducts 1% under Section 194-IA, uses PAN (no TAN), and files Form 26QB within 30 days of month-end.
- From 1 October 2024 the Rs. 50 lakh threshold is tested on the total property value across all buyers and sellers, so joint purchases below Rs. 50 lakh each still attract TDS.
- NRI seller: Section 194-IA does not apply — Section 195 does, at ~13% to 14.95% on long-term gains, and by default on the full sale price.
- The buyer of an NRI’s property needs a TAN, files Form 27Q, and issues Form 16A — not Form 26QB.
- A Section 197 lower-deduction certificate limits TDS to the actual gain and prevents a large refund-blocked sum; NRIs should obtain it before the sale.
Frequently Asked Questions
Is the 1% TDS charged on the full price or only the amount above Rs. 50 lakh?
On the full consideration. Once the price is Rs. 50 lakh or more, 1% applies to the entire amount (or the stamp duty value if higher), not just the portion exceeding Rs. 50 lakh.
Do I need a TAN to buy property?
Not for a resident seller under Section 194-IA — your PAN and the seller’s PAN suffice for Form 26QB. But if the seller is an NRI, the transaction is under Section 195 and you must obtain a TAN and file Form 27Q.
How do I know if my seller is an NRI?
Ask directly and get it in writing, and check their PAN status and passport/residential status. Residential status is about tax residency, not citizenship — an Indian citizen living abroad can be an NRI. If in doubt, treat the seller as non-resident and deduct under Section 195, because the liability for a wrong deduction falls on you as the buyer.
What is the penalty for not deducting or late-depositing TDS on property?
Interest runs at 1% per month for failure to deduct and 1.5% per month for failure to deposit after deduction, plus a Section 234E late-filing fee of Rs. 200 per day (capped at the TDS amount). For NRI transactions, an under-deducting buyer can be held liable for the entire shortfall.
Can an NRI avoid the high TDS on the full sale value?
Yes, by applying for a lower or nil deduction certificate under Section 197 before the sale. The Assessing Officer certifies TDS on the actual capital gain rather than the full consideration, dramatically reducing the amount locked up until the return is filed.