However, there are many complexities involved in handling these laws and regulations in India, and there are a few things that are equally important as TDS when purchasing a property. If you are buying a property, house, or land worth ₹50 lakhs or more, then you are responsible for paying TDS on the property purchase. Therefore, if you fail to do this, then you are not only postponing your property purchase but also inviting a significant amount of interest and penalties from the Income Tax Department.
In this comprehensive guide for 2026, we will cover everything about Section 194-IA, how to pay TDS on the purchase of property, and everything you need to know about Budget 2026 and selling property as an NRI.
What is TDS on Property Purchase? (Section 194-IA)
As per Section 194-IA of the Income Tax Act, the buyer of the property, house or land has to deduct 1% TDS on the purchase value.
Key Thresholds and Rules:
- Applicability: Applies to only those cases where the sale consideration or stamp duty value exceeds ₹50 lakhs.
- The "Higher Of" Rule: With the recent amendments, TDS is now applicable to the higher of the sale value and stamp duty value or the Circle Rate prescribed by the Government.
- Exclusion: Does not apply to rural agricultural lands.
- Mandatory PAN: It is mandatory for both the buyer and seller to possess a valid Permanent Account Number (PAN). In the absence of a PAN, TDS is levied at 20%.
What counts as "Consideration"?
The scope of "consideration" has expanded in 2026. It is no longer limited to "only bricks and mortar." It now encompasses all additional expenses like club fees, parking fees, electricity and water facility fees, maintenance advance, and even furniture, if included in the sale.
Budget 2026 Update: Buying from NRI Sellers
For a long time, buying a property from a Non-Resident Indian (NRI) has been a major obstacle for a resident buyer. The buyer was required to obtain a Tax Deduction Account Number (TAN) and file a complex 27Q form.
The 2026 "PAN-Only" Reform
The Union Budget 2026 has finally simplified this process. With effect from October 1, 2026, resident individual buyers of property from any NRI do not have to obtain a TAN. You can deduct and deposit TDS using your Permanent Account Number (PAN) via the challan-cum-statement method, similar to the general Form 26QB.
The process may be simpler, but the TDS rates for NRI sellers are different. For Long-Term Capital Gains (LTCG) for properties held for over 24 months, the TDS is 12.5% plus applicable surcharge and cess. For Short-Term Capital Gains, TDS is levied at the income tax slab applicable to the individual, which is a maximum of 30%.
How to pay TDS on the purchase of property: Step-by-Step Process
Step 1: Accessing the Portal
Log in to the official income tax portal. Under the 'e-File' tab, click on 'e-Pay Tax' and select '+ New Payment'.
Step 2: Selecting Form 26QB
Click on the tile marked '26QB (TDS on Sale of Property)'. This is the "Challan Cum Statement" for property transactions.
Step 3: Entering Critical Data
- Buyer and Seller Details: You will be required to fill in the PAN, address, and contact details of both parties. Also, please ensure that the PAN of the Seller is linked with Aadhaar; Otherwise, you may be required to deduct TDS at a higher rate of 20% as mandated under Section 206AA of the Income Tax Act.
- Property Details: It is essential to fill in all data related to the address of the property and mention whether it is a Residential or Commercial Property.
- Payment Info: You must fill in the details of the date of agreement and the total value.
Step 4: The Payment Execution
You may use Net Banking, Debit Card, RTGS/NEFT, or even UPI, which has been included in the latest updates. You may also generate a mandate form and pay at any of the authorised bank branches.
Post-Payment Compliance: The Role of Form 16B and TRACES
After paying the taxes, you are only halfway through the compliance process. You must generate Form 16B to satisfy both the vendor and the sub-registrar of your compliance. This is where the download of Form 16B comes into play.
Downloading Form 16B
Once 4 to 5 working days have elapsed since the payment, data syncs to the TRACES portal. This is the TDS Reconciliation Analysis and Correction Enabling System.
Here is the step-by-step procedure to download Form 16B from the online portal of TRACES:
- Register yourself as a 'Taxpayer' using the TRACES portal and enter your PAN details.
- Navigate to the 'Downloads' tab and ask for Form 16B.
- It is your legal obligation to provide this document to the seller within 15 days of the due date of the Challan.
Section 194-IA vs. Section 194M: The Two-Agreement Strategy
Another trend in the 2026 real estate market is the division between property value and work agreements. If you are buying an under-construction property or a villa and have entered into an agreement with the builder regarding interior work, you might have to deal with Section 194M.
The 1% vs. 2% Conflict
While Section 194-IA requires you to deduct 1% TDS on the transfer of immovable property, Section 194M applies to individuals who have to make payments to contractors or professionals.
- Property Purchase: If you are making this payment for constructing and purchasing property, you are required to abide by Section 194-IA and pay 1% TDS.
- Separate Work Contract: If you have entered into a separate contract with the builder regarding "premium interiors" or "additional construction" above ₹50 lakh, you are liable to pay 2% TDS under Section 194M.
The "Composite" Rule
In 2026, the Income Tax Department will likely view these as a "composite" transaction. If the construction is required to be done to make the property habitable, the safer option would be to pay the whole amount under Section 194IA at 1%. This will save you the trouble of being scrutinised for a "split contract." However, in case the work done is professional in nature (e.g., the architect is in another town and works on his own), then you are required to abide by Section 194M.
Complex Scenarios: Joint Owners and Installments
Handling Joint Buyers and Sellers
A husband and wife want to buy a property for ₹90 lakhs from a single seller. They cannot fill out one Form 26QB. Each buyer must fill out one Form 26QB for their share, i.e., ₹45 lakhs each. Although each one's share is below the ₹50 lakh threshold, the total property value makes TDS compulsory.
The "Under-Construction" Trap
In cases of property purchases from developers, TDS is to be deducted for every installment. Whether it is a booking amount, a demand for floor completion, or a final payment for possession, a fresh Form 26QB has to be filed for every single transaction of money to the developer.
Interest and Penalties
The Income Tax Department’s AI-driven systems in 2026 are strict. Delaying your compliance triggers automatic penalties.
- Late Deduction Interest: If you forgot to deduct TDS on the due date, you are to pay 1% interest for every month from the due date of deduction to the actual date of deduction.
- Late Deposit Interest: If you forgot to pay the government after deducting TDS, you are to pay 1.5% interest for every month.
- Late Filing Fee (Section 234E): If you delay in filing your Form 26QB by over 30 days from the end of the month in which you made the payment, you are to pay a fine of Rs. 200 per day.
- The Section 271H Hammer: In extreme cases of delay of over a year in filing your Form 26QB, you could be fined between Rs. 10,000 and Rs. 1,00,000.
Final Compliance Checklist for 2026 Homebuyers
- Verify the Seller’s PAN: Check that it is valid and linked to Aadhaar.
- Calculate Correct Value: Use the higher of the agreement value or stamp duty value.
- Deduct 1% At Source: Deduct tax before making the payment, including advances.
- Observe Timelines: Pay within 30 days of the end of the month of deduction.
- Issue Form 16B: Provide tax credit to the seller.
Complying with all the above guidelines will not only ensure a legal option but also ensure a smooth and dispute-free property purchase. Investing in real estate is a big deal; don’t let a 1% TDS mistake create a legal tangle for you.
