TDS on Property Above Rs 50 Lakh: 1% Rule, Form 26QB and Penalties

Section 194-IA of the Income-tax Act, 1961 requires any buyer of immovable property (other than rural agricultural land) to deduct TDS at 1% when the sale consideration is Rs 50 lakh or more. The rule has been in force since 1 June 2013, and from 1 April 2022 the Finance Act plugged the biggest loophole: TDS now applies on the higher of the sale consideration or the stamp duty value. A buyer who agrees a price of Rs 48 lakh on a flat with a circle-rate value of Rs 55 lakh must still deduct 1% of Rs 55 lakh. In Gurgaon, where DLF Phase 1 to Phase 5, Golf Course Road and Golf Course Extension Road consistently cross the threshold, almost every resale and primary sale triggers 194-IA. The buyer, not the seller, is responsible for the deduction. The buyer withholds Rs 50,000 on every Rs 50 lakh paid, releases 99% to the seller, and deposits the 1% with the government using Form 26QB within 30 days from the end of the month in which the deduction was made. No TAN is required; the buyer and seller PAN plus Form 26QB cover the entire compliance. Miss the deadline and interest plus a Rs 200 per day late fee kick in automatically, as the next sections explain.

Form 26QB is filed on the Income Tax e-filing portal (incometax.gov.in) under e-File then e-Pay Tax. The buyer logs in with PAN, selects the 26QB (TDS on Sale of Property) tile, and enters: buyer PAN and address, seller PAN and address, communication details for both, property type (land, building, flat), full property address with PIN code, agreement date, date of payment, total sale consideration, stamp duty value, amount paid in this installment, and the TDS amount at 1%. The portal auto-calculates the TDS and generates a challan payable through net banking or over the counter at an authorised bank. After payment, the acknowledgement number is proof of filing. Within five to seven working days the transaction reflects on the TRACES portal, where the buyer registers as taxpayer, downloads Form 16B, and hands it to the seller. For an installment-based purchase (common on under-construction Dwarka Expressway or New Gurgaon projects), file a separate Form 26QB for every single payment: booking, each slab demand, and possession. Joint buyers file multiple 26QBs, one per buyer, splitting the consideration and the TDS in the same ratio as the ownership share. Joint sellers also require separate 26QBs. A single joint-buyer, joint-seller deal with two names on each side therefore needs four Form 26QBs per installment.

The Finance Act 2022 amended Section 194-IA with effect from 1 April 2022: TDS at 1% must now be computed on the sale consideration or the stamp duty value of the property, whichever is higher. The change targets the long-standing practice of under-reporting the agreement value to save stamp duty while quietly paying the rest in cash. In Gurgaon, circle rates (collector rates) are notified by the Haryana Revenue and Disaster Management Department and vary sharply across sectors. DLF Phase 1, Golf Course Road and Camellias command much higher circle rates than Sector 95 or parts of New Gurgaon. Before signing, pull the current circle rate from the Haryana Jamabandi portal or the sub-registrar office in Gurugram and compare it to the agreement value. If the circle rate is higher, Form 26QB expects the higher number in the stamp duty value field, and 1% is calculated on that. There are two further implications. First, the difference between stamp duty value and agreement value, if above a 10% tolerance band, is also taxable in the hands of the buyer under Section 56(2)(x) and in the hands of the seller under Section 50C. Second, if the stamp duty value is actually lower than the agreement value (rare but possible in a cooling micro-market), TDS still runs on the higher figure, which is the sale consideration. Verify current circle rates with the Gurugram sub-registrar before closing.

When the seller is a Non-Resident Indian, Section 194-IA does not apply at all, regardless of the sale value. The buyer must instead deduct TDS under Section 195 on the entire capital gain or, in practice, on the full sale consideration unless the seller furnishes a lower-deduction certificate under Section 197. The default rates for a non-resident seller selling an Indian property are: 20% plus surcharge and 4% health and education cess for long-term capital gains (property held over 24 months), and the applicable slab rate plus surcharge and cess for short-term capital gains (property held 24 months or less). Surcharge is 10% if the sale consideration is Rs 50 lakh to Rs 1 crore, 15% between Rs 1 crore and Rs 2 crore, and up to 25% beyond. The effective LTCG TDS on a Rs 5 crore sale therefore lands near 23.92%. The deductor needs a TAN before deducting, must file Form 27Q (not 26QB) every quarter, and must issue Form 16A (not 16B) to the seller. The NRI seller can apply to the Income Tax Officer in India for a lower or nil deduction certificate under Form 13; if granted, the buyer deducts at the rate on the certificate. Many Gurgaon resale deals in Golf Course Road, DLF Phase 1 and Camellias involve NRI sellers; treat 1% as a planning red flag and always confirm residential status with the seller in writing before deducting.

The compliance cost of a missed Form 26QB adds up quickly. Interest under Section 201(1A) runs at 1% per month (or part of a month) from the date TDS should have been deducted to the date it is actually deducted, and at 1.5% per month from the date of deduction to the date of actual deposit with the government. A Rs 2 crore property with a 15-day delay in deposit costs 1.5% of Rs 2 lakh TDS, which is Rs 3,000 of interest, before any other charge. On top of that, Section 234E imposes a late filing fee of Rs 200 per day until the Form 26QB is filed, capped at the TDS amount itself. A six-month delay on the same Rs 2 lakh TDS tops out at Rs 2 lakh in late fees. Section 271H adds a penalty between Rs 10,000 and Rs 1 lakh for non-filing or inaccurate filing. Fix it fast: pay the TDS plus interest first through a corrective Form 26QB, then file the return. If an incorrect PAN was entered, use the 26QB correction utility on TRACES; approvals are now largely automated for buyer-driven corrections but seller-side changes may need an AO visit. For large Gurgaon deals it is almost always cheaper to engage a chartered accountant for a one-shot Form 26QB than to self-file and risk a correction cycle. Keep the 26QB acknowledgement, the challan, the Form 16B and the bank statement in the property file for at least seven assessment years.

The first mistake is treating the Rs 50 lakh threshold as per-buyer rather than per-transaction. Two co-buyers each paying Rs 30 lakh on a Rs 60 lakh deal still trigger TDS, and each must file a separate Form 26QB for their share. The second is forgetting under-construction installments. A booking amount paid to the builder may be under Rs 50 lakh, but if the total agreement value crosses the threshold, 1% must be deducted from every single installment including the booking cheque. The third is relying on the builder or the seller to file Form 26QB. The statutory obligation sits with the buyer. If the builder deducts and deposits, use the actual 26QB and Form 16B as proof; if the builder has merely collected the TDS without filing, the buyer remains legally liable. The fourth is ignoring GST interplay on under-construction property: GST at 5% (or 1% for affordable) is on the construction value, TDS is on the full consideration including GST. The fifth is miscalculating stamp duty value, which trips first-time buyers in sectors with high circle rates such as Golf Course Road and DLF Phase 1. The sixth is losing the Form 16B; without it, the seller cannot claim TDS credit in their ITR, which triggers a seller dispute and sometimes a buyer indemnity claim at the sale deed stage. Fix all six by building the TDS workflow into the deal timeline before the sale deed is executed, not after.