TDS on Property Purchase and Sale in India: 1% Rule, Form 26QB and NRIs

The sale deed is drafted, the bank has sanctioned your loan, and the seller's agent mentions in passing: 'Don't forget the TDS.' Suddenly you learn that you, the buyer, have to deduct tax from the seller's money and pay it to the government, on time, with the right form. Get it wrong and the notice comes to you, not the seller.

If you are selling, TDS matters just as much. It decides how much money actually reaches your account on registration day and how much you claim back later. Here is how it works as of November 2026, including the changes that came with the new Income Tax Act.

The basic rule: 1% above ₹50 lakh

When a resident seller sells immovable property (a flat, house, building or non-agricultural land) for ₹50 lakh or more, the buyer must deduct 1% TDS and deposit it with the government. This rule was known for years as Section 194-IA of the Income Tax Act, 1961. From 1 April 2026, the Income Tax Act, 2025 replaced the old Act, and the same 1% rule now sits in Section 393(1) of the new Act.

Key details:

• 1% of the higher of the sale price or the stamp duty value. If the agreement says ₹48 lakh but the government guidance value is ₹55 lakh, TDS applies on ₹55 lakh.
• The ₹50 lakh test is on the whole property, not each person's share. Two buyers paying ₹30 lakh each for a ₹60 lakh flat must both deduct 1% on their payments.
• What counts in the price: car parking, club membership, electricity and water connection charges, maintenance deposits and similar charges linked to the transfer are included.
• Under-construction flats: TDS is deducted on every instalment you pay the builder, including payments your bank makes directly from your loan.
• Rural agricultural land is excluded.
• No TAN needed for a resident seller. You file using your own PAN.

Example

You buy a resale flat in Bengaluru for ₹90 lakh. You pay the seller ₹89.1 lakh and deposit ₹90,000 as TDS. The seller later sees ₹90,000 credited against their PAN and adjusts it against their tax on the sale, or claims a refund.

Form 26QB and its new replacement, Form 141

For years, buyers paid this TDS online through Form 26QB, a combined challan and statement, and then downloaded Form 16B, the TDS certificate, to give to the seller.

Under the new Act the process is the same in spirit but the form has changed:

• Payments made on or before 31 March 2026: Form 26QB under the old Act.
• Payments made on or after 1 April 2026: Form 141, Schedule B, filed on the income tax e-filing portal using your PAN.
• Deadline: pay the TDS and file the form within 30 days from the end of the month in which you deducted it. Deduct in November 2026, and you must finish by 30 December 2026.
• Certificate: once the form is processed, download the TDS certificate from the TRACES portal and hand it to the seller.

Each buyer files separately for each seller. Two buyers and two sellers means four filings, each for that buyer's share paid to that seller.

Buying from an NRI: a very different TDS

If the seller is a non-resident Indian, the 1% rule does not apply. Instead, TDS is deducted under what was Section 195 of the old Act (now covered by Section 393(2) of the new Act), and it is much higher.

• No ₹50 lakh threshold. TDS applies whatever the price.
• Long-term gains (property held over 24 months): 12.5% plus surcharge and 4% cess. That works out to about 14.3% when the price is between ₹50 lakh and ₹1 crore, and about 14.95% above ₹1 crore.
• Short-term gains (held 24 months or less): at slab rates, up to 30% plus surcharge and cess.
• Deducted on the full sale price, not just the profit, unless the seller has a lower deduction certificate.

Example

You buy a flat from an NRI for ₹85 lakh. They bought it in 2015 for ₹50 lakh, so their actual gain is about ₹35 lakh. Without a certificate, you must deduct about 14.3% of ₹85 lakh, roughly ₹12.2 lakh, even though their real tax on the gain may be closer to ₹5 lakh. The NRI waits for a refund on the rest.

The lower deduction certificate

This is why NRI sellers should apply to the income tax department for a lower or nil deduction certificate (Form 13 under the old Act) well before the sale. The certificate tells the buyer to deduct TDS on the actual gain at a stated rate. It can take several weeks, so start early.

TAN: the October 2026 change

Until 30 September 2026, a buyer purchasing from an NRI needed a TAN (tax deduction account number), filed quarterly TDS returns, and issued Form 16A. From 1 October 2026, resident individual and HUF buyers can instead report the deduction through Form 141, Schedule E using their PAN, with no TAN required. If you deducted before October under the old process, finish that process as it was.

Mistakes that cost buyers money

1. Not deducting at all, usually because the price is just over ₹50 lakh and nobody mentioned it. The buyer becomes liable for the tax, plus interest.
2. Deducting on the agreement value instead of the stamp duty value when the latter is higher.
3. Forgetting parking and other charges when working out the total.
4. Treating an NRI seller as resident and deducting only 1%. The shortfall becomes your problem.
5. Wrong PAN or wrong seller details, so the credit does not reach the seller.
6. Seller's PAN inoperative because it was not linked to Aadhaar. TDS then applies at a much higher rate, 20%, so check the seller's PAN status on the e-filing portal before you pay.
7. Missing the deadline after deducting.

Interest, late fees and penalties

• Interest for not deducting: 1% a month (or part of a month) from the date tax should have been deducted.
• Interest for deducting but not depositing: 1.5% a month until you pay it.
• Late filing fee: under the old Act, ₹200 a day until the statement was filed, capped at the TDS amount. The new Act has similar late fee rules.
• Penalties: in serious or repeated cases, a penalty up to the amount of tax not deducted can be levied.

These rates are as of November 2026. If you have already missed a payment, pay it with interest as soon as you can, because the costs keep growing.

What sellers should do

• Share your correct PAN and make sure it is linked to Aadhaar.
• Agree in writing on how TDS will be handled and when you will receive the certificate.
• Check that the TDS shows in your Form 26AS or Annual Information Statement within a few weeks.
• Claim the TDS against your capital gains tax when you file your return. If the TDS is more than your tax, you get a refund.
• If you are an NRI, apply for a lower deduction certificate before you sign the sale agreement.

Property TDS depends on the exact facts of your deal, so have a CA confirm the numbers. If you are selling, Skyros Estates can help you get documents in order and plan the paperwork so the money on registration day matches what you expect.