Have you ever thought that paying your rent or handling a property transaction would be straightforward, only to discover later that missing a small but crucial step can lead to serious consequences? That’s exactly what happened to one individual who paid ₹55,000 in rent on time, only to face a ₹1 lakh penalty for not deducting TDS, something many overlook in real estate dealings.

This blog will walk you through what TDS is, how it impacts property transactions, and how you can stay compliant in 2025. Whether you're buying, selling, or renting property, understanding TDS is essential for avoiding penalties and ensuring smooth transactions. 

Key Takeaways

• Tax Deducted at Source (TDS) ensures that taxes are paid upfront during property transactions, whether for purchases or rent. This helps streamline tax collection and minimises tax evasion.

• For property transactions exceeding ₹50 lakh, buyers are responsible for deducting 1% TDS (or 20% if PAN is missing) and depositing it with the government to ensure compliance.

• When annual rent exceeds ₹6 lakh, tenants must deduct TDS at specified rates, depending on the type of property.

• Failing to deduct, deposit, or file TDS on time can lead to hefty penalties, interest charges, and even legal consequences. 

What is TDS?

Tax Deducted at Source (TDS) is a mechanism established under the Income Tax Act of 1961  that collects tax directly from the source of income. In simpler terms, TDS ensures that tax is deducted and paid to the government as part of the transaction itself, rather than waiting for the end of the year.

When it comes to real estate transactions, TDS is applied to various types of payments, including property purchases and rent. The main idea is to ensure tax compliance as transactions happen, making the process smoother for the buyer, tenant, and the government.

For example, in property purchases, when a buyer pays a seller, the buyer must deduct a certain percentage as TDS and pay that amount directly to the government. Similarly, tenants must deduct TDS when paying rent above a certain threshold, ensuring that taxes are taken care of during the rental process itself.

TDS serves two key functions:

1. Efficient Tax Collection: It ensures that the government collects taxes as transactions take place, rather than waiting until the end of the year.

2. Prevention of Tax Evasion: By deducting taxes at the source, the risk of evasion is minimised.

Also Read: Your Complete Guide to the Real Estate Regulatory Authority

TDS on Property Purchase (Section 194IA)

Under Section 194IA of the Income Tax Act, TDS is applicable on the purchase of immovable property (other than agricultural land) in India when the sale consideration or stamp duty value exceeds ₹50 lakh. This provision ensures that tax is deducted at the source, making it easier for the government to track property transactions and ensure tax compliance.

Important Note on TAN (Tax Deduction Account Number):
When deducting TDS for property purchases, it is mandatory for the buyer to have a Tax Deduction Account Number (TAN). This 10-digit alphanumeric code issued by the Income Tax Department is required for filing TDS returns and depositing the deducted amount. Without a valid TAN, you may face penalties, and your TDS filing could be delayed or rejected. Ensure that you have a TAN before proceeding with TDS deductions.

Applicability of TDS on Property Purchases

TDS is applicable when the total transaction value or stamp duty exceeds ₹50 lakh, and the buyer is responsible for deducting and depositing it.

• TDS applies when the total property consideration or stamp duty value, whichever is higher, exceeds ₹50 lakh.

• Residential and commercial properties are covered under the rule, but agricultural land is exempt.

• Buyer's Responsibility: The buyer must deduct TDS before making the payment to the seller, ensuring compliance with the Income Tax Act.

TDS Rate

The TDS rate is based on the property’s sale value or stamp duty, with higher rates applying if PAN is not provided.

• The standard TDS rate is 1% of the sale consideration or stamp duty value, whichever is higher.

• If the seller does not provide PAN, the TDS rate increases to 20%.

When to Deduct and Deposit TDS

TDS should be deducted at the time of payment or transfer, and the deposit should be made within the specified deadline.

• Timing of Deduction: TDS is to be deducted at the time of payment or transfer of property, whichever occurs first.

• Deposit Deadline: TDS must be deposited with the Income Tax Department within 30 days from the end of the month in which the TDS was deducted.

Also Read: What is Stamp Duty, its Definition, and Why is it Collected?

How to Calculate TDS on Property Transactions?

Calculating TDS on property transactions is a straightforward process. The TDS amount is based on the sale consideration or stamp duty value, whichever is higher. Here’s how to calculate it:

1. Determine the Sale Consideration or Stamp Duty Value

Identify the sale consideration (purchase price) or the stamp duty value of the property. If the property is sold for ₹55 lakh and the stamp duty value is ₹58 lakh, the stamp duty value will be considered for TDS calculation (since it's higher).

2. Check if the Property Price Exceeds ₹50 Lakh

TDS is applicable when the sale consideration or stamp duty value exceeds ₹50 lakh.

3. Apply the TDS Rate

The TDS rate for property purchases is 1% of the sale consideration or stamp duty value, whichever is higher. If the seller does not provide their PAN, the TDS rate increases to 20%.

4. Calculate the TDS

Multiply the sale consideration or stamp duty value (whichever is higher) by the applicable TDS rate (1% or 20%).

Example:

Let's say you're purchasing a property for ₹60 lakh and the stamp duty value is ₹62 lakh. The TDS rate is 1% because the seller has provided a PAN.

• Sale Consideration/Stamp Duty Value = ₹62 lakh (since it's higher than ₹60 lakh)

• TDS Rate = 1%

• TDS to be Deducted = ₹62,00,000 × 1% = ₹62,000

In this case, the buyer must deduct ₹62,000 as TDS from the total sale amount and deposit it with the Income Tax Department.

TDS on Rent Payments

According to Section 194I, TDS on rent payments ensures that tax is deducted at the source when the annual rent exceeds ₹6 lakh, which applies to both residential and commercial properties.

Applicability of TDS on Rent Payments

TDS is applicable when the annual rent paid exceeds ₹6 lakh. This includes rent for residential, commercial, and industrial properties. However, exemptions exist based on the tenant’s status:

• TDS applies if the annual rent exceeds ₹6 lakh (₹50,000 per month).

• Individual tenants not subject to tax audits are exempt from TDS on residential rent payments.

• Businesses or tax-audited entities must deduct TDS on residential property rent, provided the annual rent exceeds the threshold.

TDS Rate

The rate at which TDS is deducted depends on the type of rent being paid and whether the landlord provides a PAN:

• Rent for Land, Building, Furniture, or Fittings: 10% TDS.

• Rent for Plant, Machinery, or Equipment: 2% TDS.

• Without PAN: If the landlord does not provide their PAN, the TDS rate increases to 20%.

When to Deduct and Deposit TDS

TDS should be deducted at the time of payment or credit, whichever occurs first. The deducted amount must be deposited with the Income Tax Department within the prescribed time:

• Timing of Deduction: TDS is to be deducted at the time of payment or credit of rent, whichever is earlier.

• Deposit Deadline: The TDS must be deposited with the government within 30 days from the end of the month in which the TDS was deducted.

Filing TDS for Rent Transactions

Tenants are required to file the appropriate forms to report the deducted TDS and issue the necessary certificate to the landlord.

Here’s what tenants need to do:

• Deduct 2% TDS and file Form 26QC online.

• Tenants will get Form 16C once they file Form 26QC.

• Tenants must give the Form 16C to the landlord.

If you’re handling property transactions in India, BCD India offers the real estate expertise and advisory services you need to stay compliant with evolving regulations. Whether you're a buyer or developer, our team can help you with RERA-aligned strategies and ensure smooth transactions.

TDS for Non-Resident Sellers (NRI)

When purchasing property from a Non-Resident Indian (NRI), the TDS requirements are slightly different. Under Section 195 of the Income Tax Act, TDS applies to all property transactions involving NRI sellers, regardless of the sale value. 

TDS Rate for NRI Sellers

• Standard TDS Rate: The TDS rate for NRI sellers is 20% on the sale consideration, irrespective of whether the seller provides a PAN.

• Capital Gains: If the property is sold within two years of purchase (short-term capital gains), the TDS rate could be 30% (subject to the applicable surcharge and cess).

• Long-Term Capital Gains: For properties held for more than two years (long-term capital gains), the TDS rate remains 20%, but 

  • TDS is to be deducted at the rate of 20% of the sale value of the property, if the property is sold before 23 July 2024, or

  • TDS is to be deducted at the rate of 12.5% if the property is sold on or after 23 July 2024, plus applicable surcharge and 4% health and education cess.

• Unlike section 194IA, there’s no Rs. 50 lakh threshold, which means section 195 applies to all transactions with NRIs, regardless of the sale value of consideration.

Also Read: Guide to TDS Implications for Sale of Property by an NRI in India

Filing TDS for Property Transactions

Filing TDS for property transactions is a critical step to ensure compliance with the Income Tax Act. Both buyers and tenants have specific filing obligations depending on the type of transaction.

Filing TDS for Property Purchases (Form 26QB)

When a buyer purchases property and deducts TDS, the following process must be followed:

Form 26QB: The buyer must file Form 26QB on the NSDL e-filing portal. This form serves as both the TDS statement and the challan for the transaction.

• This form requires details such as the buyer’s and seller’s PAN, property details, and sale consideration.

• Form 26QB must be filed within 30 days from the end of the month in which TDS was deducted.

• The buyer must deposit the deducted TDS using Challan 281 via the Income Tax Department’s portal or authorised banks.

Filing TDS for Rent Payments (Form 26QC)

For tenants deducting TDS on rent payments:

• The tenant must file Form 26QC for TDS on rent payments, detailing the rent amount, the tenant's PAN, and the landlord's PAN. This is done online on the Income Tax Department’s portal. Form 26QC must be filed within 30 days from the end of the month in which the rent payment is made.

Issuing TDS Certificates (Form 16B for Property Purchases and Form 16C for Rent Payments)

• Form 16B: After the TDS for property purchases is deposited, the buyer must issue Form 16B to the seller as proof of TDS deduction. This form must be issued within 15 days of depositing TDS.

• Form 16C: Tenants must issue Form 16C to the landlord as proof of TDS deduction on rent payments within 15 days after depositing TDS.

Consequences of Non-Compliance

Failure to comply with TDS regulations in property transactions can lead to significant penalties, interest charges, and legal consequences. It is essential to understand the risks involved in not adhering to the prescribed TDS requirements.

1. Penalties for Late Payment and Filing

If TDS is not deposited on time, a penalty of ₹200 per day (under section 234E)  is levied, subject to a maximum of the TDS amount. Failing to file TDS returns on time also attracts a penalty of ₹200 per day until the default continues, with a maximum penalty equal to the TDS amount.

2. Interest on Late Deduction or Deposit

• Interest for Late Deduction: If TDS is not deducted at the time of payment, the buyer or tenant is liable to pay 1% interest per month from the due date of deduction until the date of actual deduction.

Interest for Late Deposit: If the deducted TDS is not deposited within the stipulated time (30 days from the end of the month), interest is charged at 1.5% per month from the due date of deposit until the actual deposit date.

3. Penalties under Section 271H

Under Section 271H of the Income Tax Act, penalties may be imposed for non-compliance in filing TDS returns. The penalty ranges from ₹10,000 to ₹1,00,000 for failure to file TDS returns or issue TDS certificates (Form 16B or Form 16C). This penalty is in addition to the late filing fee and interest charges.

4. Legal Ramifications

Non-compliance with TDS regulations can lead to prosecution under the Income Tax Act, particularly if the failure to comply is willful or deliberate. In extreme cases, the authorities may initiate legal action for continued non-payment of TDS or intentional misrepresentation of tax documents.

5. Impact on Tax Credit

Sellers or landlords who do not receive the appropriate TDS certificates (Form 16B or Form 16C) may not be able to claim the deducted tax as a credit while filing their income tax returns, potentially leading to higher tax liabilities and disputes.

Common Mistakes and How to Avoid Them

Ensuring compliance with TDS regulations can be complex, and even small mistakes can lead to penalties, interest, or legal complications. Here are some common errors in property-related TDS and tips on how to avoid them.

1. Late Deduction of TDS

Delaying the deduction of TDS before transferring the funds to the seller or landlord.
Ensure that TDS is deducted at the time of payment or transfer of property, whichever occurs first. Do not make payments before deducting TDS.

2. Incorrect PAN Details

Providing incorrect or missing PAN details leads to an increase in the TDS rate. Verify the PAN details of the seller or landlord before processing the payment. If the PAN is missing or incorrect, the TDS rate increases to 20%, which can result in a higher tax burden.

3. Missing TDS Filing Deadlines

Failing to file the TDS return (Form 26QB for property purchases and Form 26QC for rent payments) within the stipulated time. File the necessary TDS return online within 30 days from the end of the month in which TDS is deducted.

4. Not Issuing Form 16B or Form 16C

Not issuing Form 16B (for property purchases) or Form 16C (for rent payments) to the seller or landlord as proof of TDS deduction. After depositing the TDS, issue Form 16B (for property transactions) or Form 16C (for rent payments) within 15 days. This ensures that the seller or landlord can claim TDS as a credit against their tax liability.

5. Incorrect Calculation of TDS

Miscalculating TDS by considering only the financed portion of the property purchase or rent instead of the total sale consideration or rent amount. Always calculate TDS based on the entire sale consideration for property purchases or full monthly rent for rental payments, including all applicable fees or charges.

6. Not Using the Correct Form for NRI Property Transactions

Using incorrect forms or failing to file the required forms for TDS on NRI property transactions. Ensure that Form 26QB is filed for property transactions and Form 15CA/15CB is obtained for NRI transactions to verify TDS compliance.

Avoiding these common mistakes is essential to ensure a smooth and compliant property transaction process.

Conclusion

Understanding TDS in real estate transactions is crucial for ensuring smooth dealings, whether you're a buyer, seller, or tenant. By following the correct steps for deducting, depositing, and filing TDS, you ensure that your transactions stay compliant with tax regulations and avoid unnecessary penalties.

From property purchases to rental agreements and dealing with NRI transactions, knowing when and how to handle TDS helps in staying on top of your tax obligations. 

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FAQs

1. What is the TDS rate on property purchases?

The TDS rate on property purchases is 1% of the sale consideration or stamp duty value, whichever is higher, as per Section 194IA of the Income Tax Act. However, if the seller does not provide their PAN, the TDS rate increases to 20%.

2. Do I need to deduct TDS when renting a property?

Yes, if the annual rent exceeds ₹6 lakh (₹50,000 per month), TDS must be deducted. The rate is 10% for rent paid for land, buildings, furniture, or fittings, and 2% for rent paid for plant, machinery, or equipment. 

3. What happens if I fail to deduct or deposit TDS on time?

Failure to deduct or deposit TDS on time can result in penalties of ₹200 per day, interest on late deduction or deposit, and potential legal consequences. Additionally, penalties for late filing can range from ₹10,000 to ₹1,00,000 under Section 271H of the Income Tax Act.

4. Who is responsible for deducting TDS in a property transaction?

In property purchases, the buyer is responsible for deducting and depositing TDS. In rent agreements, the tenant must deduct and deposit TDS, provided the rent exceeds ₹6 lakh annually.