TDS on Property Purchase: The 1% Rule and the NRI Trap for Mumbai Buyers

A Powai buyer closing an 80 lakh rupee flat last year assumed the price on the agreement was the only number that mattered. Days before registration, his chartered accountant asked a question that changed the paperwork, was the seller a resident or a non resident. The answer was non resident, and that single fact moved the deal from a simple 1 percent deduction to a far larger tax the buyer was legally responsible for withholding. He had budgeted for stamp duty and registration, but not for the tax he had to deduct from the seller and deposit with the government. It is the quietest line in a property purchase, and the one that catches buyers most often.

The short answer. When you buy a property valued at 50 lakh rupees or more from a resident seller, Section 194-IA requires you, the buyer, to deduct 1 percent of the price as tax, deposit it using Form 26QB, and give the seller a Form 16B certificate. If the seller is a non resident, this rule does not apply, and the purchase instead falls under Section 195, which carries a much higher rate of tax deduction. The trade off is not about saving money, it is about compliance, because the deduction is a legal duty of the buyer, and getting the seller's residency status and PAN right is what keeps you out of trouble.

What does Section 194-IA require of a buyer?

Section 194-IA makes the buyer, not the seller, responsible for deducting tax at source on the purchase of immovable property other than agricultural land from a resident seller. When the consideration is 50 lakh rupees or more, you deduct 1 percent of the amount payable at the time of each payment and deposit it with the government. The duty sits with the buyer, which surprises many first time purchasers who assume tax is always the seller's concern.

The deduction applies from the first payment onward where the value crosses the threshold, including instalments, and if your bank disburses a loan amount directly to the seller, the tax is due on that payment. In other words, the 1 percent is spread across the payments you make, not deducted in one lump at the end. A practical consequence worth noting is that the tax is a deduction from what you owe the seller, not an extra cost on top of the price, so the seller receives the price minus the 1 percent and claims that amount back as credit in their own tax return. You can read the statutory provision and worked examples on this explainer of Section 194-IA.

How do you deposit the TDS and issue the certificate?

You deposit the deducted tax using Form 26QB, which is a combined challan and declaration, within 30 days from the end of the month in which the payment was made. There is no separate TDS return to file for this, because Form 26QB serves that purpose. After the payment is processed, you download Form 16B from the TRACES portal and hand it to the seller as their TDS certificate, which lets them claim credit for the tax in their own return.

Keep the sequence in mind, deduct at payment, deposit through Form 26QB within the deadline, then issue Form 16B. Missing the deadline attracts interest and fees, so treat the 26QB filing as part of the registration timeline rather than an afterthought. A common slip is to register the sale first and attend to the 26QB weeks later, by which time interest may already be running, so it is cleaner to line up the deduction and the filing with the payment schedule from the start. Confirm the current forms and deadlines on the Income Tax Department portal at incometax.gov.in before you file.

Why does the seller's PAN matter so much?

The seller's PAN is what lets you deduct at the correct 1 percent rate, so you must collect it before you pay. The rules provide that where a deductee does not furnish a valid PAN, tax is deducted at a much higher rate, so a missing or wrong PAN can turn a 1 percent deduction into a far steeper one. This is entirely within your control as the buyer, and it is a simple step, verify the seller's PAN and use it correctly on Form 26QB.

Get this wrong and the cost falls on you, because the obligation to deduct and deposit correctly is the buyer's. Treat the PAN, the residency status and the sale value as the three facts you confirm in writing before any money moves, since all three decide how much you must withhold.

What changes if the seller is an NRI?

Everything about the tax changes if the seller is a non resident, because Section 194-IA does not apply to that case. A purchase from a non resident seller falls under Section 195 instead, under which tax is deducted at a much higher rate, commonly described as around 20 percent plus the applicable surcharge and a 4 percent Health and Education Cess, rather than a flat 1 percent. This is the single most expensive assumption a buyer can make, treating an NRI seller's sale as an ordinary 1 percent deduction.

Because the stakes are higher, a purchase from an NRI seller is the point at which professional advice earns its fee. The exact rate depends on the nature of the gain and any lower deduction certificate the seller may obtain, so the safe path is to establish residency early, take advice, and deduct under Section 195 correctly rather than discover the shortfall later. Confirm the current Section 195 position on the Income Tax Department portal.

How does TDS sit with stamp duty and registration?

TDS under Section 194-IA is separate from stamp duty and registration, and you deal with all of them around the same transaction. Stamp duty and registration are state charges paid to register the sale, while the 1 percent TDS is a central tax you withhold from the seller and deposit with the income tax department. One is a cost you bear, the other is tax you deduct on the seller's behalf, so they are different in nature even though they land close together in time.

For the full Mumbai cost and compliance picture, pair this with our guides on stamp duty and registration charges and on the Index II document, so that the tax deduction, the state charges and the registration record are all planned together rather than discovered one by one.

What happens if you get the TDS wrong?

Getting it wrong is costly because the liability rests with the buyer, not the seller. Deducting late or depositing late attracts interest, and failing to deduct where you should can leave you answerable for the tax itself. The most damaging errors are structural rather than arithmetical, missing that the seller was a non resident, or paying without collecting a valid PAN, because those change the rate rather than a small sum.

The way to avoid all of this is to treat TDS as a planned step, not a last minute formality. Confirm the seller's residency and PAN, work out which section applies, deduct the right amount at each payment, and file on time. None of this is difficult, but all of it depends on establishing the facts before the money moves. For a joint purchase or a joint sale, remember that the deduction and the Form 26QB are handled for each buyer and seller combination, so a flat bought by a couple from two co owners may need more than one filing, and getting that structure right at the start saves a tangle of corrections later.

Your TDS checklist before you pay

1. Confirm whether the property value is 50 lakh rupees or more and whether it is agricultural land.
2. Establish in writing whether the seller is a resident or a non resident.
3. Collect and verify the seller's PAN before making any payment.
4. For a resident seller above the threshold, deduct 1 percent at each payment.
5. Deposit the tax through Form 26QB within 30 days from the end of the month.
6. Download Form 16B from TRACES and give it to the seller as the certificate.
7. For a non resident seller, take advice and deduct under Section 195 instead.

Frequently asked questions

Who deducts TDS when buying a property, the buyer or the seller?

The buyer deducts the TDS. Under Section 194-IA, when you buy property valued at 50 lakh rupees or more from a resident seller, you deduct 1 percent of the price, deposit it through Form 26QB, and give the seller a Form 16B certificate. The legal duty to deduct and deposit correctly sits with you, the buyer.

Does the 1 percent TDS apply if I buy from an NRI?

No, Section 194-IA does not apply when the seller is a non resident. The purchase falls under Section 195 instead, with tax deducted at a much higher rate, commonly around 20 percent plus surcharge and a 4 percent cess. Treating an NRI seller's sale as an ordinary 1 percent deduction is a costly mistake, so confirm residency early.

What is Form 26QB and when must I file it?

Form 26QB is the combined challan and declaration you use to deposit the TDS deducted under Section 194-IA. You file it within 30 days from the end of the month in which the payment was made, and no separate TDS return is needed. After it is processed, you download Form 16B from TRACES and give it to the seller.

Is TDS charged below 50 lakh rupees?

No, Section 194-IA applies only when the property consideration is 50 lakh rupees or more, so a purchase below that threshold does not attract this 1 percent deduction. Agricultural land is also excluded entirely. Even so, confirm the current threshold and rules on the Income Tax Department portal, because tax provisions are amended from time to time.

Last updated 2026-10-13. PropNewz Team.