Section 194-IA: The 1 Percent TDS a Bengaluru Property Buyer Must Deduct

When a Bengaluru buyer closed on a 75 lakh flat in 2026, he paid the seller the full amount and thought the money side was done. Months later he received a notice, not the seller, because the law had required him to hold back 1 percent as tax and deposit it with the government, and he had not. The obligation to deduct that tax sits on the buyer, and the penalty for missing it lands on the buyer too. This guide explains Section 194-IA, the one line of tax law that quietly turns a property buyer into a tax collector, and how to comply without drama.

The short answer. If you buy immovable property, other than agricultural land, for 50 lakh rupees or more, you must deduct 1 percent of the price as tax at source under Section 194-IA and deposit it with the government. You deduct on the higher of the price or the stamp duty value, pay it through Form 26QB within 30 days of the month end, and give the seller a Form 16B certificate. The duty and the penalties are the buyer's, so build this step into your closing rather than discovering it later.

What is Section 194-IA and when does it apply?

Section 194-IA requires the buyer of immovable property to deduct tax at source when the value is 50 lakh rupees or more, and it applies to most homes, flats and plots but not to agricultural land. The threshold is not a small print exception; it captures the large majority of city home purchases, since a 50 lakh flat is entry level in much of Bengaluru. The rule exists so that the tax authority has a record of significant property transactions and collects a slice of tax up front from the seller's gain. For the buyer it is simply a compliance step attached to the purchase, but it is a mandatory one, and treating it as optional or as the seller's job is the mistake that generates notices later. One nuance is worth holding in mind on the threshold. The 50 lakh test looks at the total value of the property, not at how the payment is split, so a purchase that crosses 50 lakh does not escape the rule just because it is paid in instalments or shared between co buyers. Structuring the payment to appear under the limit is not a loophole but a compliance risk, and the safer reading is that once the property itself is valued at 50 lakh or more, the deduction applies to the whole consideration.

Who has to deduct the TDS, and on what amount?

The buyer deducts the tax, not the seller, and the deduction is 1 percent of the higher of the sale price or the stamp duty value. This means you pay the seller 99 percent of the agreed amount and send the remaining 1 percent to the government on the seller's behalf, against the seller's tax account. Because the calculation is on the higher of the price or the stamp duty value, you should confirm both figures before you compute the deduction, since the guidance value can exceed a negotiated price. A helpful feature of this provision is that you do not need a special tax deduction account number to do it; you use your own PAN, and the seller's PAN, which keeps the process within reach of an individual buyer.

How do you actually pay it, using Form 26QB?

You deposit the deducted tax using Form 26QB, a combined challan and statement on the income tax portal, within 30 days from the end of the month in which you deducted. The form captures the buyer and seller PANs, the property details and the amount, and it both reports the transaction and pays the tax in one step, which is why no separate return is needed. After the payment is processed you download Form 16B, the certificate that proves the tax was deducted and deposited, and you hand it to the seller. Keep both the challan and the Form 16B with your purchase papers, because they are your evidence of compliance and the seller will want the certificate to claim credit for the tax against their own return. If you are buying an under construction flat and paying the builder in stages, the deduction applies to each instalment as you pay it, so the Form 26QB is filed against each payment rather than once at the end. This trips up buyers who assume a single filing at completion, so match your filings to your payment schedule, deducting and depositing 1 percent each time a payment goes out, and keep the running set of challans and certificates together.

What if the seller has no PAN, or is an NRI?

Two situations change the rate and the route, so identify them early. If the seller cannot provide a valid PAN, the deduction rate rises sharply, to 20 percent, which is a strong practical reason to collect and verify the seller's PAN before you close. If the seller is a non resident, Section 194-IA does not apply at all, and a different provision governs, under which tax is deducted at higher rates on the seller's gains rather than a flat 1 percent. Buying from a non resident seller is a materially different compliance exercise, and getting it wrong is expensive, so treat an NRI seller as a signal to take specific advice. Recent changes have simplified some of the mechanics for buyers dealing with non resident sellers, but the higher deduction and the need for care remain. The residential status of the seller is therefore a question to ask explicitly and early, not to assume from a name or an address, because a resident sounding seller can be a non resident for tax purposes, and the buyer who deducts a flat 1 percent when a higher rate was due carries the shortfall. When in any doubt about the seller's status, treat the transaction as the higher risk case and confirm the position before you release payment.

What goes wrong, and what are the penalties?

The common failures are not deducting at all, deducting but depositing late, and getting the PAN details wrong, and each carries a cost that falls on the buyer. A buyer who pays the seller the full amount and skips the deduction, like the one in the opening, remains liable for the tax that should have been withheld, along with interest and a fee for late filing of the Form 26QB. Interest runs for the delay in deduction and for the delay in deposit, and a separate late filing fee can accrue per day until the statement is filed. None of this falls on the seller, which is the point buyers most often miss. The reassuring flip side is that the compliance itself is straightforward and cheap; it is only neglecting it that becomes expensive. A related problem is a mismatch in the details entered on Form 26QB, such as a wrong PAN or an incorrect amount, which can hold up the seller's ability to claim credit and lead to correction requests later. Because the form pays and reports in one shot, an error is not just a typo but a defect in the record, so it is worth checking the PANs and the figures carefully before you submit rather than rushing the filing to meet the deadline and creating a different problem in the process.

How does this fit the rest of your closing?

Fold the deduction into the payment mechanics of the sale so that the 1 percent is handled at the moment you pay, not afterward. In practice this means agreeing with the seller, in the sale documentation, that you will pay 99 percent and remit 1 percent as TDS, so there is no dispute later about a shortfall in what the seller received. Collect the seller's PAN and confirm it is valid as part of your pre closing checklist, alongside the title and encumbrance checks. Then file the Form 26QB within the window and pass on the Form 16B. Done this way, the tax step is a quiet part of a well run closing rather than a surprise that arrives by post. Where there are multiple buyers or sellers, the mechanics have specific rules, so confirm how the deduction and forms apply to your exact structure.

Your Section 194-IA checklist for a Bengaluru purchase

Work through these seven steps as you close.

1. Check whether the property value is 50 lakh rupees or more, and that it is not agricultural land.
2. Collect and verify the seller's PAN, since a missing PAN pushes the rate to 20 percent.
3. Compute 1 percent on the higher of the sale price or the stamp duty value.
4. Agree in the sale documents that you pay the seller 99 percent and remit 1 percent as TDS.
5. File and pay through Form 26QB within 30 days from the end of the month of deduction.
6. Download Form 16B and give it to the seller as the TDS certificate.
7. If the seller is a non resident, take specific advice, since a different and higher rule applies.

The takeaway for a Bengaluru buyer

Section 194-IA is small in words and large in consequence, because it makes an ordinary buyer responsible for withholding and depositing a slice of tax, and it enforces that duty against the buyer, not the seller. The good news is that the whole thing is a modest, mechanical task: confirm the threshold, verify the PAN, deduct 1 percent, file Form 26QB, hand over Form 16B. Build those five moves into your closing and the tax obligation is invisible in the best sense, handled and forgotten. Ignore it and it resurfaces as a notice with interest attached, for a duty that would have cost you nothing but a little attention at the right time.

Last updated 2026-09-10. PropNewz Team.