Financial
TDS on a property purchase: the buyer's obligation, not the seller's
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In short
When buying immovable property above the statutory threshold, the buyer must deduct tax at source from the payment to the seller and deposit it with the government. For a resident seller the rate is low and the process routine. Where the seller is a non-resident a different provision applies at substantially higher rates, and the compliance burden sits entirely with the buyer.
Key facts
- Resident seller
- Section 194-IA of the Income Tax Act
- Non-resident seller
- Section 195 — different mechanism, higher rates
- Who deducts
- The buyer, in both cases
- Resident seller form
- Form 26QB
- Threshold
- Applies above a stated consideration value
- Risk of error
- Falls on the buyer, not the seller
This is the obligation buyers most often discover after the fact, usually from their accountant, and occasionally from a demand notice. It is not complicated for a straightforward purchase from a resident seller. It becomes genuinely serious when the seller is an NRI.
In both cases the legal duty to deduct and deposit sits with the buyer. A seller's assurance that it has been handled is not a defence.
The rule for a resident seller
Where you buy immovable property from a resident and the consideration exceeds the statutory threshold, you must deduct tax at source at the prescribed rate from each payment, and deposit it against the seller's PAN.
The mechanism is deliberately simple. There is a dedicated challan-cum-statement — Form 26QB — and no requirement for the buyer to obtain a TAN, which is what makes it manageable for an individual buying one flat.
- Deduct from each payment, not once at the end.
- Deposit within the prescribed time using Form 26QB.
- Issue the seller the resulting certificate so they can claim credit.
- You need the seller's PAN. A missing PAN attracts a much higher rate.
Where the seller is an NRI, everything changes
A different provision applies. Tax is deducted on the capital gain rather than a small percentage of the consideration, at rates that are substantially higher, and the buyer must obtain a TAN to comply.
This is the single most common serious error in NRI resale transactions. A buyer applies the low resident rate, deposits it, and completes the purchase. The shortfall — which can be very large — is then recoverable from the buyer, along with interest and penalty. The seller has left with the full amount.
- Establish the seller's residential status in writing before you transact.
- Do not rely on an Indian address, an Indian bank account or an Indian PAN as evidence of residence.
- Where the seller is non-resident, obtain a TAN and deduct under the correct provision.
- The seller may hold a certificate authorising a lower deduction — ask for it, and verify it.
- Take professional advice. This is not a do-it-yourself transaction.
Why the buyer carries the risk
The statute places the obligation on the person making the payment. If the deduction is not made, or is made at the wrong rate, or is not deposited, the recovery action is against the buyer.
That remains true even where the seller misrepresented their status, and it remains true after the transaction has completed and the seller is unreachable. It is why establishing residential status in writing, before payment, is worth the small awkwardness of asking.
Practical sequence
For a normal purchase from a resident seller this adds up to a modest administrative task. Doing it in order keeps it that way.
- Confirm the seller's residential status and obtain their PAN.
- Confirm whether the consideration crosses the threshold.
- Deduct at the correct rate from each payment as it is made.
- Deposit within the prescribed time and file the statement.
- Issue the certificate to the seller.
- Keep the records — you will need them, and so will your buyer when you sell.
Where this does not apply
Buying a new flat directly from a developer is a different transaction; the developer's tax position is its own and the provisions discussed here are aimed at transfers between owners.
Confirm the treatment for your specific purchase with your accountant rather than assuming from a general article. This is a summary of a mechanism, not tax advice.