TDS on Property Purchase: Section 194-IA and NRI Sellers

When Section 194-IA Applies

Section 194-IA covers transfers of immovable property other than agricultural land. The buyer, on paying any sum as consideration to a resident seller, must deduct tax at 1% of the consideration. The rule is triggered when the consideration, or the stamp duty value of the property, is Rs 50 lakh or more. Our understanding, which you should confirm, is that where the stamp duty value is higher than the agreed price, the deduction is computed on the higher of the two. The tax is on the whole amount, not only on the part above Rs 50 lakh.

Several points trip buyers up:

• It is the buyer's duty. The seller does not deduct anything. If you pay the full price to the seller without deduction, you are the one with the default.
• Joint buyers and joint sellers. The threshold is tested on the total consideration for the property, not on each person's share. A property bought by two co-buyers for Rs 60 lakh is within the rule even if each pays Rs 30 lakh.
• Instalments. Where the price is paid in parts, tax is deducted at each payment, at the time of credit or payment, whichever is earlier.
• No PAN, higher rate. If the seller's PAN is not available or is inoperative, a higher rate of 20% can apply under the general rule for missing PAN. Collect the seller's PAN, and check it is linked to Aadhaar.
• Not a substitute for the seller's tax. TDS is an advance credit. The seller must still report the sale and compute their own tax, and a rural agricultural land sale may result in no tax at all.

The deduction is tied to the transaction timeline. A buyer who has agreed to buy but has not completed registration still needs to deduct at the time of payment if money is paid before registration. See our overview of the land registration process to understand when payments and registration sit in relation to each other.

Why Agricultural Land Is Excluded, and How to Be Sure Yours Is

The 194-IA rule excludes "agricultural land", which for this purpose follows the Income-tax Act's definition of rural agricultural land that is not a capital asset. In the 1961 Act this sits in Section 2(14); the 2025 Act continues the idea in its own definitions. Land that is within the specified municipal limits or distances is treated as a capital asset and the buyer must deduct TDS if the other conditions apply.

This means a buyer cannot rely on the word "agricultural" in the sale deed or the revenue record. Both the revenue classification and the location test matter. A buyer of a farmland parcel near a growing town should ask the seller's adviser and their own to confirm that the parcel is outside the urban bands before skipping TDS. Where there is doubt, many buyers choose to deduct and deposit, since the tax is credited to the seller and the cost to the buyer is administrative. Our guide on agricultural vs commercial land explains the land-use side, and tax benefits of agricultural land explains the rural versus urban test.

How to Deduct, Deposit and Report: Step by Step

Under the 1961 Act framework, a buyer paying a resident seller followed a short process. The steps below describe that framework; check whether the 2025 Act forms and the reported October 2026 simplification now apply.

1. Collect PANs. You need your own PAN and the seller's PAN. Confirm the names on the PANs match the sale documents.
2. Compute the deduction. Take 1% of the total consideration (or the higher stamp duty value, as discussed above). Do not net off expenses.
3. Deduct at the time of payment or credit. Pay the seller the balance after deduction. Record the deduction in the agreement or payment schedule so the seller knows the gross price and the tax withheld.
4. Deposit using the challan-cum-statement. Under the 1961 Act this is Form 26QB, filed online with payment, within 30 days from the end of the month of deduction. A TAN is not needed for this form.
5. Issue the certificate. After the deposit is processed, the buyer downloads Form 16B from the TRACES portal and gives it to the seller so the seller can claim the credit.
6. Keep the proof. Retain the challan, Form 16B and the payment trail, in case a mismatch notice follows.

Late deduction or late deposit attracts interest, and filing late can attract a late fee. The monthly interest rates and the daily fee are set by the Act, so confirm the current figures with the Income Tax Department before computing. A related point: because the tax is deducted against the seller's PAN, a wrong PAN means the credit may not appear in the seller's account, which can lead to a dispute that is easy to avoid with a careful check at the start.

When the Seller Is an NRI: Section 195, Not 194-IA

Section 194-IA applies to payments to resident sellers. If the seller is a non-resident, the buyer must deduct tax under Section 195, which applies to payments to non-residents that are chargeable to tax. The differences are significant.

• The base is the gain, not the price. In principle the tax should be on the seller's income element, meaning the capital gain, but the buyer often has no way to know it. In practice buyers commonly deduct on the full consideration at the applicable capital gains rate plus surcharge and cess, unless the seller obtains a lower or nil deduction certificate under Section 197 from the assessing officer.
• The buyer needs a TAN. Unlike 194-IA, a deduction under Section 195 requires the buyer to hold a Tax Deduction Account Number, and to deposit and report it through the regular TDS statements.
• The rate depends on the holding period and the asset. A long-term gain and a short-term gain are taxed at different rates, and rural agricultural land may not attract tax at all because it is not a capital asset. Rates have changed in recent budgets, so confirm the current position rather than relying on a figure quoted in older material.
• Repatriation is a separate step. To send sale proceeds abroad, the seller's bank will usually ask for tax-related certification and forms. See repatriating land sale proceeds and selling land in India as an NRI for the process.

An NRI selling agricultural land has a particular question to answer first: can a non-resident hold the land in the first place, and was it acquired by purchase or inheritance? Those facts affect the sale. Our guide on whether NRIs can buy agricultural land in India covers the holding rules, and the foreign exchange rules are in FEMA 1999 and Indian land.

What the Income-tax Act, 2025 Changes

The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the 1961 Act. Commentary published since then reports that the old Section 194-IA is now covered by Section 393, which collects TDS rules in a table format. The Rs 50 lakh threshold and 1% rate are reported as unchanged, and agricultural land remains excluded. For purchases from non-residents, the same commentary points to an entry in the Section 393 table dealing with transfers of property.

Two procedural changes are reported. First, Form 141 replaces Form 26QB as the form for the property TDS payment. Second, from 1 October 2026, buyers are reported to be relieved of the need to obtain a TAN and file quarterly returns for this kind of deduction, with the tax deposited through the buyer's PAN. These procedural points come from secondary commentary rather than from the statute text we reviewed, and implementation details may be refined by rules and portal updates. Treat them as items to verify on the Income Tax Department's e-filing and TRACES pages before you transact.

Common Mistakes Buyers Make

• Paying the full price and planning to "sort out the tax later", which leaves the buyer with a default and interest.
• Assuming agricultural land is always excluded without checking the distance test.
• Computing TDS only on the amount above Rs 50 lakh.
• Using the wrong PAN spelling or the seller's old PAN, so that credit does not reflect for the seller.
• Applying 194-IA to an NRI seller, when Section 195 is the relevant provision.
• Treating the Section 194-IA deduction as the end of the compliance. The sale deed, registration and mutation steps remain; see our guide on the sale deed for the transaction document itself.

If you are structuring a purchase and want a clean paper trail, record the gross consideration, the TDS and the net payment separately in the agreement and in your bank transfers. That single habit prevents most disputes later.

Frequently Asked Questions