Real Estate Alert : The Indian government has issued a fresh notification updating the TDS (Tax Deducted at Source) rules related to property transactions. These changes, applicable from April 2025, aim to plug tax evasion, enhance compliance, and bring greater transparency in real estate deals. Whether you’re a home buyer or a seller, understanding the latest TDS rules is essential to avoid penalties and legal issues.
Let’s break down the new TDS guidelines, their implications, and what steps you must take when entering into a property transaction.
Real Estate Alert : Why TDS Is Important in Property Transactions
TDS on property purchases ensures that the seller pays appropriate taxes and the transaction is reported to the Income Tax Department. As per Section 194-IA of the Income Tax Act, any buyer purchasing an immovable property (excluding agricultural land) is liable to deduct TDS at the time of making payment.
Key Objectives of Updating TDS Rules:
- Prevent underreporting of property sale values
- Ensure wider tax base and real-time tracking
- Simplify reporting for buyers through automation
- Improve accountability of cash and online transactions
What Has Changed in the New TDS Rules (April 2025)
The revised rules clarify multiple grey areas that often caused confusion among taxpayers. Below are the highlights of the updated provisions.
Major Updates:
- New TDS Rate: TDS will continue at 1% for transactions above ₹50 lakh, but with stricter compliance requirements.
- PAN-Aadhaar Linking: TDS deduction will be allowed only if both parties’ PAN is linked with Aadhaar.
- TDS to Be Deducted on Higher of Sale Value or Stamp Duty Value.
- Online Payment Mandate: TDS must be deposited online using Form 26QB within 30 days.
- Joint Owners: Buyers must deduct TDS proportionately in case of multiple sellers.
- Penalty for Non-Compliance: Late deduction or deposit can lead to interest, penalty, and disallowance of expense.
Applicability of TDS: Who Needs to Deduct and When
Understanding who is responsible for deducting TDS and under what conditions is critical to ensure smooth transactions.
Applicability Table:
| Transaction Type | TDS Applicability | Threshold Value | TDS Rate | Mandatory PAN-Aadhaar | Form Required |
|---|---|---|---|---|---|
| Residential Property Sale | Yes | ₹50 lakh | 1% | Yes | 26QB |
| Agricultural Land | No | Not Applicable | NA | NA | NA |
| Multiple Sellers | Yes (proportionate) | ₹50 lakh total | 1% | Yes | 26QB per seller |
| Under Construction Property | Yes | ₹50 lakh | 1% | Yes | 26QB |
| Sale Below ₹50 lakh | No | NA | NA | NA | NA |
| Buyer is NRI Seller | Yes | No threshold | 20% | Yes | 27Q |
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Step-by-Step Process to Deduct and Deposit TDS on Property
If you are planning to buy a property, here’s how you can comply with the new TDS rules:
TDS Compliance Checklist:
- Verify PAN and Aadhaar linkage of both buyer and seller
- Calculate the TDS on higher of agreement value or stamp duty value
- Deduct TDS at the time of payment or registration, whichever is earlier
- Submit Form 26QB on the TIN-NSDL website within 30 days
- Generate TDS certificate (Form 16B) and issue to the seller within 15 days
- Ensure payment is made through online banking modes only
Common Mistakes to Avoid in TDS on Property Deals
With tightened rules, even a small error can attract penalties. Here are mistakes you must steer clear of:
- Not deducting TDS when total value slightly exceeds ₹50 lakh
- Delaying the deposit beyond the 30-day deadline
- Incorrect PAN or Aadhaar details in the form
- Failing to issue Form 16B to the seller
- Assuming agricultural land is exempt without verifying land type
Quick Tips:
- Always keep a copy of TDS challan and Form 16B for future reference
- If in doubt, consult a tax professional to avoid compliance issues
Impact of TDS Rule Change on Buyers and Sellers
For Buyers:
- Increased documentation and compliance burden
- Risk of penalty for missing any procedural step
- Greater transparency with online tracking
For Sellers:
- TDS deduction reflects in Form 26AS, making returns more accurate
- No chance to underreport income from property sale
- Instant digital footprint of transaction for tax authorities
Table: Penalties & Consequences
| Nature of Default | Applicable Penalty/Interest | Section |
|---|---|---|
| Non-deduction of TDS | 1% per month interest | 201 |
| Non-deposit of deducted TDS | 1.5% per month interest | 201(1A) |
| Late filing of Form 26QB | ₹200/day till filed | 234E |
| Failure to issue Form 16B | ₹100/day till issued | 272A |
| Misreporting PAN/Aadhaar | ₹10,000 penalty | 271J |
What Taxpayers Should Do Now
If you’re planning to buy or sell property soon, follow these actions:
- Buyers: Ensure all due diligence, PAN-Aadhaar verification, and timely deposit of TDS.
- Sellers: Keep Form 26AS updated and declare full capital gains.
- Developers/Agents: Inform clients about compliance requirements to avoid transactional delays.
The government’s revised TDS rules for property transactions reflect its intent to streamline tax collection and enhance transparency in real estate. While the compliance burden may seem high initially, these steps will ultimately benefit both buyers and sellers by reducing legal risks and improving documentation. Ensure you’re well-informed, follow the updated procedures, and seek professional advice where needed to stay on the right side of the law.
