1. TDS Under Section 194-IA (Applicable to Residents)
When an individual or HUF sells immovable property (land or building) other than agricultural land, and the sale consideration is ₹50 lakh or more, the buyer is required to:
- Deduct TDS at 1% on the total sale consideration
- Deposit the TDS with the Income Tax Department using Form 26QB
- Issue a TDS certificate in Form 16B to the seller within 15 days of payment
This applies even if the land is jointly owned, and the threshold is calculated per transaction, not per seller.
2. TDS in Case of Multiple Buyers or Sellers
If a property is being sold or bought by multiple parties, and the aggregate sale price of the property is ₹50 lakh or more, TDS still applies even if the individual share of each buyer or seller is less than ₹50 lakh.
Each buyer must deduct TDS proportionate to their share of payment and file separate Form 26QB for each seller.
3. TDS Under Section 195 (Applicable to Non-Residents)
When the seller is a non-resident Indian (NRI) or a foreign entity:
- The buyer must deduct TDS at applicable rates under Section 195
- The rate could be 20% (plus surcharge and cess) for long-term capital gains or higher for short-term, subject to income type
- TDS is applied on the capital gain component, not the total consideration, if a certificate from Assessing Officer (AO) under Section 197 is obtained
The buyer is also responsible for obtaining a Tax Deduction Account Number (TAN) and filing Form 15CA and 15CB.
4. Surcharge and Cess on TDS
If the TDS applies to a non-resident or company, the applicable rate may include:
- Surcharge based on income level
- Health and education cess (4%)
This results in an effective rate higher than 20%, especially for large-ticket sales.
5. Implications of Non-Compliance
Failure to deduct or deposit TDS on land sales can result in:
- Interest and penalty under Sections 201(1A) and 271C
- Disallowance of expenditure in buyer’s accounts
- Notice and demand from the Income Tax Department to both buyer and seller
Timely deduction and proper filing are mandatory to ensure compliance and avoid legal repercussions.
6. Exemptions and Clarifications
TDS is not applicable on:
- Agricultural land located in rural areas (as per Income Tax Act definitions)
- Transactions where consideration is less than ₹50 lakh
- Sellers with Nil or lower TDS certificates under Section 197
Buyers must verify property classification, land usage, and PAN status of the seller before applying TDS.
