TDS on Buying Property in 2025: A Detailed Step-by-Step Guide

Purchasing property in India is a significant milestone, but it comes with tax responsibilities, including Tax Deducted at Source (TDS) under Section 194-IA of the Income Tax Act. TDS ensures that the government collects tax on the seller’s income from property sales at the source. For 2025, understanding TDS applicability, rates, exemptions, and compliance steps is crucial for buyers to avoid penalties and ensure a seamless transaction.

What is TDS on Property Purchase?

TDS is a mechanism where the buyer deducts a specified percentage of the payment to the seller and deposits it with the government. Introduced under Section 194-IA, TDS applies to property transactions exceeding ₹50 lakh, covering residential, commercial, or land properties (excluding agricultural land). The buyer deducts 1% of the sale consideration as TDS, which the seller can later claim as credit during their income tax filing. Staying compliant with TDS rules in 2025 ensures a hassle-free property transaction and avoids legal complications.

Step-by-Step Guide to TDS on Buying Property in 2025

Step 1: Verify TDS Applicability

The first step is to determine if TDS applies to your transaction. TDS under Section 194-IA is mandatory when:

The property’s sale consideration exceeds ₹50 lakh, including additional charges like parking fees or club memberships.
The seller is a resident of India (non-resident sellers fall under Section 195, requiring different procedures).
The property is immovable (e.g., house, shop, or land) but not agricultural land.

Action:Check the sale agreement to confirm the total value and request the seller’s PAN to verify their residential status. If the property value is ₹50 lakh or less, TDS does not apply.

Step 2: Understand the TDS Rate

The TDS rate for property transactions in 2025 remains 1% of the total sale consideration, excluding GST if charged separately. For example, for a ₹75 lakh property, the TDS is ₹75,00,000 × 1% = ₹75,000. No surcharge or cess applies for resident sellers, making the calculation straightforward. However, if the seller fails to provide their PAN, the TDS rate increases to 20%, significantly raising the tax burden.

Action:Calculate the TDS based on the agreement value or actual payment, whichever is higher, and ensure the seller provides their PAN.

Step 3: Deduct TDS During Payment

TDS must be deducted at the time of payment, whether made in a lump sum or installments, or when crediting the seller’s account. For instance, for a ₹1 crore property, deduct ₹1 lakh as TDS and pay ₹99 lakh to the seller. Clear communication with the seller about TDS deduction prevents disputes during the transaction.

Action:Deduct 1% TDS from each payment and maintain records of the transaction details.

Step 4: Deposit TDS with the Government

The deducted TDS must be deposited within 30 days from the end of the month in which the deduction was made. For example, if TDS is deducted on March 10, 2025, deposit it by April 30, 2025. Use Form 26QB to deposit TDS online via the Income Tax e-filing portal .

Steps to File Form 26QB:

Log in to the e-filing portal and select “e-Pay Tax.”
Choose Form 26QB and enter details: buyer and seller PAN, property details, transaction amount, TDS amount, and payment date.
Pay the TDS via net banking or at authorized banks.
Download the acknowledgment with the Challan Identification Number (CIN).

Action:Deposit TDS on time to avoid 1.5% per month interest for late payment.

Step 5: Issue Form 16B to the Seller

After depositing TDS, issue Form 16B to the seller, certifying the TDS deducted and deposited. This must be done within 15 days from the due date of TDS deposit (e.g., by May 15, 2025, for TDS deposited by April 30, 2025). Download Form 16B from the TRACES website (www.tdscpc.gov.in) by entering transaction details.

Action:Provide Form 16B to the seller for their tax filing and retain a copy for your records.

Step 6: Maintain Documentation

Both buyer and seller should keep records of all TDS-related documents, including the sale agreement, payment receipts, Form 26QB, CIN, and Form 16B. These may be required during audits or for the seller’s ITR filing, where they can claim TDS credit.

Action:Store documents for at least 7 years, as per Income Tax rules.

Exemptions and Special Cases

Below ₹50 Lakh: No TDS if the property value is ₹50 lakh or less.
Agricultural Land: Exempt from TDS under Section 194-IA.
Multiple Buyers/Sellers: TDS is calculated proportionately based on each party’s share, provided the total value exceeds ₹50 lakh.
Non-Resident Sellers: Section 195 applies, requiring a chartered accountant’s assistance to determine the applicable TDS rate based on capital gains.
No PAN: Deduct TDS at 20% if the seller does not provide a PAN.

Key Tips for 2025

Stay Updated: Monitor the Union Budget 2025 for changes in TDS rates or thresholds.
Digital Compliance: Use the Income Tax and TRACES portals for all TDS processes.
Penalties: Late TDS deposit incurs 1.5% monthly interest, while non-deduction or non-deposit may lead to penalties up to the TDS amount.
Professional Help: For complex cases (e.g., non-residents or multiple parties), consult a tax expert.
Clear Communication: Discuss TDS obligations with the seller during negotiations to avoid misunderstandings.

Conclusion

Complying with TDS requirements is essential for a smooth property purchase in 2025. By following this step-by-step guide, buyers can ensure timely deduction, deposit, and documentation, avoiding penalties and ensuring transparency. Always verify details, maintain records, and stay informed about tax law updates. For complex transactions, seek professional guidance to navigate TDS seamlessly.