Tax Deducted at Source (TDS) on property transactions is a critical compliance requirement under the Indian Income Tax Act. With the growing focus on transparency and curbing black money in the real estate sector, the Income Tax Department mandates that buyers of immovable properties (other than agricultural land) deduct TDS at the time of purchase if the consideration exceeds ₹50 lakh. This rule is governed by Section 194-IA of the Income Tax Act, 1961.
While the deduction process seems straightforward, many buyers falter either due to ignorance or oversight. This article outlines the penalties and consequences of non-compliance—specifically focusing on late deduction, non-deposit, and incorrect filings of TDS on property transactions.
Applicability of TDS Under Section 194-IA
Before diving into penalties, let’s recap the basics:
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Who has to deduct? The buyer of the property.
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From whom? The resident seller of the property.
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When to deduct? At the time of payment or credit, whichever is earlier.
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How much? 1% of the total sale consideration (not on stamp duty or agreement value).
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When to deposit? Within 30 days from the end of the month in which deduction is made.
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How to deposit? Through Form 26QB.
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Form 16B (TDS certificate) is to be issued to the seller within 15 days of filing Form 26QB.
Consequences of Late Deduction of TDS
What Does Late Deduction Mean?
If the buyer fails to deduct the TDS at the time of making the payment or deducts it later than required, it is treated as late deduction.
Penalties & Interest:
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Interest under Section 201(1A):
Interest @ 1% per month (or part thereof) is levied from the date tax was deductible to the date it is actually deducted.Example: If TDS was to be deducted on 1st March but was actually deducted on 20th April, interest is payable for 2 months.
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Deemed Assessee-in-Default:
The buyer may be considered a “deemed assessee-in-default” for non-deduction and may be liable for recovery proceedings and penalties.
Consequences of Non-Deposit of Deducted TDS
What Does Non-Deposit Mean?
When TDS is deducted by the buyer but not deposited to the Central Government within 30 days using Form 26QB.
Penalties & Interest:
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Interest under Section 201(1A):
Interest @ 1.5% per month (or part of the month) is charged from the date of deduction to the date of deposit. -
Late Filing Fee under Section 234E:
₹200 per day for every day of delay in filing Form 26QB, subject to a maximum of the TDS amount. -
Penalty under Section 271H:
The Assessing Officer may levy a penalty ranging from ₹10,000 to ₹1,00,000 if:-
Form 26QB is not filed within 1 year of the due date, or
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The form is filed with incorrect information.
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Prosecution under Section 276B:
In cases of willful default, prosecution can be initiated, leading to:-
Imprisonment of 3 months to 7 years, and
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Fine.
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Consequences of Incorrect or Late Filing of Form 26QB
What Are Common Mistakes?
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Wrong PAN of buyer or seller
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Incorrect date of transaction
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Mistaken TDS amount
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Mismatch in sale consideration
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Not filing the form on time
Penalties & Fees:
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Late Filing Fee under Section 234E:
₹200 per day till the date of filing, subject to the total TDS amount. -
Penalty under Section 271H:
₹10,000 to ₹1,00,000 for furnishing incorrect information in the statement (e.g., PAN, TDS amount, property details). -
Delay in Form 16B Issuance:
Buyers must issue Form 16B to sellers within 15 days from the date of filing Form 26QB. Failure to do so attracts:-
Penalty under Section 272A(2)(g): ₹100 per day until the certificate is issued, limited to the amount of TDS.
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Real-Life Illustration
Let’s assume Mr. Sharma buys a flat worth ₹70 lakh from Mr. Rao on 15th January. He forgets to deduct TDS of ₹70,000 and deposits it late, on 20th April, and also delays the filing of Form 26QB.
Here’s the penalty breakup:
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Interest for Late Deduction (1% for 3 months): ₹2,100
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Interest for Late Deposit (1.5% for 3 months): ₹3,150
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Late Fee for Form 26QB Filing (₹200/day for 60 days): ₹12,000
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Total Penalty & Interest: ₹17,250
This amount is in addition to the actual TDS of ₹70,000 he still has to pay. Delays not only attract monetary loss but can also lead to tax scrutiny and legal issues.
Compliance Checklist for Buyers
To avoid penalties and unnecessary complications:
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Verify PAN details of both buyer and seller.
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Deduct 1% TDS at the time of payment or booking.
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Deposit TDS within 30 days via Form 26QB on the TIN-NSDL portal.
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Generate and issue Form 16B to the seller using the TRACES portal.
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Retain proof of payment, filing, and certificate issuance for records.
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Use CA or legal help for any doubts, especially for joint ownership or partial payments.
Conclusion
TDS on property transactions is not merely a formality—it is a legal obligation backed by stringent penal provisions. Whether the non-compliance is intentional or accidental, the consequences in terms of interest, penalties, and potential prosecution can be severe.