How Home Buyers Get Trapped into Paying TDS Interest When Builders Delay Telling Them About TDS on Installments
Summary: Homebuyers purchasing property from builders through construction-linked installments may incur substantial interest liability if tax is not deducted at source from each payment. Under Section 194-IA of the Income-tax Act, 1961, a buyer acquiring qualifying immovable property from a resident seller must deduct TDS at 1% at the time of payment or credit, whichever is earlier. For transactions governed by the 1961 Act, the buyer must furnish Form 26QB within 30 days from the end of the month of deduction and issue Form 16B to the seller. From 1 April 2026, the corresponding obligation continues under Section 393(1) of the Income-tax Act, 2025, with Form 141 replacing Form 26QB for applicable transactions. Problems arise when builders raise installment demands without informing buyers about TDS and communicate the requirement only near possession or final payment. Earlier installments may consequently remain subject to delayed deduction. Interest is then payable from the date on which tax should have been deducted, even if the buyer was unaware of the obligation. Under Section 201(1A) of the 1961 Act, interest applies at 1% per month or part thereof for delayed deduction and 1.5% per month or part thereof for delayed deposit after deduction. Buyers should independently monitor every installment, deduct TDS within the applicable timeline and complete the prescribed statement and certificate requirements without waiting for instructions from the builder.
Introduction
Buying a flat or property from a builder is usually done in installments—some amount at booking, some at various construction stages, and the balance near possession. Very few buyers know that under income tax law, TDS has to be deducted on every single installment, not just on the final payment. This small but important compliance requirement is where most buyers unknowingly land themselves in trouble.
What the Law Actually Says
Under Section 194-IA of the Income-tax Act, 1961, if you are buying an immovable property (other than agricultural land) worth Rs. 50 lakh or more, you, as the buyer, are required to deduct TDS at 1% on the amount paid or credited to the seller—whichever happens earlier. This TDS has to be deducted at the time of each payment, whether that payment is Rs. 5 lakh, Rs. 10 lakh, or any partial installment.
After deducting the TDS, the buyer has to deposit it with the government using Form 26QB, within 30 days from the end of the month in which the deduction was made, and issue Form 16B to the seller (builder) as proof of TDS deducted.
With the Income-tax Act, 2025 (which replaces the 1961 Act with effect from 1 April 2026), this requirement of deducting TDS on transfer of immovable property continues in substance under the corresponding renumbered provision in the new Act. The underlying obligation, however—deduct 1% TDS at the time of every payment where the transaction value is Rs. 50 lakh or more—remains unchanged in principle.
So if you are paying in, say, 8 installments over 2 years, technically you are supposed to deduct TDS and file Form 26QB 8 separate times—once for every installment—under the old or Form 141 under the new Act.
Where the Problem Starts
Most buyers, especially first-time home buyers, have no idea about this requirement. They assume TDS on property is something to be handled only once, at the time of final payment or registration—the way it works for outright property purchases.
Builders, on their part, often do not explain this to buyers at the time of booking or during construction-linked payments. Many simply raise demand notes for each installment for the full amount, without mentioning that 1% TDS needs to be deducted before paying them. It is only near the last installment—sometimes at the possession stage—that some builders suddenly intimate the buyer to deduct TDS, and that too, sometimes on the entire sale value in one go, or just on the remaining balance.
By this time, several earlier installments have already been paid in full, without any TDS having been deducted at all.
Why This Creates an Interest Liability
Once the buyer realizes (usually very late) that TDS should have been deducted on each installment, they end up deducting and depositing TDS much after the actual due dates. Each installment is treated as a separate point at which TDS ought to have been deducted. If TDS is deducted or deposited late, interest is payable under Section 201(1A) of the Income-tax Act, 1961 (carried forward in substance under the corresponding provision of the Income-tax Act, 2025):
- 1% per month for the period between the date TDS was deductible and the date it was actually deducted.
- 1.5% per month for the period between the date of deduction and the date of actual deposit with the government.
Since builder projects often run over 2-3 years, and the buyer ends up deducting everything only at the last installment, the interest calculation goes back to the very first installment. This can add up to a fairly large, unexpected amount—something the buyer never budgeted for.
On top of this, buyers may also face notices from the Income Tax Department flagging short deduction of TDS or late filing of Form 26QB, adding further compliance headache at a time when they are simply trying to close their home purchase.
What Buyers Should Actually Do
- Deduct TDS on every installment, not just the last one. Even if the builder doesn’t remind you, the responsibility legally lies with you as the buyer, under both the 1961 Act (Section 194-IA) and the 2025 Act.
- File Form 26QB for each installment within 30 days of the end of the month of deduction—don’t wait to consolidate everything at the end.
- Don’t rely on the builder’s intimation. Builders are not legally required to inform you about your TDS obligation, and many genuinely don’t track it either.
- Keep the total property value in mind right from the first payment, since the Rs. 50 lakh threshold applies to the entire agreement value, not just the installment amount.
- If you’ve already missed deductions, deposit the pending TDS as soon as possible along with applicable interest under Section 201(1A) (1961 Act)—or its equivalent under the 2025 Act for transactions falling after 1 April 2026—rather than waiting further, since interest keeps accumulating month on month.
Final Thought
TDS on property purchase is one of those compliance requirements that looks simple on paper but is frequently missed in practice, mainly because it doesn’t fit the usual “pay once, deduct once” mindset buyers have. This position continues seamlessly from the Income-tax Act, 1961 into the Income-tax Act, 2025. Since the buyer—not the builder—is the one held responsible for any default, it is important to track every installment payment carefully and not wait for the builder’s cue before deducting TDS.
