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TDS on Special Transactions: Property, Rent, Cash Withdrawal and Contractor Payments

Tax Insights Team
  • Updated

 

FY 2025-26: Income-tax Act, 1961
Tax year 2026-27: Section 393, Income-tax Act, 2025

Some transactions require TDS even when the payer is not a regular tax deductor. Property purchases, high rent, large cash withdrawals and substantial contractor payments each have different thresholds, rates, timing and forms.

Quick Comparison for FY 2025-26

Transaction Provision Threshold and Rate Main Compliance
Purchase of immovable property from resident seller Section 194-IA 1% of the higher of sale consideration or stamp-duty value where either is ₹50 lakh or more. Form 26QB and Form 16B; TAN generally not required.
Rent paid by regular deductor Section 194-I Threshold exceeds ₹50,000 for a month or part of a month. Rate: 2% for plant/machinery/equipment and 10% for land, building, furniture or fittings. Regular TDS deposit, return and certificate requirements.
High rent paid by individual/HUF not covered by section 194-I Section 194-IB 2% where monthly rent exceeds ₹50,000. Deduct in the last month of the year or tenancy; Form 26QC and Form 16C.
Large cash withdrawal Section 194N Generally 2% above ₹1 crore; lower threshold and 2%/5% rates for specified non-filers. ₹3 crore threshold applies to eligible cooperative societies. Deducted by bank, cooperative bank or post office.
Large contractor/professional payment by individual/HUF outside regular TDS Section 194M 2% where aggregate covered payments exceed ₹50 lakh. Form 26QD and Form 16D; TAN generally not required.
Non-resident recipient: The simplified property, rent and contractor provisions above generally concern resident recipients. A payment to a non-resident must be examined under section 195, the applicable tax treaty and any lower-deduction certificate.

Important Timing Rules

  • Property: Deduct at payment or credit, including instalments.
  • Section 194-I rent: Deduct at the earlier of credit or payment.
  • Section 194-IB rent: Deduct in the last month of the financial year or the last month of tenancy, whichever is earlier.
  • Cash withdrawal: The financial institution deducts when the withdrawal crosses the applicable threshold.
  • Section 194M: Deduct at the earlier of credit or payment after applying the annual threshold.
Threshold does not always mean “tax only on excess.” Property, rent and contractor provisions may require deduction on the covered payment once the applicability condition is met. Cash-withdrawal TDS is specifically calculated on the amount above the applicable threshold.

Transactions on or after 1 April 2026

The Income-tax Act, 2025 consolidates these TDS rules in section 393. For qualifying small-payer transactions, Form 141 replaces Forms 26QB, 26QC, 26QD and 26QE. The correct law depends on the earlier event of credit or payment:

  • On or before 31 March 2026: apply the Income-tax Act, 1961.
  • On or after 1 April 2026: apply section 393 of the Income-tax Act, 2025.

Transaction Checklist

  1. Identify whether the recipient is resident or non-resident.
  2. Check the correct threshold, payment date and aggregate value.
  3. Verify PAN and, where required, TAN.
  4. Deduct at the correct rate and deposit within the prescribed time.
  5. File the correct statement and issue the TDS certificate.
  6. Reconcile the entry with Form 26AS/AIS.
Property buyers: Where there are multiple buyers or sellers, apply the statutory aggregation rule to the total consideration and stamp-duty value; do not split the transaction merely to avoid TDS.

 

 

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