COURTKUTCHEHRY SPECIAL ON RULES FOR TDS PAID ON REAL ESTATE BROKERAGE
TDS on Real Estate Brokerage: What Sellers and Brokers Must Know Before Payment
Section 194H: Rules Governing TDS on Brokerage and Commission
Compliance Matters: How Individuals Should Deduct and Deposit TDS
By Our Legal Reporter
New Delhi: January 25, 2026:
The Indian real estate market continues to expand, with brokers playing a crucial role in connecting buyers and sellers. However, one often overlooked aspect of these transactions is tax compliance, particularly the deduction of Tax Deducted at Source (TDS) on brokerage payments. Recent clarifications highlight that even individual sellers may be required to deduct TDS when paying brokerage to real estate agents, depending on their turnover and professional receipts.
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This article explains the legal framework of Section 194H, its application to real estate brokerage, compliance requirements, and the broader implications for both brokers and property sellers.
Section 194H: The Legal Framework
Section 194H of the Income Tax Act, 1961 deals with TDS on commission and brokerage.
Key provisions:
- Applicability: TDS must be deducted on any commission or brokerage exceeding ₹15,000 in a financial year.
- Rate: The standard rate is 5% (earlier 10%), excluding GST.
- Threshold for Individuals/HUFs: Individuals or Hindu Undivided Families (HUFs) must deduct TDS only if their business turnover exceeds ₹1 crore or professional receipts exceed ₹50 lakh in the preceding financial year.
- Exemptions: Insurance commission is excluded under Section 194D, not 194H.
Thus, if a property seller qualifies under these thresholds, they must deduct TDS before paying brokerage.
Real Estate Brokerage and TDS
In real estate transactions, brokerage is typically charged as a percentage of the property value, often ranging between 1% and 2%. For high-value properties, brokerage amounts can easily cross the ₹15,000 threshold, triggering TDS obligations.
For example:
- If a seller pays ₹2 lakh as brokerage, they must deduct ₹10,000 (5%) as TDS and remit it to the government.
- The broker receives the net amount, with the deducted tax reflected in their Form 26AS for credit during income tax filing.
This ensures transparency and compliance in real estate transactions.
Compliance Process for Individuals
Individuals required to deduct TDS must follow these steps:
- Obtain TAN (Tax Deduction Account Number).
- Deduct TDS at the time of payment or credit, whichever is earlier.
- Deposit TDS with the government by the 7th of the following month.
- File TDS Returns quarterly using Form 26Q.
- Issue TDS Certificate (Form 16A) to the broker.
Failure to comply can result in penalties, interest, and disallowance of expenses under the Income Tax Act.
Implications for Brokers
For brokers, TDS deduction means:
- Reduced Cash Flow: Brokers receive net payments after TDS.
- Tax Credit: The deducted amount is available as credit when filing returns.
- Transparency: Ensures proper reporting of income and reduces scope for tax evasion.
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While brokers may initially feel burdened, the system ultimately benefits them by ensuring accurate tax records.
Broader Significance
The clarification on TDS for real estate brokerage reflects India’s push for greater tax compliance. It ensures that high-value transactions in the property sector are properly documented and taxed.
For sellers, it means additional responsibility in handling brokerage payments. For brokers, it ensures that their income is transparently reported.
Expert Opinions
- Tax Consultants: Stress that individuals must check turnover thresholds before deciding on TDS obligations.
- Real Estate Professionals: Call for awareness campaigns to educate sellers about compliance.
- Policy Analysts: Argue that stricter enforcement will reduce black money in real estate.
Conclusion
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The deduction of TDS on real estate brokerage under Section 194H is a critical compliance requirement that both sellers and brokers must understand. With property transactions often involving large sums, brokerage payments frequently cross the threshold, making TDS deduction mandatory.
By following proper procedures, individuals can avoid penalties and ensure smooth transactions.
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