You deduct 1% on every instalment
When the flat is worth ₹50 lakh or more, you as the buyer must deduct 1% TDS on the payment to a resident builder under Section 194-IA, and the amount you deduct on is the price or the stamp-duty value, whichever is higher. You do not need a TAN for this; you use your PAN, file a Form 26QB, the challan-cum-statement, within 30 days of the end of the month of payment, and give the builder a Form 16B.
With an under-construction flat paid in instalments, this is not a one-time deduction. Once the total agreement value is ₹50 lakh or more, the 1% is deducted on each instalment you pay, including the booking amount, and a separate Form 26QB is filed for each one. The common slip is to confuse the total value with the instalment value in the form's fields, which triggers a notice, so the total consideration goes in the total-value field and the instalment in the amount-paid field. Under the Income-tax Act 2025 the withholding provisions are consolidated, but the buyer's 1% duty on the payment is unchanged.
The GST while it is under construction
A flat that is still being built carries GST, and a completed one does not. While the flat is under construction, the builder charges GST at 5% for a normal flat, or 1% for an affordable one, in both cases without input tax credit, so it is a straight cost added to your instalments. Affordable here means a flat up to ₹45 lakh and within a set carpet area.
Once the building is complete and has its completion or occupation certificate, a sale is treated as a ready property and carries no GST at all. So the same flat bought a few months later, after completion, would have no GST on it. You do not file any GST yourself; the builder is the one who collects and pays it. The practical point is that on an under-construction booking, GST is a real 1% to 5% on top of the price that a ready-flat buyer does not pay, worth factoring into which you buy.
When your holding period starts
This one saves real tax on a later sale. For an under-construction flat, your holding period, which decides whether a future sale is a long-term gain, taxed at the lower 12.5% rate after two years, or a short-term gain taxed at slab rates, is counted from the date of your allotment letter, not from possession or registration.
The position is settled: the Bombay High Court in PCIT v Vembu Vaidyanathan held that the allottee gets a right to the flat on the allotment letter, the instalments are only a follow-up, and possession is a formality, and the Supreme Court declined to interfere. It rests on old CBDT circulars treating an allotment as acquisition. The catch is that the allotment must be genuine and not later cancelled, so keep the allotment letter and the full payment trail. For an NRI who books early and sells a few years later, counting from allotment can be the difference between the 12.5% long-term rate and a much higher short-term one.