If the seller of the flat or land you are buying is a non-resident, the 1 percent TDS rule you heard about does NOT apply to you. You sit under section 195 instead, the rate jumps to roughly 12.5 to 20 percent plus surcharge and cess, and getting it wrong can leave you, the buyer, personally liable for the shortfall plus interest and penalty.
When the seller is an NRI, deduct TDS under section 195 of the Income-tax Act 1961, not section 194-IA. For long-term gains the base rate is 12.5 percent plus surcharge and 4 percent cess. You must hold a TAN, deposit by the 7th, and file Form 27Q. Form 26QB does not apply.
Section 195 of the Income-tax Act 1961 makes the buyer responsible for deducting tax at source on any sum paid to a non-resident that is chargeable to tax in India. When you buy immovable property from an NRI, the capital gain is taxable here, so you must withhold tax before paying the seller and deposit it with the government.
Two TDS provisions cover property purchases, and they do not overlap. Section 194-IA (deposited through Form 26QB at a flat 1 percent of the sale value) applies only when the seller is a resident. The moment the seller is a non-resident, section 194-IA is switched off and section 195 takes over. The Income Tax Department and CBDT administer both.
The seller's tax is on the capital gain, computed under section 112 of the Act, but unless the seller hands you a section 197 certificate (or you obtain a section 195(2) determination), you deduct the applicable rate on the full sale consideration, not on a gain you estimate yourself. For property held more than 24 months the gain is long-term, taxed at 12.5 percent without indexation (the rate in force for transfers on or after 23 July 2024 under the Finance (No.2) Act 2024). Held 24 months or less, the gain is short-term, taxed at the seller's slab rate which can reach 30 percent. On top of the base rate, surcharge applies (capped at 15 percent for capital gains under section 112) plus 4 percent health and education cess. So the highest effective long-term TDS works out to about 14.95 percent (12.5 x 1.15 x 1.04).
Note the relief that lets resident individuals and HUFs choose 20 percent with indexation instead of 12.5 percent (second proviso to section 112(1)(a)) is not available to a non-resident seller. The NRI is on 12.5 percent without indexation.
Because deducting at the full rate on the whole sale price would over-withhold, the seller can apply to the Assessing Officer under section 197 using Form 13 for a lower or nil deduction certificate; alternatively the buyer can apply under section 195(2) to have the chargeable portion determined. If a certificate is issued, you deduct at the certified rate. To deduct at all you need a TAN under section 203A; a buyer using only a PAN (as Form 26QB allows) is the single most common and costly mistake here.
Dr. Shrawan Kumar Pathak of Lucknow district agreed on 12 March 2026 to buy a flat for ₹1,20,00,000 from a seller settled in Dubai. His broker told him to file Form 26QB and deduct ₹1,20,000 at 1 percent. Because the seller was a non-resident, that was wrong: the correct route was section 195. The seller had held the flat since 2017, so the gain was long-term at 12.5 percent. The seller produced a section 197 certificate fixing TDS at ₹6,40,000. Dr. Pathak first took a TAN, deducted ₹6,40,000, deposited it by 7 April 2026 via challan ITNS 281, filed Form 27Q for the quarter, and issued Form 16A. Had he stuck with the 1 percent figure, he would have owed the ₹5,20,000 shortfall plus interest under section 201 personally.
No. The 1 percent under section 194-IA (Form 26QB) applies only when the seller is a resident. For an NRI seller, section 195 applies at the capital-gains rate, plus surcharge and cess.
For long-term gains (property held over 24 months) the base rate is 12.5 percent without indexation. Short-term gains are taxed at slab rates up to 30 percent. Surcharge (up to 15 percent) and 4 percent cess apply on top.
Yes. Section 195 deductions are reported using a TAN under section 203A. A PAN alone, which works for Form 26QB, is not enough for an NRI purchase.
Form 27Q, the quarterly TDS return for payments to non-residents. Form 26QB is only for resident-seller transactions and must not be used here.
Yes. The NRI seller can apply under section 197 in Form 13 for a lower or nil deduction certificate from the Assessing Officer. You then deduct at the rate stated in that certificate.
Deposit by the 7th of the month after deduction (March deductions by 30 April) via challan ITNS 281, and file Form 27Q by 31 July, 31 October, 31 January or 31 May for the respective quarter.
You are treated as an assessee-in-default under section 201, liable for the unpaid TDS plus interest under section 201(1A), and a late-filing fee under section 234E may apply.
The option to pay 20 percent with indexation (second proviso to section 112(1)(a)) is available only to resident individuals and HUFs. A non-resident seller is taxed at 12.5 percent without indexation.