TDS When Buying Property From an NRI Seller in India

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.

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.

1. Confirm the seller's residential status in writing (passport, visa, days-in-India). If non-resident, you are in section 195, not 26QB.
2. Apply for a TAN on the Protean (NSDL) or income tax portal before the first payment. See how to apply for a TAN.
3. Ask the seller for a section 197 lower-deduction certificate (Form 13). If they have one, deduct at the certified rate; if not, deduct at the full section 195 rate on the gain or, to be safe, on the consideration.
4. Compute TDS: base rate (12.5 percent long-term or slab up to 30 percent short-term) plus applicable surcharge plus 4 percent cess.
5. Deduct the TDS from the payment to the seller. Do not pay them the gross amount.
6. Deposit the TDS by challan (ITNS 281) on or before the 7th of the month following deduction (for March deductions, by 30 April).
7. File the quarterly Form 27Q TDS return by the 31st of the month after each quarter (31 July, 31 October, 31 January, 31 May).
8. Issue Form 16A to the NRI seller within 15 days of the return due date so they can claim credit.

• Seller's PAN and proof of non-resident status (passport, visa or stay record)
• Your TAN (and PAN)
• Sale agreement showing consideration and dates of acquisition and sale by the seller
• Seller's section 197 certificate (Form 13), if obtained
• Challan ITNS 281 for the TDS deposit
• Form 27Q acknowledgement and Form 16A issued to the seller

• Using Form 26QB / 1 percent. Section 194-IA is for resident sellers only. With an NRI seller this under-deducts massively and the buyer pays the shortfall plus interest under section 201.
• Assuming small deals are exempt. Section 194-IA only applies at ₹50 lakh and above, but section 195 has no threshold. Even a low-value purchase from an NRI attracts TDS.
• Not getting a TAN. Section 195 deductions cannot be reported without a TAN under section 203A; PAN-only does not work here.
• Deducting on the gain without a section 197 certificate. Unless the seller produces a Form 13 certificate, the safe default is to deduct on the full consideration; only the certificate authorises a lower base.
• Missing the 7th-of-month deposit or the quarterly Form 27Q. Late deposit attracts interest under section 201(1A) and late filing fee under section 234E.
• Forgetting surcharge and cess. The headline 12.5 percent is the base; surcharge (up to 15 percent) and 4 percent cess sit on top.

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.

• Section 195, Income-tax Act 1961 (TDS on payments to non-residents): Income Tax Department
• Finance (No.2) Act 2024, section 112 LTCG at 12.5 percent without indexation: ClearTax LTCG guide
• Section 195 TDS on NRI property sale, TAN, Form 27Q, Form 16A: ClearTax section 195
• Surcharge on capital gains capped at 15 percent under sections 111A/112/112A: SAG Infotech
• NRI excluded from indexation option, 12.5 percent without indexation: ClearTax NRI property sale

• How to apply for a TAN for TDS deduction
• NRI property sale proceeds: NRO repatriation, Form 15CA/15CB
• Capital Gains Account Scheme and section 54 on property sale
• Fixing AIS and Form 26AS mismatch after a property sale
• Home loan tax benefits explained
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