Buying from an NRI Seller: TDS and Funding for NRIs

"The seller is also an NRI — what changes?"

Karthik, based in Singapore, found a well-maintained resale apartment in an IT-corridor project in Bengaluru — the kind of building where a large share of owners are themselves NRIs who bought at launch and are now selling as they settle abroad permanently or reallocate their India holdings. His seller lives in the UK. As Karthik gets into the paperwork, he realizes this deal has a wrinkle he hadn't planned for: because the seller is a non-resident, the TDS regime that applies is not the familiar 1% resident-seller deduction most India property buyers know about. It's Section 195 — and it works differently in ways that affect how much cash he needs on hand and what compliance steps fall on him, the buyer.

This is an increasingly common scenario in NRI-heavy metro projects across Bengaluru, Pune, and Hyderabad, where clusters of overseas-Indian owners bought during a common launch window and are now reselling to each other or to newer NRI buyers. If you're in this situation, two separate frameworks apply at once: your own FEMA funding obligations as the buyer, and the seller's Section 195 TDS obligations, which you as the buyer are responsible for deducting and depositing. This article maps the framework; exact current TDS rates, surcharge, and cess change with tax law, so treat every rate mentioned here as illustrative and always confirm current figures with a CA before you calculate anything you intend to pay or withhold.

Two frameworks, one transaction

Your funding as the buyer (FEMA): Regardless of who the seller is, your own eligibility and funding channel as an NRI buyer purchasing property in India remain governed by the RBI's FAQ on Purchase of Immovable Property, under the FEMA (Non-Debt Instruments) Rules, 2019. You fund your purchase through your NRE, NRO, or FCNR(B) account, or fresh inward remittance — the seller's residency status doesn't change this part of the equation (rbi-fema-property, ongoing).

The seller's TDS obligation (Income Tax Act): Separately, because the seller is a non-resident, Section 195 of the Income Tax Act requires the buyer to deduct tax at source on the payment made to the seller — and the withholding here is meaningfully different from the familiar Section 194-IA regime that applies when buying from a resident seller. Under 194-IA, a resident buyer deducts a flat 1% TDS on the sale consideration if it exceeds a threshold. Under Section 195, when the seller is non-resident, TDS applies on the capital gains component (broadly, at rates that differ for short-term versus long-term gains, plus applicable surcharge and cess) — and critically, there is no minimum consideration threshold below which it doesn't apply. Because exact current percentages, surcharge slabs, and cess vary and are revised periodically, confirm the applicable rate with a CA before you calculate anything — do not rely on a number quoted informally by the seller, a broker, or an old blog post.

Step-by-step: deducting TDS, obtaining TAN, paying the balance compliantly

1. Determine early that the seller is an NRI. This changes your compliance path, so establish it at the term-sheet stage, not at the last minute before registration.
2. Apply for a TAN (Tax Deduction and Collection Account Number) if you don't already have one — this is mandatory for a buyer deducting TDS under Section 195, unlike the simpler Form 26QB process used for resident-seller 194-IA deductions.
3. Engage a CA to compute the correct TDS amount, factoring in the seller's actual capital gain (not the full sale consideration), applicable rate, surcharge, and cess for the relevant financial year.
4. Consider whether the seller will apply for a lower/nil TDS certificate from the Income Tax Department under Section 197 — many NRI sellers do this in advance to avoid over-withholding relative to their actual gain, and it directly affects how much you as the buyer need to withhold.
5. Deduct the confirmed TDS amount and deposit it with the government within the prescribed timeline, using the appropriate challan and your TAN.
6. File the relevant TDS return (typically Form 27Q for payments to non-residents) and issue the seller a TDS certificate (Form 16A) as proof of deduction.
7. Pay the net balance to the seller — that is, the sale consideration minus the TDS you've deducted and deposited — through your own NRE/NRO/inward-remittance channel, keeping the funding trail separate and clean from the TDS mechanics.
8. Retain every document: TAN registration, TDS challans, Form 27Q filing acknowledgment, Form 16A issued to the seller, and your own funding proof, in one file.

Resident seller vs NRI seller — TDS obligations differ

Note: exact current rates and surcharge slabs change; this table describes structure, not numbers to rely on for a calculation.

Metro resale corridors: why this comes up so often

Bengaluru's IT-corridor micro-markets (Whitefield, Sarjapur Road, Electronic City extensions), Pune's IT-hub belts (Hinjewadi, Kharadi), and Hyderabad's HITEC City-adjacent corridors saw heavy NRI investment during multiple launch cycles over the past decade. As those original buyers relocate, retire abroad, or rebalance their India holdings, a meaningful share of resale supply in these specific micro-markets now comes from NRI sellers. If you're house-hunting for a resale unit in one of these corridors, it's worth asking early in your shortlisting process whether the seller is resident or non-resident — it changes your compliance checklist before you're deep into negotiation.

Mini scenario: an NRI-to-NRI resale done right

Meera, an NRI in Melbourne, is buying a resale apartment in Hinjewadi, Pune from Vikram, an NRI seller based in Germany. Early in the deal, Meera's team confirms Vikram's non-resident status and flags Section 195. Vikram, on his side, applies for and receives a lower-TDS certificate from the Income Tax Department reflecting his actual capital gain rather than a blanket rate on the full consideration. Meera's CA confirms the exact figure to withhold based on that certificate, Meera obtains a TAN, deducts and deposits the TDS, files Form 27Q, and issues Vikram a Form 16A. Separately, Meera funds her side of the purchase — including the net payment to Vikram — entirely from her NRO account, with the remittance trail kept distinct from the TDS paperwork. Both sides end up with a complete document set: Vikram has proof of TDS deducted correctly against his lower-certificate rate for his eventual tax filing and any DTAA claim in Germany; Meera has her funding trail intact for her own future needs, including any eventual repatriation.

Documenting funding and withholding for both parties' repatriation

Both sides of an NRI-to-NRI resale have a future repatriation interest, and both need clean records:

• As buyer, keep your FIRC/remittance proof, NRE/NRO statements, the registered sale deed, and your TDS compliance documents (TAN, challans, Form 27Q, Form 16A copy) together.
• Encourage (don't insist on) the seller sharing their Section 197 certificate if they have one — it protects you from over- or under-withholding disputes later, and it's in both parties' interest to get the number right the first time.
• Keep the TDS paperwork and the FEMA funding paperwork as two clearly labeled sub-folders of the same transaction file — they serve different purposes and different future audiences (the tax department versus your bank, respectively).

Pro tips

• Start the TAN application the moment you confirm the seller is non-resident — it is not instantaneous and shouldn't be a registration-week scramble.
• Ask the seller directly, early, whether they intend to apply for a Section 197 lower-TDS certificate — it materially changes your cash-flow planning for the deal.
• Never estimate the TDS amount yourself from a percentage you saw quoted online; rates, surcharge, and cess are specific to the financial year and the seller's gain computation.
• Keep the TDS deduction and your own FEMA funding as two separate line items in your budgeting, even though they net out to one payment to the seller.
• If the seller is claiming DTAA benefits, ask for their Tax Residency Certificate and Form 10F early — it affects the withholding calculation and can otherwise stall registration.

Common mistakes to avoid

• Deducting 1% as if the seller were a resident — the wrong regime entirely once the seller is non-resident.
• Skipping the TAN requirement and trying to use the resident-seller Form 26QB process instead.
• Withholding on the full sale consideration instead of the seller's actual computed capital gain when a lower-TDS certificate exists.
• Delaying TDS deposit or Form 27Q filing past the prescribed deadlines, risking interest and penalty.
• Mixing the buyer's own FEMA funding trail with the TDS compliance paperwork in a way that makes it hard to present either cleanly later.

Integration with DrawMagic features

An NRI-to-NRI resale across two time zones, with parallel FEMA and tax-withholding obligations, is a coordination-heavy transaction. Start organizing your purchase with DrawMagic to keep your requirements, budget, and document checklist in one place. Use financial planning to separate your TDS-withholding line item from your net-to-seller payment so your cash-flow numbers stay clear, and engage a tax or legal professional through DrawMagic's directory to get the Section 195 computation and Section 197 process handled correctly — this is not a step to DIY.

A note on value

DrawMagic's requirements and financial planning tools are available to any signed-up buyer at no cost to get started. For a transaction with this many moving parts, it may also be worth exploring DrawMagic's pricing page for AI-assisted tools that help you stay organized across the full deal timeline.

Key takeaways

• Buying from an NRI seller triggers Section 195 TDS, which is structurally different from the familiar 1% resident-seller TDS under Section 194-IA.
• There is no minimum consideration threshold for Section 195 — it applies regardless of deal size.
• The buyer must obtain a TAN and file Form 27Q — a different process from the resident-seller Form 26QB route.
• TDS under Section 195 is computed on the seller's capital gain, not the full sale price — a Section 197 lower/nil certificate can materially change the withholding amount.
• Your own FEMA funding obligations as an NRI buyer are unchanged regardless of the seller's residency status (rbi-fema-property, ongoing).
• Never estimate or apply a TDS rate from memory or an old source — confirm current rates, surcharge, and cess with a CA.
• Bengaluru, Pune, and Hyderabad IT-corridor resale markets see NRI-to-NRI deals often enough that it's worth asking about seller residency early in shortlisting.
• Keep TDS compliance documents and FEMA funding proof as two separate, well-labeled records.

FAQ

Do I still deduct TDS if the property costs less than ₹50 lakh and the seller is an NRI? Yes. Unlike the resident-seller 194-IA threshold, Section 195 has no minimum consideration threshold when the seller is non-resident.

Can the seller reduce the TDS amount I need to withhold? Yes, if they obtain a lower or nil TDS certificate from the Income Tax Department under Section 197 based on their actual capital gain — ask about this early in the transaction.

Does my own funding process change because the seller is also an NRI? No. Your FEMA funding obligations as the buyer — routing payment through your NRE, NRO, or inward remittance — are unaffected by the seller's residency status.

Coordinating an NRI-to-NRI resale? Start with DrawMagic or find the right professional to guide the tax and legal steps.