TDS When Buying Property From an NRI Seller (2026)

"Wait, the seller is an NRI?"

You've found the flat. The price works, the locality is right, the paperwork looks clean — and then, somewhere in the conversation, you learn the seller lives in London, Dubai, or Toronto. If your first thought is "that shouldn't change anything for me, the buyer," it's worth pausing here, because it changes quite a lot. When you buy from a resident seller, most buyers have absorbed the basic rule: deduct 1% TDS if the deal is over ₹50 lakh, deposit it, done. When the seller is an NRI, an entirely different section of the Income Tax Act applies, the threshold disappears, and the rate is many multiples higher. Get it wrong, and it is the buyer — not the seller — who faces the tax department's notice, with interest and penalties attached.

This guide walks through exactly what changes, how to compute it, and how to protect yourself, in plain English. It is not tax advice — always confirm your specific numbers with a licensed chartered accountant before you deduct and deposit anything.

The two-worlds rule: Section 195 vs Section 194-IA

For a resident seller, Section 194-IA governs the transaction: the buyer deducts 1% TDS, but only if the total consideration exceeds ₹50 lakh, and the process runs through the buyer's PAN using Form 26QB — no separate Tax Deduction Account Number (TAN) required.

For an NRI seller, none of that applies. Section 195 of the Income Tax Act takes over, and under it:

• There is no ₹50 lakh threshold — TDS applies regardless of the sale value.
• TDS is deducted on the full sale consideration, not just the gain, unless the seller has obtained a lower-deduction certificate (more on this below).
• The buyer must obtain a TAN, file returns via Form 27Q, and issue the seller a Form 16A certificate.

As ClearTax's guide to TDS on sale of property by NRIs lays out, this is the core distinction every buyer needs to internalize before signing anything: the rulebook simply changes the moment the seller's residential status changes.

Step-by-step: what a buyer actually has to do

1. Confirm the seller's residency status upfront. Ask directly, and get it in writing in the agreement — this determines which section governs the transaction. Do not assume based on the property location or how the deal was brokered.

2. Apply for a TAN before the transaction closes. Unlike the resident-seller process, buying from an NRI requires the buyer to have a Tax Deduction Account Number. This can take a few days to a couple of weeks to obtain, so apply as soon as you know the seller is an NRI — not the week before registration.

3. Compute the TDS on the full sale consideration. Per ClearTax's 2026 guidance, long-term capital gains for NRI sellers (property held over 24 months) are taxed at 12.5% without indexation, or 20% with indexation depending on acquisition date and applicable transitional rules; once you add applicable surcharge and a 4% health and education cess, the effective TDS rate on sale values up to ₹50 lakh works out to roughly 14.95%. This effective rate rises at higher surcharge slabs for larger transaction values — always confirm the exact current rate with a CA before deducting, since surcharge tiers and cess computations can shift.

4. Deposit the TDS by the 7th of the following month. The deducted amount must be deposited with the government using the buyer's TAN, generally by the 7th of the month following deduction (special rules apply for March deductions).

5. File Form 27Q quarterly. This is the TDS return format specifically for payments to non-residents, distinct from Form 26QB used for resident-seller transactions.

6. Issue Form 16A to the seller. This certificate confirms the tax withheld and deposited, and the seller needs it for their own income tax filing.

Resident seller vs NRI seller: the comparison that matters

Note: these rates and thresholds reflect ClearTax's 2026 published guidance and general Section 195/194-IA mechanics; always verify current-year rates with a CA before deducting, as surcharge slabs and cess computations can be revised.

The Bengaluru numbers: a ₹1.2 crore flat from a US-based NRI seller

Suppose you're buying a ₹1.2 crore flat in Bengaluru from a seller who has lived in the US for over a decade and has held the property for more than 24 months (making it a long-term capital asset). Without a lower-deduction certificate, and using the effective rate framework ClearTax describes, TDS is computed on the full ₹1.2 crore sale consideration at the applicable long-term capital gains rate plus surcharge and cess — not on any estimated "gain," and not at the 1% a resident-seller deal would have required. That is a materially larger sum you must withhold, deposit under your own TAN, and report via Form 27Q. If you had mistakenly applied the familiar 1% rule (treating it like a resident-seller transaction), you would under-deduct significantly — and the shortfall, along with interest and penalty, becomes your liability as the buyer, not the seller's. This example is illustrative; the actual computation depends on acquisition date, holding period, and any lower-TDS certificate the seller may hold, and should be confirmed with a CA before the transaction closes.

The lower-TDS route: Section 197 certificates

Full TDS on the entire sale consideration can be a steep upfront cash outflow for the seller, especially if their actual capital gain is much smaller than the sale price (for example, if the property has been held a long time and the cost base is high, or there's a genuine loss). To address this, an NRI seller can apply to the Income Tax Department under Section 197 for a lower or nil TDS certificate, which specifies a reduced rate the buyer should apply instead of the full statutory rate. If the seller presents you with a valid Section 197 certificate before the transaction, you deduct at the certified lower rate instead of the default rate — but only for the exact certificate amount and validity period specified. Without this certificate in hand, you as the buyer have no basis to deduct anything less than the default statutory computation, regardless of what the seller tells you their actual gain is.

Pro tips

• Ask the seller upfront whether they intend to apply for a Section 197 lower-TDS certificate, and build the transaction timeline around when that certificate might arrive — it can take several weeks to process.
• Never assume a 1% deduction is safe just because that is what you would have done for a resident seller; confirm residency status in writing before computing anything.
• Apply for your TAN as early as possible in the transaction timeline, since it is a prerequisite for depositing TDS and filing Form 27Q.
• Keep the seller's PAN, passport/OCI details, and any TRC (Tax Residency Certificate) and Form 10F documentation on file, particularly if a DTAA benefit is being claimed by the seller.
• Get the TDS computation reviewed by a CA before you deposit — this is not an area to estimate on your own given the surcharge tiers involved.

Common mistakes buyers make

• Deducting the familiar 1% rate without realizing Section 195 applies once the seller is confirmed as an NRI.
• Skipping the TAN application, then discovering at the deposit stage that the resident-seller Form 26QB process doesn't apply.
• Depositing TDS late, which triggers interest under Section 201, even if the amount deducted was correct.
• Never filing Form 27Q, or filing it incorrectly, leaving the seller without a valid Form 16A for their own tax return.
• Accepting a seller's verbal claim of a "lower gain" without an actual Section 197 certificate in hand, and under-deducting as a result.

How DrawMagic helps you plan around this

DrawMagic is an information and software platform for home buyers — not a broker, tax advisor, or payment intermediary — but a few tools can help you plan the true cost of a transaction like this. Use /buyer/financial-planning to model your full cash outflow: the sale price, the TDS you must withhold and deposit on top of it, and stamp duty and registration costs, so there are no surprises in your budget. The property tax calculator is useful for a different but related reason — it helps you keep the recurring municipal property tax you'll owe as an owner distinct in your mind from the one-time TDS withholding obligation you have as a buyer at the point of purchase; the two are often confused but are entirely separate. For organizing your documents, checklist, and transaction timeline more broadly, /buyers is the hub to work from, and /help is where you can get guidance and escalate questions as they come up — remembering always that DrawMagic itself does not offer tax advice.

Why planning the deduction protects you

The buyer who plans the TDS obligation into the budget from day one — rather than discovering it as a shock at registration — avoids two distinct risks: under-deducting (which creates personal tax liability, interest, and penalty exposure down the line) and cash-flow surprises (needing to find an unplanned lakh or more at deposit time). Treat the TDS computation as a core line item in your purchase budget from the moment you learn the seller is an NRI, not as a closing-day formality.

Key takeaways

• Buying from an NRI seller means Section 195 applies, not the familiar Section 194-IA — there is no ₹50 lakh threshold, and it applies to every transaction size.
• TDS is computed on the full sale consideration at applicable capital gains rates plus surcharge and cess, working out to an effective rate around 14.95% for long-term holdings up to ₹50 lakh (per ClearTax's 2026 guidance) — confirm current rates with a CA.
• The buyer, not a resident-seller-style PAN process, needs a TAN and must file Form 27Q, issuing Form 16A to the seller.
• A Section 197 lower-TDS certificate from the seller is the only legitimate basis for deducting less than the default statutory rate.
• TDS must be deposited by the 7th of the following month; late deposit triggers interest even on a correctly computed amount.
• Confirm the seller's residency status in writing before you calculate anything — assumptions are the most common source of error.
• Use financial planning tools to budget for the TDS outflow as part of your total transaction cost, not an afterthought.

FAQ

What happens if I mistakenly deduct only 1% from an NRI seller? You would likely be under-deducting significantly, and as the buyer you carry the liability for the shortfall, along with potential interest and penalties — always confirm residency status before deducting.

Do I need a TAN even for a small property purchase from an NRI? Yes — Section 195 has no minimum threshold, so a TAN and Form 27Q filing are required regardless of transaction size.

Can the seller just tell me their actual capital gain is small so I deduct less? No — you can only deduct at a reduced rate if the seller presents a valid Section 197 lower-TDS certificate issued by the Income Tax Department; a verbal claim is not sufficient basis.

Ready to plan your total purchase cost, including TDS, correctly from the start? Start with DrawMagic's financial planning tool, and explore the full buyer hub for the rest of your transaction checklist.