Form 27Q: The TDS Return You Must File When Buying From an NRI Seller

Arjun was buying a flat in Hyderabad and had done this once before, so he thought he knew the drill: deduct 1% TDS on the sale price under Section 194-IA, file Form 26QB within the timeline, and hand the seller a certificate. Midway through due diligence, he discovered the seller had moved to the US years earlier and was now an NRI. The entire compliance path he'd planned for was wrong. Payments to NRI sellers don't go through Form 26QB at all — they fall under Section 195, and the buyer's obligation is to file Form 27Q, a quarterly TDS return, at a materially higher deduction rate, and only after obtaining a TAN he didn't yet have.

If you're buying property from an NRI, this is one of the most consequential compliance differences in Indian real estate transactions — and getting it wrong doesn't just create paperwork headaches, it can leave you personally liable for the seller's under-deducted tax. Here's the full picture.

Why NRI-Seller Purchases Route Through a Different Form Entirely

For a resident seller, Section 194-IA keeps things relatively simple: if the sale price exceeds ₹50 lakh, the buyer deducts 1% TDS and reports it via Form 26QB, a one-time online challan-cum-statement — no TAN required.

For an NRI seller, the governing provision is Section 195, which applies to any payment made to a non-resident that is chargeable to tax in India. According to ClearTax's guide to TDS on sale of property by NRIs, Section 195 requires TDS on the full sale consideration (not just the gain), and — critically — the compliance and reporting mechanism is entirely different from the resident-seller process. The buyer must obtain a Tax Deduction Account Number (TAN), deduct TDS at the applicable non-resident rate, deposit it via challan, and report the deduction through Form 27Q, a quarterly TDS return, rather than the one-time Form 26QB.

This is the same Form 27Q used more broadly for any payment to a non-resident that attracts TDS — ClearTax's guidance on TDS for NRI rental property confirms that rent paid to NRI landlords is reported through the same Form 27Q mechanism, alongside Forms 15CA/15CB for the foreign remittance angle. Property sale proceeds paid to an NRI seller sit in the same compliance family.

Form 26QB vs Form 27Q: The Core Differences

Step by Step: What a Buyer Must Do When the Seller Is an NRI

1. Confirm the seller's residential status early, ideally during initial due diligence — this single fact changes the entire TDS compliance path, so don't assume based on the seller's Indian address alone; many NRIs still hold property registered to an Indian mailing address.
2. Apply for a TAN if you don't already have one — this is mandatory for anyone deducting TDS under Section 195, and it is a distinct registration from your PAN.
3. Determine the correct TDS rate. This depends on whether the seller's gain is long-term or short-term, and the seller should ideally provide computation support or a Section 197 lower-TDS certificate if they've obtained one.
4. Deduct TDS on the full sale consideration at the applicable rate at the time of payment (which may happen in installments depending on the sale agreement).
5. Deposit the TDS via challan with the specified due dates — typically by the 7th of the following month for most deductors, though the exact due date structure should be confirmed for your specific payment date.
6. File Form 27Q for the relevant quarter, reporting the deduction, the seller's PAN (or if unavailable, higher default rates may apply), and payment details.
7. Issue Form 16A to the NRI seller after the return is processed — the seller needs this certificate to claim credit for the TDS in their own Indian tax return, and potentially to claim a refund if the deduction exceeded their actual tax liability.

Quarterly Deadlines and the Certificate Flow

Form 27Q is a quarterly return, meaning the buyer's compliance doesn't end with a single filing — it follows the standard TDS return quarterly cycle used across all TDS deductors in India, with due dates falling roughly a month after each quarter closes. Missing a quarter because the transaction happened mid-cycle and slipped the buyer's attention is a common and costly mistake for individual buyers who are used to the one-time simplicity of Form 26QB.

Once the return is filed and processed, the buyer must issue Form 16A to the NRI seller. Without this certificate, the seller cannot prove the TDS credit in their own ITR, which can delay their ability to claim any refund of excess TDS deducted on the full sale consideration — a common downstream problem for NRI sellers.

Mini Scenario: Buying an NRI's Hyderabad Flat, Done Right

A resident buyer in Hyderabad is purchasing a flat from an NRI seller based in Canada for ₹1.5 crore. Recognizing early that the seller is an NRI, the buyer:

• Applies for a TAN before the sale deed is finalized, since obtaining one can take a few days to a couple of weeks.
• Confirms with the seller (and the seller's CA) the applicable TDS rate based on the seller's holding period and computed gain, noting the seller has not obtained a Section 197 certificate.
• Deducts TDS at the applicable non-resident rate on the full ₹1.5 crore consideration at the time of registration.
• Deposits the TDS via challan within the due date and files Form 27Q for that quarter.
• Issues Form 16A to the seller promptly once the return is processed, giving the seller what they need to pursue their own refund claim for any excess withheld.

Because the buyer treated this as a distinct compliance track from day one — rather than defaulting to the Form 26QB process he was more familiar with — the transaction closed without any TDS-related disputes or penalty exposure.

Penalties and Interest for Getting It Wrong

Buyers who fail to deduct TDS correctly, deduct at the wrong (lower) rate, or fail to file Form 27Q on time expose themselves to a stack of consequences: interest on the shortfall from the date it should have been deducted, late-filing fees for the TDS return itself, and potential penalty proceedings for non-compliance. Because the buyer — not the seller — is the party responsible for correct deduction and reporting under Section 195, a mistake here creates buyer liability, not seller liability. This is precisely the "personal liability for the seller's tax" anxiety that catches individual buyers off guard: the law places the compliance burden squarely on you as the person making the payment.

Pro Tips

• Establish the seller's residential status in writing early in due diligence — ask directly, and don't rely on assumptions from the property's location or the seller's Indian-sounding contact details.
• Apply for a TAN as soon as you know the seller is an NRI, since registration can take time and you don't want it holding up the closing timeline.
• Get the seller's computed capital gain, or their Section 197 certificate, in writing before deducting — deducting at the wrong rate creates a shortfall you're liable for, even if the seller told you what to withhold.
• Calendar the quarterly Form 27Q deadline the moment you make the payment — don't rely on remembering it later, since a single missed filing brings interest and late fees.
• Consult a CA familiar with Section 195 compliance for anything beyond a straightforward, single-installment sale, especially if payments are staggered across quarters.

Common Mistakes

1. Not realizing the seller is an NRI until late in the process. This can force a rushed TAN application and a scramble to correct any TDS already deducted at the wrong rate.
2. Deducting at the resident 1% rate instead of the correct non-resident rate. This is a straightforward compliance failure that creates buyer liability for the shortfall plus interest.
3. Filing Form 26QB instead of Form 27Q. Using the wrong form doesn't satisfy the Section 195 filing obligation, even if TDS was actually deducted.
4. Missing a quarterly Form 27Q deadline because the payment happened mid-quarter and the filing calendar wasn't set up in advance.
5. Not issuing Form 16A to the seller promptly, which delays the seller's ability to claim their own TDS credit or refund.

How DrawMagic Fits Into the Deal Timeline

DrawMagic does not file Form 27Q or obtain your TAN — that compliance sits with you and your chartered accountant. What DrawMagic helps with:

• Use DrawMagic's financial planning tools to budget the correct TDS amount upfront, since it's meaningfully higher than the 1% many buyers expect from resident-seller purchases, and to plan the timing of quarterly deposits against your overall purchase cash flow.
• If you're still evaluating properties and want to build NRI-seller due diligence into your search from the start, the buyer journey is where that due diligence belongs — checking seller residential status early, before you're deep into a specific transaction.
• Run the property through the property tax calculator to keep your full cost picture — including this TDS obligation — in view alongside registration and other closing costs.
• If you need a starting point on documentation requirements, DrawMagic's help center has guidance on the compliance steps buyers typically need to track.

Build Compliance Into the Deal Timeline, Not as an Afterthought

The buyers who get through NRI-seller transactions cleanly are the ones who ask about the seller's residential status on day one of due diligence — not the day before registration. If you're actively searching for a property, make "is the seller resident or NRI" a standard early question, since it determines a materially different TDS compliance track for you as the buyer.

Key Takeaways

• Payments to NRI sellers fall under Section 195 and are reported via Form 27Q — not Form 26QB, which only applies to resident sellers.
• Form 27Q is a quarterly return, unlike the one-time Form 26QB filing for resident-seller transactions.
• Buyers must obtain a TAN to deduct and report TDS under Section 195 — a requirement that individual buyers of resident-seller property never encounter.
• TDS applies to the full sale consideration at the non-resident capital gains rate (effective ~14.95% for long-term gains per ClearTax's 2026 computation), not the 1% flat rate used for resident sellers.
• Buyers are personally liable for correct deduction and timely filing — mistakes create buyer exposure to interest and penalties, not seller exposure.
• Form 16A must be issued to the NRI seller after filing, since the seller needs it to claim their own TDS credit or refund.
• Confirming the seller's residential status early in due diligence is the single most important step to avoid a rushed, error-prone compliance scramble later.
• Consult a chartered accountant for the exact rate computation and filing mechanics — DrawMagic explains the framework but does not file returns.

FAQ

Do I need a TAN even for a single one-time property purchase from an NRI? Yes — TAN is required for any TDS deduction and reporting under Section 195, regardless of whether it's a one-time transaction or an ongoing obligation like rent.

What if the NRI seller doesn't have a PAN? TDS is generally deducted at a higher rate when the seller's PAN is unavailable or invalid, and the seller should be encouraged to obtain and share a valid PAN before the transaction to avoid this.

Can the buyer and seller agree informally to use Form 26QB instead of 27Q to keep things simple? No — the applicable form is determined by the seller's actual residential status under the Income Tax Act, not by mutual convenience; filing the wrong form does not satisfy the buyer's compliance obligation.

Does a Section 197 lower-TDS certificate obtained by the seller change the buyer's filing obligation? It changes the rate at which TDS is deducted, but the buyer still needs a TAN and still files Form 27Q reporting the (lower) deduction made under the certificate.