TDS When Buying an Under-Construction Flat From an NRI

A buyer in Bengaluru signs an agreement to purchase an under-construction flat, structured as six construction-linked instalments over 18 months. Midway through due diligence, the buyer's advocate flags something the buyer hadn't considered: the seller is an NRI based in Dubai. The buyer already knew about TDS on resident-seller property purchases — a flat 1% deducted at registration, filed via Form 26QB. What the advocate is now explaining is that none of that applies here. Because the seller is a non-resident, the TDS obligation under Section 195 kicks in on every single payment, at a materially higher rate, filed through an entirely different process — and it starts with the very first instalment cheque, long before the flat is even complete.

This is one of the more operationally demanding compliance obligations a resident buyer can take on, precisely because it doesn't resolve in one transaction — it runs in parallel with a construction-linked payment schedule that can stretch over a year or more.

Why Every Instalment Carries Its Own TDS Obligation

For a resident seller, Section 194-IA requires a flat 1% TDS on the sale consideration where the property value exceeds ₹50 lakh, filed via a single Form 26QB challan-cum-statement at the time of payment (cleartax-194ia). That is not the regime that applies here.

When the seller is a non-resident, Section 195 governs instead, and Section 195 has no value threshold and no single-instalment shortcut. TDS must be deducted at the time of each and every credit or payment, whichever is earlier — which, in a construction-linked plan, means the buyer is running this calculation and deduction process six or more separate times over the life of the agreement, not once at final registration.

According to ClearTax's 2026 guide on TDS for NRI property sellers, the applicable rate on an NRI seller's long-term capital gains is approximately 14.95% effective (12.5% without indexation, or 20% with indexation under the pre-2024 regime, plus applicable surcharge and cess), with short-term gains taxed at slab rates that can run considerably higher (cleartax-nri-sale-tds). Which rate applies to your seller depends on their holding period for the specific unit being sold — and in an under-construction purchase, that holding-period clock can be more ambiguous than it looks, since it may run from the original allotment date rather than from possession.

Step by Step: Getting Instalment TDS Right

Step 1 — Get a TAN before the first payment. Unlike the resident-seller route (which uses the buyer's PAN via Form 26QB), Section 195 deduction requires the buyer to obtain a Tax Deduction and Collection Account Number (TAN) from the Income Tax Department. This is a prerequisite, not a formality — you cannot legally deduct and deposit TDS under Section 195 without one, and applying after the fact creates a compliance gap on your first instalment.

Step 2 — Confirm the seller's holding period and applicable rate. Ask for documentation establishing when the NRI seller originally acquired rights to the unit (allotment letter, builder-buyer agreement date) — this determines whether the sale qualifies as long-term or short-term for capital-gains purposes, which materially changes the applicable withholding rate.

Step 3 — Deduct TDS on each instalment as it is paid. Every instalment — booking amount, plinth-stage payment, slab-wise payments, final payment on possession — triggers deduction at the applicable rate on that instalment amount, not a deferred lump-sum calculation at the end.

Step 4 — Deposit the TDS and file challans. Each deduction must be deposited to the government within the prescribed timeline following that payment.

Step 5 — File Form 27Q quarterly. Section 195 deductions on payments to non-residents are reported via Form 27Q — a quarterly TDS return — rather than the one-off Form 26QB used for resident sellers. If your instalment schedule spans multiple quarters (which most construction-linked schedules do), you will be filing Form 27Q multiple times across the transaction.

Step 6 — Handle assignment/transfer documentation alongside the tax steps. If you are buying an existing allotment rather than a fresh unit directly from the builder, you'll typically need the builder's No-Objection Certificate (NOC) and a tripartite consent agreement between the builder, the NRI seller, and you — this runs in parallel with, not instead of, the TDS compliance.

Step 7 — Consider a Section 197 lower-TDS certificate. If the seller believes the applicable TDS rate (and therefore each instalment's deduction) is higher than their actual eventual tax liability, they can apply to the Income Tax Department for a certificate authorizing you to deduct at a lower, specified rate across the remaining instalments.

A Sample Instalment Schedule With Per-Stage TDS

The table below is illustrative — actual rates depend on the seller's specific holding period, any Section 197 certificate obtained, and applicable surcharge/cess, which should be confirmed with a CA before the first payment.

Each row above is a separate deduction event requiring its own challan deposit, and collectively they get reported across the applicable quarterly Form 27Q filings — not consolidated into a single filing at the end.

Geographic and Documentation Specifics: Assignment and Builder NOC

Buying an under-construction unit where the current holder is an NRI often means you are buying an assignment of the original allotment rather than a fresh purchase directly from the builder. This adds a documentation layer on top of the tax mechanics:

• Builder NOC — most builder-buyer agreements restrict transfer of an allotment without the builder's written no-objection, sometimes with an administrative transfer fee.
• Tripartite consent — a three-way agreement between builder, outgoing NRI allottee, and incoming buyer, formally recording the transfer of rights and obligations under the original agreement.
• Updated payment schedule in your name — once the assignment is recorded, future instalment demands from the builder should be raised in the new buyer's name, but the seller's TDS obligation for payments already made to them under the earlier schedule doesn't disappear.

A Mini Scenario: A Bengaluru UC Flat, Four Instalments, One NRI Seller

Rohit is buying an under-construction 3BHK in Bengaluru from an NRI seller based in Singapore, structured as four remaining instalments of ₹20 lakh each. Before the first payment, Rohit applies for and receives a TAN. He asks the seller for the original allotment date, which shows the unit was booked over three years ago — establishing long-term capital gains treatment.

On each instalment, Rohit deducts TDS at the rate his CA confirms based on the seller's LTCG position (informed by the ClearTax framework at roughly 14.95% effective, per cleartax-nri-sale-tds), deposits it, and tracks it for the quarterly Form 27Q filing. Because two of the four instalments fall in one financial quarter and two fall in the next, Rohit ends up filing Form 27Q twice for this single purchase — a detail his advocate flagged early precisely because buyers who assume one filing "at the end" like a resident-seller deal often miss the interim quarter's deadline.

Section 197: Right-Sizing TDS Across Instalments

If the standard withholding rate would deduct materially more than the seller's actual eventual tax liability — for instance, if the seller has offsetting exemptions under Section 54 for reinvestment in another house — the seller can apply to their Assessing Officer for a Section 197 lower-TDS certificate. Once issued, this certificate specifies the rate you, as buyer, should apply to the remaining instalments — it does not retroactively adjust deductions already made on earlier instalments. Because instalment schedules run over many months, timing this application early in the payment cycle captures more of the benefit.

Pro Tips

• Apply for your TAN the moment the sale agreement is signed — do not wait until the first instalment is due.
• Build a simple tracking sheet mapping each instalment date, amount, TDS rate applied, challan number, and quarter for Form 27Q — this is the single most common source of buyer errors in staged NRI purchases.
• Ask the seller for a Section 197 certificate application early if there's any chance their real tax liability is lower than the standard rate — it benefits both parties by freeing up more cash at each stage.
• Get the builder NOC and tripartite consent finalized before or alongside your first payment, not after — an unresolved assignment can complicate who the payment is legally being made to.
• Keep every TDS challan and the Form 27Q acknowledgment — these are what the seller needs to claim credit for the tax withheld on their behalf when they file their own return.

Common Mistakes

1. Deducting TDS only on the first or final instalment, treating it like a one-time resident-seller transaction — Section 195 requires deduction on every payment.
2. Using Form 26QB and the 1% resident rate instead of a TAN-based Section 195 deduction and Form 27Q filing.
3. Guessing at the applicable rate without confirming the seller's actual holding period, which determines long-term versus short-term treatment.
4. Missing quarterly Form 27Q deadlines because the instalment schedule spans multiple quarters and the buyer assumed a single year-end filing.
5. Proceeding without builder NOC or tripartite consent when buying an assigned allotment, creating downstream title and compliance complications.

Integration With DrawMagic

DrawMagic does not deduct, deposit, or file any of this on your behalf — TAN registration, challan deposits, and Form 27Q filings stay with the Income Tax Department's systems and your CA. What DrawMagic's financial planning suite helps with is mapping your construction-linked payment plan against expected TDS deductions at each stage, so you can budget net-to-builder cash flow accurately instead of discovering a shortfall at the slab-completion instalment. The property tax calculator is useful for keeping your post-possession ownership-cost estimates realistic alongside the purchase-stage TDS math. If you're earlier in evaluating an under-construction purchase generally, DrawMagic's buyer intelligence hub is a good starting point for the wider journey, and the help center walks through the documentation checklist for assignment purchases.

Value Note

Model the full instalment-by-instalment TDS picture before you sign, not after the first cheque clears. A construction-linked plan that looks affordable on the headline price can look very different once you account for the compliance overhead of TAN registration, per-instalment deduction, and quarterly filings running for a year or more.

Key Takeaways

• Buying an under-construction flat from an NRI seller triggers Section 195 TDS on every instalment, not a single deduction at registration.
• The resident-seller 1% Form 26QB route does not apply — buyers need a TAN and must file Form 27Q quarterly.
• The applicable rate depends on the seller's holding period: roughly 14.95% effective for long-term gains, higher slab-based rates for short-term, per ClearTax's 2026 guidance (cleartax-nri-sale-tds).
• Assignment purchases add builder NOC and tripartite consent documentation on top of the tax steps.
• A Section 197 lower-TDS certificate can right-size deduction for remaining instalments if the seller's actual tax liability is lower than the standard rate.
• Instalment schedules spanning multiple financial quarters typically mean multiple Form 27Q filings for a single purchase.
• Track every instalment's date, amount, TDS rate, and challan — this documentation is what the seller needs to claim credit on their own return.
• This is general information, not tax or legal advice — confirm TAN, rate, and filing specifics with a CA before your first instalment payment.

FAQ

Q: Do I need a new TAN for every property purchase, or can I reuse one? A: A TAN, once issued, can generally be used for future deductor obligations — but confirm with a CA whether your specific TAN registration details need updating for a new transaction.

Q: What if I've already paid an instalment without deducting TDS? A: This is a compliance gap that should be addressed immediately with a CA — options may include a make-good deduction on the next instalment or other corrective filing, but the specifics depend on your situation and shouldn't be resolved through general guidance.

Q: Does the builder handle any of this TDS process since the payments run through them? A: No — the TDS obligation under Section 195 sits with you as the buyer/payer, not the builder, even though payments are made against the builder's construction-linked demand schedule.

Model your under-construction purchase's full payment and TDS timeline in DrawMagic's financial planning suite before you sign the agreement.