Buying From an NRI: A First-Time Buyer's TDS Checklist

The moment you find out the seller is an NRI

You've done everything right. You shortlisted the locality, compared three flats, negotiated the price down by a few lakhs, and you're ready to move to the agreement stage. Then the seller's lawyer mentions, almost in passing, that the owner has been settled in Dubai for the last eight years and files as a Non-Resident Indian.

For a first-time buyer, that one sentence changes the entire transaction. If you'd been buying from a resident Indian seller, the tax compliance would have been simple: deduct 1% TDS on the sale value (if it crosses ₹50 lakh), quote the seller's PAN, and file Form 26QB online. Done in an afternoon.

Buying from an NRI seller is a different regime entirely — and the uncomfortable truth most first-time buyers don't learn until it's too late is that the compliance burden sits on you, the buyer, not the seller. Get it wrong, and it's your money that's at risk in interest, penalties, and a notice from the Income Tax Department months after you've moved in. This is not a scare story; it's a well-documented rule that trips up otherwise careful buyers because nobody warned them the process was fundamentally different.

This article is the checklist we wish every first-time buyer saw before signing the token-advance receipt. It won't make you a tax expert, and it isn't a substitute for a chartered accountant — but it will tell you exactly what has to happen, in what order, so you go into the deal with your eyes open.

Why the buyer's liability is different for an NRI seller

Under Indian income-tax law, when a resident buys immovable property from another resident, the withholding rules fall under Section 194-IA — a flat 1% deducted on the sale consideration, using the seller's PAN, filed via the simple online Form 26QB. According to ClearTax's guide on TDS on sale of property by NRIs, this 1% mechanism only applies when the seller is a resident.

The moment the seller is a Non-Resident Indian, the applicable provision shifts to Section 195 of the Income Tax Act. Section 195 was designed to make sure India collects tax on gains that would otherwise leave the country with the seller. It has three features that catch first-time buyers off guard:

1. TDS is deducted on the full sale consideration, not just the profit. Under Section 194-IA, everyone intuitively understands 1% of the sale price. Under Section 195, the rate is far higher and is calculated with reference to the seller's capital gains treatment — not a flat token percentage.
2. The buyer needs a TAN (Tax Deduction and Collection Account Number), not just a PAN. A resident-to-resident deal never requires the buyer to obtain a TAN; Form 26QB uses PAN alone. An NRI-seller deal requires the buyer to register for a TAN before deducting tax.
3. Filing is quarterly, on Form 27Q, not the same-transaction Form 26QB. This is a recurring compliance filing, not a one-time online form you complete and forget.

According to ClearTax's 2026 guide on NRI property sales, the effective long-term capital-gains TDS rate for NRI sellers works out to roughly 14.95% — built from the 12.5% headline long-term capital-gains rate (applicable without indexation, under the post-2024 regime) plus applicable surcharge and cess. That is a dramatically different number from the 1% a first-time buyer is mentally prepared for, and it's calculated on a different base as well.

Step-by-step: what you actually have to do

Here is the sequence, in the order it needs to happen, from the moment you confirm the seller is an NRI to the point where you can safely register the sale deed.

Step 1 — Confirm the seller's residency status, properly

Don't take a verbal assurance. Ask for documentary confirmation of where the seller is tax-resident — this typically means their passport, visa/work-permit status, and ideally a recent Tax Residency Certificate (TRC) if they're claiming benefit under a Double Taxation Avoidance Agreement (DTAA). Some sellers, hoping to simplify the deal for themselves, will describe themselves informally as "still Indian" even though they've been abroad for years and legally qualify as non-resident under the Income Tax Act's residency tests. Accepting that self-declaration at face value is a mistake that exposes you — if the tax department later determines the seller was actually non-resident and you deducted the resident 1% rate, the shortfall, interest, and penalty exposure fall on the deducting buyer, not the seller who's now overseas.

Step 2 — Apply for a TAN

Before you deduct any tax under Section 195, you need a Tax Deduction and Collection Account Number in your own name (or in the name of all co-buyers, structured appropriately). This is a separate registration from your PAN and is done through the NSDL/Protean TIN facilitation portal. Build in a few days of lead time — this is not instantaneous, and it has to happen before the deduction, not after.

Step 3 — Determine the correct deduction rate under Section 195

This is the step where a first-time buyer most needs professional help. The rate depends on:

• Whether the gain is long-term (property held over 24 months) or short-term
• Whether the seller holds a Section 197 lower-deduction certificate from the Assessing Officer (see Step 4)
• Whether a DTAA benefit changes the applicable rate (requires the seller's TRC and Form 10F)

Absent any lower-deduction certificate, buyers should work with a CA to apply the correct rate — commonly cited around the ~14.95% effective long-term rate referenced above, but the exact number depends on the seller's specific facts. Never assume a flat percentage without verification.

Step 4 — Ask whether the seller has a Section 197 certificate

Many NRI sellers, aware that Section 195 TDS on the full consideration can trap far more cash than their actual tax liability, apply in advance to their Assessing Officer for a lower or nil-deduction certificate under Section 197. If the seller produces one, you deduct at the reduced rate stated on that certificate — no more, no less. This is good for both sides: the seller isn't waiting a year for a large refund, and you have documentary cover for using a lower rate.

Step 5 — Deduct and deposit the TDS to the government

Once the rate is settled, deduct that amount at the time of payment (this can happen across each instalment, not just the final payment, if the deal is staged) and deposit it to the government using your TAN, within the prescribed due date.

Step 6 — File Form 27Q quarterly

Unlike Form 26QB (a one-off, transaction-linked form for resident-seller deals), Section 195 deductions are reported on Form 27Q, a quarterly TDS return for payments to non-residents. You (or your CA) file this for the quarter in which the deduction happened.

Step 7 — Issue Form 16A to the seller

After filing Form 27Q, generate and hand the seller a Form 16A TDS certificate. The seller needs this to claim credit for the tax you've deducted when they file their own Indian income-tax return (and potentially claim a refund, if the deducted amount exceeds their actual liability).

Checklist at a glance

A first-time buyer, a Dubai-based NRI, and an ₹85 lakh flat in Pune

Consider a realistic scenario. Rohan, a 31-year-old software engineer buying his first home, agrees to purchase an ₹85 lakh 2BHK in Pune's Wakad locality. Midway through due diligence, he learns the seller — the original owner who inherited the flat from a parent and has lived in Dubai for over a decade — is an NRI.

If Rohan had assumed the standard 1% TDS rule (as would apply to a resident seller), he would have deducted ₹85,000, deposited it via Form 26QB, and moved on. Instead, because the seller is non-resident, Rohan needs a TAN, must work out the applicable Section 195 rate with a CA (factoring the seller's cost of acquisition, holding period, and any Section 197 order), deduct that far larger amount from the payment due to the seller, deposit it, and file Form 27Q for the relevant quarter — followed by issuing Form 16A.

In Rohan's case, the seller had already obtained a Section 197 lower-deduction certificate covering roughly her actual capital gain rather than the full sale value, which meant Rohan's cash outlay for the seller was correspondingly higher (since less was withheld) — but he still needed the TAN and the Form 27Q filing regardless of the reduced rate. The paperwork obligation doesn't disappear just because the rate is lower; the certificate changes the number, not the process. Rohan used DrawMagic's financial planning workspace to model the total cash he needed on hand — purchase price, registration and stamp duty, and the TDS he had to set aside — before locking the closing date, so there were no surprises on settlement day.

What to ask the seller for, before you go further

• PAN — every seller needs one for the transaction to be properly recorded, resident or not.
• Tax Residency Certificate (TRC) and Form 10F — needed if any DTAA benefit is being claimed to reduce the rate.
• Any Section 197 lower/nil-deduction certificate — this is the single document most likely to change your cash-flow math; ask for it explicitly and don't assume it exists.
• Proof of how the property was acquired (purchase deed, inheritance documents) — relevant to how the seller's CA computes capital gains, and useful for your own record-keeping.
• NRE/NRO bank account details — the sale proceeds typically route through the seller's NRO account; understanding this helps you sequence payments correctly.

Pro tips for a smoother closing

1. Get your TAN application started the day you confirm NRI status — it isn't instantaneous, and delaying it delays your whole payment schedule.
2. Engage a CA before signing the agreement to sell, not after — the rate computation affects how much cash you need to hold back at each instalment.
3. Never rely on a seller's informal residency claim. Ask for the TRC or at least clear travel/visa history if there's any ambiguity.
4. Keep every challan, Form 27Q acknowledgment, and Form 16A copy — you may need these years later if there's a query on the transaction.
5. Use a free calculator for a sanity check, not a substitute for CA advice — DrawMagic's property tax calculator is useful for directional exposure, but the actual Section 195 rate computation needs a professional given DTAA and Section 197 variables.

Common mistakes first-time buyers make

• Assuming the standard 1% rate applies. It doesn't, once the seller is non-resident — this single wrong assumption is the root of most disputes.
• Deducting TDS only on the "profit" portion instead of the full consideration where no lower-deduction certificate exists. Section 195, absent a Section 197 order, applies to the full sale value.
• Skipping the TAN step and trying to deduct/deposit tax using only a PAN — this isn't valid for Section 195 deductions.
• Filing late or not filing Form 27Q at all, assuming the one-time deduction is the end of the compliance chain.
• Trusting a verbal "I'm actually still a resident" claim from the seller without documentation, to avoid the higher deduction — this is the buyer's risk to bear, not the seller's.

How DrawMagic fits into this transaction

None of this replaces a CA's sign-off, but organising the moving pieces matters. Use DrawMagic's buyer workspace to keep the seller's residency documents, TDS trail, and deed paperwork in one place as the deal progresses, rather than scattered across email threads. DrawMagic's financial planning suite helps you model the total cash required — purchase price, registration costs, and the TDS you must set aside — before you commit to a closing date. And if you get stuck navigating the process itself (not the tax computation, which is a CA's job), DrawMagic's help centre can point you to the right next step.

The value of planning ahead

The single biggest risk in an NRI-seller purchase isn't the tax rate itself — it's discovering the rules midway through a transaction you've already emotionally and financially committed to, with a closing date bearing down. Buyers who identify the seller's NRI status early, get their TAN moving in parallel with other paperwork, and bring in a CA before finalising the payment schedule avoid almost all of the penalty exposure that trips up rushed, last-minute compliance.

Key takeaways

• Buying from an NRI seller shifts you from the simple 1% Section 194-IA regime to the more demanding Section 195 regime — and the compliance burden is yours as the buyer.
• You need a TAN (not just a PAN) before you can legally deduct and deposit tax under Section 195.
• TDS under Section 195 is calculated on the seller's capital gains structure, not a flat 1% of sale price — get a CA to compute the correct rate.
• The effective long-term capital-gains rate referenced by ClearTax's 2026 guide is roughly 14.95%, but the seller's specific facts (holding period, cost basis, DTAA, Section 197 order) change the actual number.
• A Section 197 lower/nil-deduction certificate from the seller changes your deduction rate — always ask if one exists.
• Compliance is filed via quarterly Form 27Q, not the one-time Form 26QB used for resident sellers.
• Issue Form 16A to the seller after filing, so they can claim credit or a refund on their own return.
• Never accept a seller's informal residency claim without documentation — misclassifying a non-resident seller as resident is a risk you carry, not them.
• Start the TAN application and CA engagement as early as possible in the transaction timeline to avoid closing-date pressure.

FAQ

Do I need a TAN even for a small-value flat purchase from an NRI? Yes. The TAN requirement under Section 195 is not tied to a transaction-value threshold the way the ₹50 lakh trigger works for the resident 1% TDS rule; it applies whenever the deducting payment is to a non-resident.

What happens if I deduct at the wrong rate? If you under-deduct, the tax department can hold you liable for the shortfall plus interest and penalty — recovering it from the seller after they've left the country is far harder for the government, which is exactly why the compliance obligation is placed on the buyer.

Can the seller just handle their own tax after the sale, so I don't have to worry about this? No — Section 195 places the withholding obligation on the payer (you), not the payee. It isn't optional and isn't something the seller can waive on your behalf.

This article is for general information only and does not constitute tax or legal advice. Compliance requirements can change; confirm your specific obligations with a licensed chartered accountant before deducting or depositing any TDS.