Buying Property From an NRI: TDS Under Section 195 Explained

A Bengaluru buyer close to signing for a resale flat in Sadahalli in September 2026 almost deducted the usual one percent tax, until a careful lawyer asked a simple question: is the seller a resident or an NRI? The seller had moved abroad years earlier, which changed everything. Buying from a non-resident is governed by a different section of the income tax law, with a much higher deduction, a different process, and far larger consequences for getting it wrong. The buyer's first job in any resale is to establish who, in tax terms, they are actually buying from.

The short answer. When you buy property from an NRI, tax is deducted under Section 195, not the one percent under Section 194-IA that applies to a resident seller. For a property the seller has held more than twenty four months, the deduction is at the long term capital gains rate of twelve and a half percent, plus surcharge and cess, and it is taken on the entire sale consideration unless the seller has a lower deduction certificate. The trade-off is more paperwork, including a TAN, but the risk of treating an NRI seller as a resident is a large tax demand on you, so the residential status must be confirmed first.

Why is buying from an NRI different?

Buying from an NRI is different because a different provision of the Income Tax Act governs the tax you must deduct. For a resident seller, Section 194-IA applies, and you deduct one percent when the value is fifty lakh rupees or more. For a non-resident seller, Section 195 applies instead, and the deduction is much larger, based on the capital gains rates, and taken on the whole consideration. The two regimes are not interchangeable, and using the resident rule for an NRI seller leaves a large shortfall that the tax department can recover from you, the buyer.

This is why the very first step in a resale purchase is to establish the seller's residential status for tax purposes, and to get it in writing. It is not about where the seller was born or holds citizenship, but their tax residency, and a seller who lives abroad is quite likely a non-resident. When in doubt, treat the seller as a non-resident and take advice, because the cost of guessing wrong falls on the buyer.

What TDS rate applies under Section 195?

Under Section 195, the rate depends on how long the NRI seller has held the property. If they have held it for more than twenty four months, the gain is long term, and the deduction is at the long term capital gains rate of twelve and a half percent, plus the applicable surcharge and cess, which lift the effective rate higher. This long term rate was reduced from twenty percent to twelve and a half percent by the changes effective from July 2024. If the property has been held for twenty four months or less, the gain is short term and taxed at the seller's slab rate, which is typically much higher.

So the deduction on an NRI sale is far larger than the one percent on a resident sale, and it varies with the holding period and the surcharge that applies to the consideration. You can read Section 195 in the official statute on India Code. Because the numbers are significant, a buyer should compute the deduction carefully rather than assume a round figure.

On what amount is the TDS deducted?

By default, the TDS under Section 195 is deducted on the entire sale consideration, not only on the seller's capital gain. This surprises many buyers, because the tax is really meant to fall on the gain, but the buyer usually cannot compute the seller's gain, so the law defaults to the full sale value unless the seller obtains a certificate that says otherwise. On a large property, deducting the full rate on the whole consideration is a substantial sum to route to the government rather than to the seller.

The table below sets out how buying from an NRI differs from buying from a resident, so a buyer can see the contrast at a glance.

What is the TAN and filing process?

To deduct tax under Section 195, the buyer currently needs a TAN, the tax deduction account number, which is different from the PAN used for a resident purchase. After deducting the tax, you deposit it, file a quarterly return in Form 27Q, and issue the seller a TDS certificate in Form 16A. This is more involved than the Form 26QB route for a resident seller, so a buyer purchasing from an NRI should plan for the extra compliance and, often, professional help. A simplification has been announced to let buyers use a PAN based challan for NRI property TDS from October 2026, but until such a change is in force for your transaction, the TAN based process applies.

Getting this process right protects you, because the obligation to deduct and deposit correctly sits with the buyer. An error here is not a small one, given the size of the deduction, so it is worth handling carefully, and usually with a qualified adviser who has done it before.

What happens if I get the seller's status wrong?

If you treat an NRI seller as a resident and deduct only one percent, the shortfall is recoverable from you, the buyer, along with interest and possible penalties. The tax department can treat you as an assessee in default for the tax you should have deducted under Section 195, which on a large property is a serious sum. This is the single biggest risk in an NRI purchase, and it is entirely avoidable, because it stems only from not establishing the seller's status correctly at the start.

The protection is straightforward. Ask the seller directly about their tax residency, get it stated in the agreement, and where there is any doubt, such as a seller who lives abroad or holds a foreign address, treat them as a non-resident until proven otherwise and take professional advice. It is far cheaper to handle the higher deduction correctly than to face a demand years later for tax you never withheld. A careful buyer treats the residency question as a gating check at the very start, not a formality to be filled in later.

What is a lower deduction certificate?

A lower deduction certificate, under Section 197, lets the NRI seller ask the tax department to allow deduction at a lower rate, based on their actual capital gain rather than the full consideration. Because the default is to deduct on the entire sale value, this certificate can significantly reduce the amount withheld, which matters greatly to the seller. For the buyer, the key point is simple: deduct at the full applicable rate unless the seller gives you a valid certificate specifying a lower rate, and then deduct exactly as the certificate directs.

Ask the NRI seller early whether they have or will obtain such a certificate, because it changes how much you withhold. Do not accept a verbal assurance or a lower deduction without the actual certificate in hand, since if you under deduct without one, the shortfall becomes your liability. For how the resident version of buyer TDS works, see our guide on TDS on a property purchase, and for keeping the whole payment clean, our note on cash limits on property purchases. A buyer considering a resale in a project such as Manyata Summer Skies in Sadahalli would confirm the seller's status before fixing the payment plan.

A seven step checklist for buying from an NRI

Use this before you agree a payment plan with the seller.

1. Confirm the seller's tax residential status in writing.
2. If the seller is an NRI, plan for Section 195, not 194-IA.
3. Establish the holding period to know if the gain is long or short term.
4. Obtain a TAN to deduct and deposit the tax.
5. Ask whether the seller has a lower deduction certificate under Section 197.
6. Deduct at the full applicable rate unless a valid certificate says less.
7. Deposit the tax, file Form 27Q, and issue Form 16A to the seller.

Frequently asked questions

Do I deduct one percent when buying from an NRI? No. The one percent under Section 194-IA applies only to a resident seller. Buying from a non-resident is governed by Section 195, where the deduction is at capital gains rates, typically twelve and a half percent plus surcharge and cess on a long term gain, taken on the entire consideration. Getting this wrong leaves a shortfall the buyer answers for.

Do I need a TAN to buy from an NRI? Currently, yes. Deducting tax under Section 195 requires a TAN, unlike the resident purchase which uses your PAN through Form 26QB. After deducting, you deposit the tax, file a quarterly Form 27Q, and give the seller a Form 16A certificate. A PAN based challan has been announced from October 2026, but until it applies, use the TAN based process.

Is the TDS on the whole price or only the gain? By default, on the whole sale consideration. The buyer usually cannot compute the seller's actual capital gain, so Section 195 defaults to deducting on the full value unless the NRI seller produces a lower deduction certificate under Section 197. With such a certificate, you deduct at the reduced rate it specifies, otherwise at the full applicable rate.

How do I reduce the large deduction for the seller? You do not, directly, but the NRI seller can apply for a lower or nil deduction certificate under Section 197, based on their real capital gain. If they obtain it and give it to you, you deduct at the lower rate it specifies. Never under deduct on a verbal assurance, because without a valid certificate the shortfall becomes your liability.

Last updated 2026-09-19. PropNewz Team.