Buying a Flat From an NRI Seller in Bengaluru: The TDS You Must Deduct

A Bengaluru buyer named Preetha was days from registering a 1.2 crore resale flat in Hebbal in September 2026 when her chartered accountant asked where the seller lived. The seller was a non-resident Indian settled in Dubai. Preetha had budgeted to deduct 1 percent as tax at source, the usual figure. In fact, buying from an NRI seller meant she had to deduct far more, and getting it wrong could have left her personally liable for the shortfall to the tax department.

The short answer. When you buy a property from a resident seller, you deduct tax at source of 1 percent under Section 194-IA if the value exceeds 50 lakh. When the seller is an NRI, a completely different rule applies: under Section 195 you must deduct TDS on the sale, typically at around 12.5 percent plus surcharge and cess for a long-held property, and on the full sale price unless the seller obtains a lower deduction certificate. The trade-off: the higher deduction is the buyer's legal responsibility, so confirming the seller's residential status early is one of the most important checks you will make.

Why does the seller being an NRI change everything?

Because a different section of the Income Tax Act governs the deduction. For a resident seller, Section 194-IA applies and the buyer deducts a flat 1 percent of the sale value when the property is worth more than 50 lakh. It is simple and low. For an NRI seller, Section 195 applies instead, and it is neither flat nor low; it is tied to the capital gains tax the NRI owes on the sale.

This distinction trips up buyers constantly, because the 1 percent figure is so widely known that people assume it always applies. It does not. Deducting only 1 percent from an NRI seller leaves a large shortfall that the tax department can recover from you, the buyer, along with interest and penalties, because the law places the duty to deduct correctly on the person making the payment. Confirming whether the seller is a resident or an NRI is therefore not a formality; it decides how much tax you are legally bound to withhold.

Residential status for tax is about where the seller actually is for tax purposes, not their passport or their emotional ties to India. Someone who has lived and worked abroad for years is very likely an NRI for this rule even if they still hold an Indian passport and visit often. Do not rely on assumptions or a casual answer; ask the seller to state their status in writing and, where there is any doubt, have your chartered accountant confirm it before a single rupee changes hands. The cost of asking is nothing, and the cost of guessing wrong falls entirely on you.

How much TDS must a buyer deduct from an NRI seller?

Under Section 195, TDS is deducted with reference to the capital gains rates rather than a flat percentage of value. For a property the NRI has held for more than 24 months, the gain is long term, and the effective deduction commonly works out to around 12.5 percent plus the applicable surcharge and cess, which can push the effective rate into the low-to-mid teens depending on the sale value. If the property was held for a shorter period, the gain is short term and taxed at slab rates, which can be higher still.

Two points matter here. First, without a lower deduction certificate, the TDS is generally computed on the entire sale consideration, not merely on the profit, which makes the cash outlay large. Second, these rates and the surcharge slabs change with Union budgets, so you should confirm the current figure with a chartered accountant and on the official portal at incometax.gov.in before you finalise the numbers. This is an area where a small professional fee prevents a large mistake.

To make the scale concrete, consider a long-held flat sold by an NRI for 1.2 crore with no lower deduction certificate in place. At an effective rate in the low teens applied to the full consideration, the TDS you must withhold and deposit can run to roughly 15 lakh or more, against just 1.2 lakh if you had wrongly treated it as a resident sale at 1 percent. That is the size of the gap the department can later demand from you if you deduct too little, which is why the number deserves a careful calculation rather than a rule of thumb.

How does it compare with buying from a resident?

The contrast is stark, and the table below lays it out so a buyer can see exactly what changes when the seller is an NRI.

Can the deduction be reduced, and how?

Yes, and this is where a well informed buyer and a cooperative seller save real money. The NRI seller can apply to the tax department for a lower or nil deduction certificate, often called a Form 13 application, before the sale. If granted, it restricts the TDS to the actual capital gain rather than the full sale price, or to a lower rate, which can dramatically reduce the amount you must withhold.

The key is timing: the certificate must be obtained before the transaction, so it should be raised early in the negotiation, not after the deal is agreed. As the buyer, you deduct exactly what the certificate specifies; without one, you deduct on the full consideration to stay safe. Building this into the timeline protects both sides, because the seller is not over-deducted and you are not exposed to a shortfall. It pairs naturally with the rest of your resale due diligence, which our Bengaluru resale flat documents checklist sets out.

What should a buyer do step by step?

Treat the seller's residential status as a first-order question and build the tax steps around it. Work through this sequence.

1. Confirm in writing whether the seller is a resident or an NRI before agreeing terms.
2. If the seller is an NRI, involve a chartered accountant early to compute the correct TDS.
3. Ask whether the seller will obtain a lower deduction certificate to reduce the withholding.
4. Deduct TDS under Section 195 at the correct rate, on the full price if there is no certificate.
5. Deposit the deducted tax to the government within the prescribed time and keep proof.
6. Issue the seller the TDS certificate so they can claim credit in their return.
7. Retain every challan and certificate, since they protect you if the department ever asks.

A compliance note worth flagging: the government has moved to simplify this for individual and Hindu Undivided Family buyers, allowing TDS on a purchase from an NRI to be deposited using the buyer's PAN through a challan-cum-statement, rather than requiring a separate tax deduction account number, from 1 October 2026. Confirm the exact procedure that applies on your registration date. If you are buying in a project such as Brigade El Dorado from an individual NRI owner in the resale market, the same Section 195 discipline applies to that unit. For the resident-seller counterpart of this rule, see our guide on TDS on a property purchase under Section 194-IA.

What if you only discover the seller is an NRI late?

Sometimes the residential status surfaces only after negotiations are advanced, or worse, after payment is planned. If that happens, stop and recompute before you pay, rather than pushing ahead on the 1 percent assumption. The obligation to deduct correctly attaches to the payment itself, so as long as you have not yet paid, you can still structure the deduction properly and, if there is time, let the seller pursue a lower deduction certificate.

The situation to avoid at all costs is paying the seller in full, or nearly in full, and only then learning they were an NRI. Once the money has left your hands, you cannot claw back the tax you should have withheld, yet the department can still come to you for it. That is why the residential-status question belongs at the very start of the conversation, ahead of price and possession. A buyer who asks it first never has to unwind a payment later, and never carries a stranger's tax bill because of a question they forgot to ask.

Frequently asked questions

Do I deduct only 1 percent TDS when buying from an NRI?

No. The 1 percent rate under Section 194-IA applies only to resident sellers. When the seller is an NRI, Section 195 applies and TDS is deducted with reference to capital gains rates, commonly around 12.5 percent plus surcharge and cess for a long-held property, on the full sale price unless a lower deduction certificate reduces it.

Who is responsible if the wrong TDS is deducted from an NRI seller?

The buyer is. The law places the duty to deduct the correct tax at source on the person making the payment, so if you under-deduct when buying from an NRI, the tax department can recover the shortfall from you, along with interest and penalties. This is why confirming the seller's residential status and involving a chartered accountant early is essential.

Can the TDS on an NRI sale be reduced legally?

Yes. The NRI seller can apply for a lower or nil deduction certificate, often called a Form 13 application, before the transaction. If granted, it limits the TDS to the actual capital gain or a lower rate instead of the full sale price. It must be obtained before the deal, so raise it early, not after the price is agreed.

Is TDS on an NRI sale deducted on the gain or the full price?

Without a lower deduction certificate, TDS under Section 195 is generally deducted on the entire sale consideration, not just the profit, which makes the cash requirement large. If the seller obtains a certificate before the sale, the deduction can be restricted to the actual capital gain instead.

Last updated 2026-09-23. PropNewz Team.