A Bengaluru buyer in 2026 was days from registering a resale flat when his chartered accountant asked one question that changed everything: where does the seller actually live now. The seller, it turned out, had moved abroad years ago and was a non resident for tax purposes. Had the buyer deducted the usual one percent and registered, he would have been personally on the hook for a much larger tax that the law required him to withhold. A single question about residency, asked before payment, saved him from a liability that would have followed him for years.

The short answer. When you buy property from a resident seller, you deduct a small one percent TDS under Section 194-IA. When the seller is a non resident Indian, a completely different rule applies: Section 195, at capital gains tax rates plus surcharge and cess, far higher than one percent, and by default on the entire sale value rather than the gain. There is no fifty lakh threshold, the buyer needs to follow a stricter process, and getting it wrong makes the buyer, not the seller, liable. The trade-off is only effort: confirm the seller's residency and follow the correct process, and you avoid a serious tax exposure.

Why does the seller's residency change everything?

Because the tax law treats a sale by a non resident completely differently from a sale by a resident. For a resident seller, the buyer deducts a flat one percent of the sale value under Section 194-IA, and only when the price crosses fifty lakh rupees. For a non resident seller, the buyer must deduct under Section 195 at the capital gains tax rates that apply to the seller, together with surcharge and cess. That is a far larger deduction, it applies from the first rupee with no threshold, and by default it is calculated on the whole sale consideration, not just the seller's profit. The residency of the seller, not the type of property, is what decides which rule you are in.

This is why the residency question belongs at the very start of the transaction. A seller who lives abroad may still hold an Indian PAN and bank account and may describe the sale casually, without volunteering their tax residency. It is the buyer's job to establish it, because it is the buyer who carries the legal duty to deduct correctly and the buyer who pays the price for getting it wrong.

How much is deducted under Section 195?

The deduction is at the seller's capital gains tax rate plus surcharge and cess, which is much higher than the one percent that applies to resident sellers. The exact rate depends on whether the gain is long term or short term and on the capital gains rules in force, and because surcharge and cess are added on top, the amount withheld can be a large fraction of the sale price. Crucially, unless the seller arranges otherwise, the deduction is calculated on the entire sale consideration rather than on the actual capital gain, which can mean withholding far more than the seller's real tax. Given the stakes and the moving parts, this is a transaction where you should take advice from a chartered accountant on the exact rate for your specific case rather than rely on a rule of thumb. A chartered accountant's overview of the TDS framework when an NRI sells property sets out how these pieces fit together.

There is a legal route to soften this. The seller can apply to the tax department for a lower or nil deduction certificate under Section 197, using Form 13, before the sale. That certificate tells the buyer to deduct on the actual gain, or a lower amount, instead of the full value. As a buyer, if the seller has such a certificate, deduct exactly as it directs and keep a copy. If they do not, the safe default is to deduct as the law requires on the full consideration, not to under deduct on the seller's assurance.

What paperwork does the buyer have to handle?

Under Section 195, the buyer takes on a heavier compliance role than in a resident sale. Currently the buyer needs a TAN, deducts the TDS, deposits it with the government, files a quarterly return in Form 27Q and issues the seller a TDS certificate. This is more involved than the simple Form 26QB process used for resident sellers, and the deadlines are strict. It is not difficult with professional help, but it is not something to improvise on the day of registration. Set it up in advance, so the deduction and deposit happen correctly and on time.

A change is coming that eases part of this. From 1 October 2026, a resident individual or Hindu undivided family buying from a non resident is expected to be able to deduct and deposit using a PAN based challan cum statement, instead of obtaining a TAN and filing the separate quarterly return. This is a welcome procedural simplification, but note two things: it does not change the rate or the buyer's core responsibility to deduct correctly, and company and firm buyers are still expected to use a TAN. Confirm the current procedure for your situation at the time you transact.

Who is liable if the buyer gets it wrong?

The buyer is, which is the single most important thing to understand here. The obligation to deduct the correct TDS and deposit it sits with the buyer, so if you deduct only one percent on a sale by a non resident, or fail to deduct at all, the tax department can recover the shortfall from you, along with interest and penalties. The seller receiving their money in full is no defence. This is why a casual approach to the seller's residency is so dangerous: the person who pays for the mistake is not the seller who moved abroad, but the buyer who did not check. Treating the residency question as central, and documenting the answer, is basic self protection.

The good news is that this risk is entirely avoidable. Establish residency early, take advice, follow the correct section, and keep records of every step. Done properly, the process is just paperwork. Done carelessly, it is a liability that can surface years later when you least expect it.

How does this fit with normal TDS on property?

It sits beside, and replaces, the ordinary resident seller process depending on who is selling. For a resident seller, our guide to filing Form 26QB for TDS on a property purchase covers the simple one percent route, and our explainer on TDS under Section 194-IA sets out that framework in detail. The Section 195 rules in this article take over the moment the seller turns out to be a non resident. Think of it as a fork in the road that is decided by one fact about the seller, and make sure you know which branch you are on before you deduct anything.

Because the two routes look similar at a glance yet differ enormously in amount and process, the mistake buyers make is assuming the familiar one percent always applies. It does not. The residency of the seller is the switch, and checking it is a five minute question that prevents a five figure or larger problem.

What are the seven steps when the seller may be an NRI?

Work through these before you pay or register.

1. Ask the seller directly, in writing, about their tax residency status.
2. If they are a non resident, treat Section 195, not Section 194-IA, as the governing rule.
3. Engage a chartered accountant to compute the correct deduction for your specific case.
4. Ask whether the seller holds a lower or nil deduction certificate under Section 197.
5. Arrange the correct process, including a TAN where required, well before registration.
6. Deduct and deposit the TDS as required, and file the correct return and certificate.
7. Keep complete records of residency, computation, deduction and filing.

Is the one percent rule ever safe to assume?

No, never assume the one percent applies without confirming the seller is a resident. The flat one percent under Section 194-IA is only for resident sellers, and the entire higher regime of Section 195 turns on the seller being a non resident. A seller with an Indian name, an Indian PAN and an Indian bank account can still be a non resident for tax purposes, and the law will hold you to the correct treatment regardless of how ordinary the sale looked. The safe habit is to make residency a required, documented answer in every purchase, and to bring in a chartered accountant the moment there is any indication the seller lives abroad. Assume nothing, confirm everything, and let a professional handle the computation.

Frequently asked questions

Which TDS section applies when I buy from an NRI? Section 195 applies when the seller is a non resident, not the Section 194-IA that governs resident sellers. It requires deduction at the seller's capital gains tax rates plus surcharge and cess, far higher than one percent, and by default on the full sale consideration. There is no fifty lakh threshold, so it applies regardless of the deal size.

Can the higher TDS be reduced to the actual gain? Yes, if the seller obtains a lower or nil deduction certificate under Section 197, using Form 13, before the sale. That certificate directs the buyer to deduct on the actual capital gain rather than the full value. As a buyer, deduct exactly as it states and keep a copy. Without it, deduct on the full consideration as the law requires.

Do I need a TAN to buy property from an NRI? Currently yes. The buyer needs a TAN, deducts and deposits the TDS, files a quarterly Form 27Q return and issues a TDS certificate. From 1 October 2026, a resident individual or Hindu undivided family buyer is expected to be able to use a PAN based challan instead, though company and firm buyers still use a TAN.

Who is liable if I deduct the wrong TDS? The buyer. The duty to deduct and deposit the correct TDS rests with the buyer, so deducting only one percent on a sale by a non resident, or not deducting, can leave you liable for the shortfall plus interest and penalties. The seller having received full payment is no defence, so confirming the seller's residency before you pay is essential.

Last updated 2026-08-28. PropNewz Team.