A Bengaluru buyer had budgeted carefully for a resale flat, right down to the one percent tax he knew he had to deduct from the seller. Then his advocate asked where the seller actually lived. The answer, it turned out, was Dubai. The seller was a non resident, and that single fact moved the entire transaction out of the familiar one percent rule and into a different, stricter part of the tax law. The buyer who does not spot this in time can be left personally liable for tax he never deducted.

The short answer. When you buy property from a resident seller, you deduct a flat one percent as TDS under Section 194-IA, and only if the price is fifty lakh rupees or more. When you buy from a non resident, the rules change to Section 195: there is no fifty lakh threshold, the deduction is based on the seller's capital gains rather than a flat one percent, and it applies on the sale consideration unless the seller obtains a lower or nil deduction certificate. As the rules currently stand, buying from an NRI also means obtaining a TAN and filing Form 27Q. The trade-off is that getting this wrong is expensive, so the moment you learn a seller is a non resident, this becomes a matter for a tax advisor, not a form you fill casually.

Why does the seller's residential status change everything?

Because the Income Tax Act treats a sale by a non resident under a different section with different mechanics. For a resident seller, Section 194-IA gives you a simple rule: deduct one percent of the consideration and only where it is fifty lakh rupees or more. For a non resident seller, the transaction falls under Section 195, which is built around the tax the non resident owes on the gain, not a flat rate on the price. That is why you cannot simply apply the one percent habit to an NRI deal. The obligation to deduct correctly sits on you, the buyer, and the section that governs it is decided by where the seller stands for tax purposes, not by the size or location of the flat.

This is also why establishing the seller's status early is part of due diligence, not an afterthought. A seller who is an NRI, or who has become one, changes your compliance path from the start, and discovering it late can force a scramble right when funds are moving.

How is TDS under Section 195 different from 194-IA?

It is larger, threshold free, and tied to the seller's gain. Under Section 195 there is no fifty lakh exemption, so TDS applies regardless of the property price. The rate is not a flat one percent; it is based on the capital gains tax applicable to the non resident seller, which depends on whether the gain is long term or short term, plus any surcharge and cess. Crucially, in the absence of a certificate reducing it, the deduction is computed on the entire sale consideration rather than only on the gain. That combination means the amount you must withhold from an NRI seller is typically far higher than the familiar one percent, which is exactly the surprise buyers need to plan for.

194-IA versus 195 at a glance

Do I really need a TAN to buy from an NRI?

As the rules currently stand, yes. To deduct and deposit TDS under Section 195, a buyer has generally needed a Tax Deduction Account Number, or TAN, and has filed the quarterly Form 27Q, which is a different and heavier compliance path than the PAN based Form 26QB used for resident sellers. There is a change on the horizon: a simplification is due to take effect from October 1, 2026 that is expected to let a resident individual or HUF buyer use their PAN and a challan cum statement instead of obtaining a TAN and filing a separate quarterly return. Because the exact position can turn on the date of your transaction and your own circumstances, confirm what applies to you with a tax advisor rather than assuming either the old or the new process.

Can the TDS be reduced if it looks too high?

Yes, through a certificate the seller obtains, not by the buyer simply deducting less. The high headline figure under Section 195 exists because it is computed on the whole consideration by default. However, the non resident seller can apply to the Income Tax Department for a lower or nil deduction certificate, which recalibrates the TDS closer to the actual tax on the gain. If the seller obtains such a certificate, you deduct at the rate it specifies. What you must not do is unilaterally decide to deduct less because the amount feels steep, because the shortfall and its consequences can land on you as the buyer.

The practical path is to raise this early with the seller, so that if a certificate is appropriate they can apply for it before completion, and everyone works from a documented figure rather than a guess.

What can go wrong if I get this wrong?

The buyer, as the person responsible for deducting, carries the exposure. If you deduct under the wrong section, deduct too little, or fail to deposit and report correctly, the consequences, including interest and penalties, generally attach to you rather than the seller. That is the uncomfortable heart of TDS: the law makes the payer the tax collector, and it holds the payer accountable. For a large property payment to a non resident, the sums involved make careless compliance a genuinely serious risk, which is why this is one of the clearest cases in a home purchase for professional help.

How should I handle an NRI purchase as a buyer?

Establish status early, engage a professional, and document everything. Confirm the seller's residential status for tax purposes before you finalise anything, and the moment it is non resident, bring in a chartered accountant or tax advisor to map the correct deduction, the identifier you need, and the filings. Raise the lower or nil deduction certificate with the seller in good time, deduct exactly what the law or the certificate requires, deposit it properly, and keep the paperwork. The goal is to complete the purchase with your tax obligations cleanly discharged, so that a routine flat purchase does not become a tax notice years later.

Your NRI purchase TDS checklist

The steps below are buyer guidance, not tax advice tailored to your situation. Confirm the specifics with a qualified tax professional.

1. Confirm the seller's residential status for tax purposes before you commit.
2. If the seller is a non resident, treat the deduction as a Section 195 matter, not 194-IA.
3. Engage a chartered accountant or tax advisor to compute the correct TDS.
4. Clarify whether you need a TAN, given the process change due from October 1, 2026.
5. Ask the seller to obtain a lower or nil deduction certificate where appropriate.
6. Deduct exactly what the law or the certificate specifies, and deposit it on time.
7. File the correct statement or return and keep all proof of deduction and deposit.

Where can I verify this officially?

Rely on the Income Tax Department and a qualified tax professional. The rules come from Sections 194-IA, 195, and 197 of the Income Tax Act, administered by the Income Tax Department at incometax.gov.in, and the correct treatment for your transaction depends on the seller's status, the gain, and the timing. Because the compliance path is changing and the amounts are large, treat the department's rules and your tax advisor's guidance as the source of truth, rather than any single online summary, including this one.

For related Bengaluru buyer checks, see our guide to TDS on property purchase under Section 194-IA for a resident seller and our explainer on stamp duty and registration charges in Karnataka.

The one percent rule is so familiar that it is easy to apply it on autopilot. The single question that stops a costly mistake is simple: is the seller a resident or a non resident? Ask it early, and let a professional handle the answer if it is the second one.

Frequently asked questions

Is TDS different when I buy property from an NRI seller?

Yes. A sale by a resident falls under Section 194-IA, a flat one percent deducted only above fifty lakh rupees. A sale by a non resident falls under Section 195, which has no threshold and is based on the seller's capital gains rather than a flat rate. The buyer must deduct correctly under the right section.

Do I need a TAN to buy property from an NRI?

As the rules currently stand, yes. Deducting under Section 195 has generally required the buyer to obtain a TAN and file Form 27Q, unlike the PAN based Form 26QB for a resident seller. A simplification is due from October 1, 2026 for resident individual and HUF buyers, so confirm the current position with a tax advisor.

Is there a fifty lakh threshold when buying from an NRI?

No. The fifty lakh exemption applies to Section 194-IA for resident sellers. Under Section 195 for a non resident seller there is no such threshold, so TDS applies regardless of the property price. This is one of the main reasons buying from an NRI cannot be handled with the familiar one percent rule.

Can the TDS on an NRI sale be reduced?

Yes, but through a certificate the seller obtains, not by the buyer deducting less. The non resident seller can apply to the Income Tax Department for a lower or nil deduction certificate, and you then deduct at the rate it specifies. Never unilaterally deduct less, because the shortfall and penalties can fall on you as the buyer.

Last updated 2026-08-18. PropNewz Team.