Meghana was about to close on a resale flat in Whitefield when her chartered accountant asked one question that changed everything: is the seller a resident or an NRI? The seller had moved to Dubai three years earlier. That single fact meant the one percent TDS she had budgeted was wrong, and deducting it would have left her personally liable for a shortfall running into lakhs. Buying from a non resident seller is entirely legal and common in Bengaluru, but the tax deduction rules are completely different from a resident sale, and the liability for getting it wrong falls on the buyer, not the seller.

The short answer. When you buy a property from an NRI seller, you deduct TDS under section 195, not the one percent under section 194-IA that applies to a resident. For a long term holding, the rate is 12.5 percent of the gains plus surcharge and cess, but it is deducted on the full sale value unless the seller obtains a lower deduction certificate. You also need a TAN and must file Form 27Q. The trade off is that this is more work than a resident purchase, but skipping it makes you, the buyer, liable for the tax, interest, and penalty.

Why is buying from an NRI seller different?

Because a different section of the tax law applies, with a much higher deduction. For a resident seller, the buyer deducts a flat one percent of the sale price under section 194-IA where the value is fifty lakh rupees or more. For a non resident seller, the deduction falls under section 195, which is designed to collect tax on the seller's capital gains at source. The result is a far larger deduction, calculated by reference to the gains rather than a token one percent. Assuming the one percent rule applies to an NRI seller is the single most expensive mistake a buyer can make in this situation, because the tax department will look to the buyer for the shortfall. The gap between the two regimes is not small: one percent of the sale value against a deduction that can be twelve to fifteen times larger. On a flat of a crore rupees, that is the difference between withholding one lakh and withholding well over ten, which is why the residential status of the seller is not a detail but the first fact a buyer should establish.

What is the TDS rate on a purchase from an NRI?

For a property the NRI has held for more than twenty four months, the gain is long term and the TDS rate is 12.5 percent, increased by the applicable surcharge and a four percent cess, giving an effective rate in the region of thirteen to fifteen percent. Where the property was held for twenty four months or less, the gain is short term and is taxed at the rates applicable to the seller, again with surcharge and cess. Crucially, unless the seller has obtained a certificate, the tax is deducted on the entire sale consideration and not merely on the gain, which is why the amount to be withheld can be substantial. Confirm the holding period and the correct rate before you agree a payment schedule.

How do you know if the seller counts as an NRI?

Residential status for tax is about where the person actually lives, not their citizenship or where the property is. A seller who is an Indian citizen but has been living and working abroad may well be a non resident for the year of sale, which is exactly the situation that catches buyers out. Do not rely on the seller's Indian address on the old title deed or their assurance that they are a resident. Ask directly about their residential status for tax in the relevant year and, where there is any doubt, have it confirmed in writing or through their tax adviser before you fix the deduction. A seller who spends most of the year overseas is the classic case where the section 195 rule applies, and treating them as a resident because they were born in Bengaluru is precisely the error to avoid.

How can the deduction be reduced to the actual gain?

Through a lower or nil deduction certificate, which is the seller's job to obtain. An NRI seller can apply to the income tax officer under section 197, using Form 13, for a certificate that directs the buyer to deduct tax only on the actual capital gain rather than the full sale value, or nothing where exemptions cover the gain. This is applied for online before the agreement, and the officer computes the real gain from the purchase cost, improvements, and any reinvestment the seller plans. For the buyer, the practical point is simple: if the seller wants you to withhold less, they must give you a valid section 197 certificate. Without it, you are legally required to deduct on the full consideration, and you should not agree to deduct less on the seller's mere assurance.

What does the buyer have to do procedurally?

A purchase from an NRI carries extra compliance that a resident purchase does not. You must obtain a TAN, the tax deduction account number, because section 195 deductions are reported under a TAN rather than the buyer's PAN. You deduct the correct TDS at the time of payment, deposit it with the government by the due date, and file Form 27Q, the return for TDS on payments to non residents. You then issue the seller a TDS certificate in Form 16A. This is more involved than the Form 26QB route used for a resident seller, so most buyers in this situation use a chartered accountant to handle the mechanics, which is a small cost against the risk of getting the deduction wrong. The forms and the application for a TAN are all handled on the government's Income Tax portal, so the process is transparent even if it is more elaborate.

The steps to take when the seller is an NRI

Run through these the moment you learn the seller is a non resident.

1. Confirm the seller's residential status for tax, not just their address.
2. Establish whether the gain is long term or short term from the holding period.
3. Ask the seller for a section 197 lower deduction certificate if they want less withheld.
4. Obtain a TAN before you make any payment to the seller.
5. Deduct TDS under section 195 on the correct base and deposit it on time.
6. File Form 27Q and issue the seller a Form 16A certificate.
7. Keep every challan and certificate with your purchase records.

What happens if a buyer deducts the wrong amount?

The buyer bears the consequences, which is what makes this so important. If you deduct at one percent, or fail to deduct under section 195, the tax department treats you as a defaulter for the shortfall and can recover the unpaid tax from you along with interest and a penalty. The seller has left the country's tax net to a degree, so the department's practical recourse is the buyer who paid them. This is not a theoretical risk; it is a common and painful one for buyers who did not realise the seller was an NRI or assumed the resident rule applied. The protection is entirely in your hands: verify the seller's residential status early, deduct correctly, and document everything.

Buying from an NRI seller is perfectly manageable once you know the rules, but it is unforgiving of the assumption that a resale flat is a resale flat regardless of who owns it. Establish the seller's status, apply section 195 correctly, and insist on a certificate if less is to be withheld. This applies whether the flat is in a project such as Purva Atmosphere in Thanisandra or an older resale building, since the seller's residential status, not the property, drives the rule. Our guide to Form 26QB and TDS for a resident purchase shows the contrasting resident process, and our explainer on the FEMA rules for NRIs in property covers the wider framework these transactions sit within.

Frequently asked questions

What TDS do I deduct when buying property from an NRI?

You deduct TDS under section 195, not the one percent under section 194-IA used for a resident seller. For a long term holding the rate is 12.5 percent of the gains plus surcharge and cess, but it applies to the full sale value unless the seller has a lower deduction certificate. The buyer also needs a TAN and files Form 27Q.

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

Yes. Deductions under section 195 are reported under a TAN, the tax deduction account number, rather than the buyer's PAN as with a resident purchase. You must obtain the TAN before making payment, deduct the correct TDS, deposit it on time, file Form 27Q, and issue the seller a Form 16A certificate. Many buyers use a chartered accountant for this.

Can the TDS on an NRI sale be reduced?

Yes, but only through a certificate the seller obtains. An NRI seller can apply under section 197, using Form 13, for a lower or nil deduction certificate that limits TDS to the actual capital gain. Without such a certificate, the buyer must deduct on the full sale consideration, and should not agree to withhold less on the seller's assurance alone.

What if I wrongly deduct only one percent from an NRI seller?

The buyer is treated as a defaulter for the shortfall and can be pursued for the unpaid tax along with interest and a penalty. Because the seller is a non resident, the department's practical recourse is the buyer. This is why confirming the seller's residential status and deducting under section 195 before any payment is essential, not optional.

Last updated 2026-08-12. PropNewz Team.