A Hyderabad buyer signs an agreement for a 90 lakh apartment in Gachibowli, deducts 1 percent as everyone told him to, files Form 26QB, and feels compliant. Months later a tax notice arrives. The seller, it turns out, holds an overseas passport and files as a non resident. That single fact moves the whole transaction into a different section of the Income Tax Act, and the buyer, not the seller, is left carrying the shortfall, the interest and the penalty. It is one of the most expensive mistakes a home buyer can make, and it is entirely avoidable.

The short answer. When your seller is a resident, you deduct 1 percent TDS under Section 194-IA on deals of 50 lakh or more and file Form 26QB. When your seller is a non resident Indian, the deduction instead falls under Section 195, there is no 50 lakh threshold, you must obtain a TAN, and you file Form 27Q. The trade off is real. Getting an NRI deduction right needs a little more paperwork and often a chartered accountant, but skipping it makes you, the buyer, the person the tax department pursues.

Why does the seller being an NRI change your TDS duty?

The seller being an NRI changes which section of the law governs your deduction. Section 194-IA, the familiar 1 percent rule, applies by its own words only when you pay a resident transferor. The Income Tax Department states that the section covers any sum paid to a resident transferor for transfer of immovable property other than agricultural land, deducted at 1 percent, with no deduction where both the consideration and the stamp duty value are below 50 lakh, as set out on its Section 194-IA page. Because the wording is limited to a resident seller, a non resident seller simply does not fit inside it.

When the seller is a non resident, the deduction is governed by Section 195, which deals with payments to non residents. The practical differences are large, and every one of them is the buyer responsibility. There is no 50 lakh floor, so the duty applies even on a modest flat. The rate is not a flat 1 percent. And the compliance route runs through a TAN and a different return, not the simple PAN based Form 26QB that resident deals use, a contrast explained in guides such as this overview of Section 195.

How is the resident 1 percent rule different from the NRI rule?

The two routes differ on threshold, rate, paperwork and who the tax department chases if it goes wrong. The table below sets the two side by side so you can see, before you pay a single rupee, which one your deal falls under.

Read the rate row carefully. On a resident deal the 1 percent is a small, predictable slice. On an NRI deal the deduction is tied to the seller capital gains and is materially larger, which is exactly why the paperwork exists. You can confirm the resident side of this table against the Income Tax Department guide on TDS on purchase of immovable property.

How much do you actually deduct when the seller is an NRI?

You deduct at the rates in force on the seller income, applied to the sale consideration, not a flat 1 percent. Because the liability is linked to the seller capital gains and attracts surcharge and cess, the effective deduction is much higher than the resident rate, and deducting only 1 percent on an NRI deal leaves a large gap that becomes your problem. The exact figure depends on whether the gain is long term or short term and on the seller total income, so it is not a number you should guess.

There is a clean, legal way to reduce the deduction to the correct amount rather than the full headline figure. The seller can apply to the Assessing Officer for a lower or nil deduction certificate under Section 197, which fixes the precise rate for that transaction. If the seller obtains this certificate, you deduct at the certified rate and everyone is protected. If the seller does not, the safe course is to deduct on the full consideration and let the seller claim any refund later through their own return. Insist on the certificate or plan for the higher deduction. Do not let the seller talk you into 1 percent. It also helps to line up the certificate well before the payment date, because the Assessing Officer takes time to process a Section 197 application, and a rushed deal is where buyers cut corners and expose themselves. Where the sale proceeds will be sent abroad, the bank handling that remittance will in any case ask for proof that the correct tax was deducted, so doing it properly is not optional.

What happens to the buyer if the deduction is wrong?

The buyer, not the seller, is treated as the person in default when TDS is short deducted or not deducted. Under the TDS framework the obligation sits on the person making the payment, so if you deduct 1 percent on an NRI deal, or nothing at all, the department can recover the shortfall from you along with interest for late or short deduction and a penalty. The seller has already taken the full sale price and moved on, often abroad, which makes recovery from you the path of least resistance for the tax office.

This is why the seller residential status is not a detail you accept on trust. It is a fact you verify and document before completion, in the same careful spirit as checking the title and the registration record. We covered the resident 1 percent process in our earlier guide to TDS on property purchase for Hyderabad buyers, and the same discipline of verify then pay applies with even more force when a non resident is on the other side of the deal.

How do you find out whether your seller is an NRI?

You establish residential status from documents and a written declaration, not from where the seller happens to live today. Residential status under tax law depends on physical presence in India across the relevant years, so a seller with an Indian address can still be a non resident for tax, and a person with an overseas job can still be a resident. Ask for the seller passport, visa history and a signed declaration of tax residential status, and where there is any doubt, ask for a chartered accountant certificate.

Getting this in writing does two things. It tells you which section governs your deduction, and it gives you a record if the department later questions the deal. Title and registration diligence matters just as much here, and if you are new to reading the registration trail, our guide on the difference between a sale agreement and a sale deed is a useful companion.

What should a Hyderabad buyer do before paying an NRI seller?

Work through this checklist before you release any payment on a deal where the seller may be a non resident.

1. Ask every seller, in writing, to declare tax residential status, and treat an overseas passport or long overseas stay as a signal to dig deeper.
2. If the seller is a non resident, apply for and obtain a TAN before you make any payment, because you cannot deposit Section 195 TDS without it.
3. Ask the seller for a lower or nil deduction certificate under Section 197, which fixes the exact rate you must deduct.
4. If there is no certificate, deduct on the full sale consideration at the rates in force rather than the 1 percent resident rate.
5. Deposit the deducted tax on time and file Form 27Q for the quarter, then issue the TDS certificate to the seller.
6. Never route the payment as if the seller were a resident, that is do not file Form 26QB or deduct a flat 1 percent for an NRI seller.
7. Take a chartered accountant onto the deal early, because the cost of advice is tiny next to the shortfall, interest and penalty you would otherwise carry.

Frequently asked questions

Is the 1 percent TDS rule the same when I buy from an NRI seller?

No. The 1 percent rule under Section 194-IA applies only when the seller is a resident. When your seller is a non resident Indian, the deduction falls under Section 195, there is no 50 lakh threshold, and the rate is tied to the seller capital gains, which is higher than 1 percent.

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

Yes. To deduct and deposit TDS under Section 195 on a payment to a non resident seller, you must obtain a TAN, which is different from the PAN based route used for resident sellers. Without a TAN you cannot correctly deposit the tax or file Form 27Q, so apply for it before you make any payment to the seller.

Who is liable if the wrong amount of TDS is deducted on an NRI deal?

The buyer is liable. The duty to deduct and deposit the correct TDS sits on the person making the payment, so if you deduct too little or nothing on an NRI purchase, the tax department can recover the shortfall from you along with interest and a penalty. In practice the buyer is the easier target for recovery.

How can an NRI seller reduce the high TDS on a property sale?

The seller can apply to the Assessing Officer for a lower or nil deduction certificate under Section 197, which sets the exact rate based on the actual capital gain. With this certificate, the buyer deducts at the certified rate rather than on the full sale consideration, and the seller avoids locking up cash in an overpaid deduction.

Last updated 10 August 2026. PropNewz Team.