Buying a Flat From an NRI Seller in Bengaluru: The TDS Rule That Trips Up Buyers

A Bengaluru buyer who knows the famous 1 percent TDS rule can still walk into a serious tax liability, simply because the seller lives abroad. The moment the person selling you the flat is a non resident, the rulebook changes entirely, and the buyer who applies the wrong section can be left personally liable for lakhs in under deducted tax. The quick facts: when you buy from a non resident, you deduct tax under Section 195 of the Income Tax Act, not the Section 194-IA 1 percent rule, Section 195 has no Rs 50 lakh threshold and applies at any sale value, and for a long term capital gain the base rate is 12.5 percent without indexation plus surcharge and 4 percent cess, which commonly grosses up to roughly 14.95 percent.

The short answer. If your seller is an NRI, the 1 percent TDS rule does not apply, you must deduct under Section 195 at the much higher capital gains linked rate, commonly around 14.95 percent on a long term gain, on the full sale consideration unless the seller produces a lower deduction certificate, and you generally need a TAN to do it. The trade-off is effort versus exposure: getting a TAN and deducting correctly is a hassle, but the buyer who shortcuts it carries the legal liability for the shortfall, so the inconvenient route is the only safe one when the seller is abroad.

Why does an NRI seller change the TDS rule completely?

Because the law treats payments to non residents under a separate, stricter regime. For a resident seller, Section 194-IA requires the buyer to deduct just 1 percent TDS, and only when the consideration is Rs 50 lakh or more. For a non resident seller, that section does not apply at all, and Section 195 governs instead, as set out by tax explainers including ClearTax and Tax2win. Section 195 is built to capture the seller's actual tax on capital gains at source, since collecting from a person abroad after the fact is hard, so it deducts at gains linked rates on the whole consideration, with no minimum value exemption. A flat bought from an NRI for Rs 40 lakh attracts Section 195 TDS even though the same flat from a resident at that price would attract none.

What is the actual rate you must deduct?

It depends on whether the seller's gain is long term or short term, and it is far above 1 percent either way. For property the non resident held more than 24 months, the gain is long term and the base TDS rate under Section 195 is 12.5 percent without indexation for transfers in the current regime, plus the applicable surcharge and a 4 percent health and education cess. In a common case this grosses up to roughly 14.95 percent, applied to the sale consideration unless reduced by a certificate. If the property was held 24 months or less, the gain is short term and taxed at the seller's slab rate, which can be higher still. The key buyer takeaway is that the headline 12.5 percent is not the final figure, surcharge and cess push it up, and the deduction is on the sale value, not on the gain, unless the seller obtains relief.

How do the two regimes compare for a buyer?

The table below contrasts buying from a resident with buying from a non resident, on the points that determine your liability.

The comparative point: the resident route is light and PAN based, the route PropNewz covered in our June 12 guide to the 1 percent TDS and Form 26QB, while the NRI route is heavier in every dimension, which is exactly why establishing the seller's residential status first is the buyer's most important early step.

Does the buyer need a TAN, and what about reporting?

For a Section 195 deduction, the buyer generally needs a Tax Deduction and Collection Account Number, a TAN, which is different from the PAN based Form 26QB process used for resident sellers. The buyer obtains the TAN, deducts the tax, deposits it with the government, and files the relevant TDS return reporting the payment to the non resident. The reporting mechanics in this area have been evolving, with changes discussed around how the deposit and challan process works, so a buyer should confirm the current procedure with a tax professional or the income tax portal before deducting rather than assume last year's process still applies. What does not change is the buyer's core obligation: deduct the right amount and deposit it, because the liability for any shortfall rests on the buyer.

How can the high deduction be reduced fairly?

Through the lower deduction certificate, which is the mechanism that keeps the system fair to honest sellers. Section 195 deducts on the whole sale value by default, which often far exceeds the seller's actual tax on the gain, especially where the property appreciated modestly. To avoid locking up that excess until a refund, the non resident seller can apply to the income tax department under Section 197, using Form 13, for a certificate authorising a lower or nil rate based on the real expected gain. The buyer then deducts at the certified rate. For buyers, the practical move is to encourage an NRI seller to obtain this certificate before closing, since it reduces the cash the buyer must withhold and deposit and removes a common source of friction at the registration table. The seven point checklist below makes the NRI purchase safe.

1. Establish the seller's residential status in writing before agreeing terms, since it decides the entire TDS treatment.
2. If the seller is a non resident, plan for Section 195, not the 1 percent rule, regardless of the sale value.
3. Obtain a TAN in good time, as a Section 195 deduction generally cannot use the PAN based Form 26QB route.
4. Compute the deduction at 12.5 percent on a long term gain plus surcharge and cess, around 14.95 percent commonly.
5. Ask the seller to obtain a Section 197 lower deduction certificate to avoid withholding tax on the full value.
6. Deduct, deposit and file on the consideration actually paid, and give the seller the TDS certificate.
7. Confirm the current Section 195 deposit and reporting procedure with a professional, since the mechanics have been changing.

Frequently asked questions

How is TDS different when the seller is an NRI?

For a resident seller you deduct 1 percent under Section 194-IA only at Rs 50 lakh and above. For a non resident seller you deduct under Section 195 instead, which applies at any value with no threshold, and at much higher rates tied to the seller's capital gains.

What is the TDS rate when buying from an NRI?

For a long term gain on property held more than 24 months, the base rate under Section 195 is 12.5 percent without indexation, plus surcharge and a 4 percent cess, commonly grossing up to roughly 14.95 percent, deducted on the sale consideration unless a lower deduction certificate reduces it.

Does the buyer need a TAN to buy from an NRI?

Generally yes for Section 195 deductions. The buyer must obtain a TAN to deduct and deposit the tax, unlike the resident-seller route which uses PAN based Form 26QB. Reporting mechanics have been evolving, so confirm the current procedure before deducting.

How can an NRI seller reduce the high TDS?

The non resident seller can apply under Section 197 using Form 13 for a certificate authorising lower or nil TDS, based on actual expected gains rather than the full sale value. The buyer then deducts at the certified rate, avoiding excess deduction the seller would later reclaim.

Last updated 2026-06-13. PropNewz Team.