Ravi had done his homework before buying a three-bedroom flat in Whitefield. He knew the usual drill: deduct 1 percent TDS on the sale value and move on. Then his lawyer asked whether the seller was a resident of India. The answer was no. The owner had moved to Singapore and was now a Non Resident Indian. Suddenly the rules on TDS on buying property from NRI Bengaluru were nothing like Ravi expected, and his tidy 1 percent plan collapsed.

The short answer. The familiar 1 percent TDS under Section 194-IA does not apply when the seller is an NRI. Instead, Section 195 governs the deduction, the rate is higher, the base is usually the full sale price rather than the gain, and you as the buyer must obtain a TAN and carry the legal liability. The trade-off is real. An NRI seller may be more motivated and open to negotiation, but you shoulder a heavier and costlier compliance burden.

Quick facts. For any buyer researching this transaction, Section 195 and not Section 194-IA applies, long term gains are taxed at 12.5 percent without indexation after 23 July 2024, and the buyer, not the seller, is legally responsible for correct deduction and deposit.

Why does the usual 1 percent TDS not apply when you buy from an NRI?

The 1 percent rule lives in Section 194-IA, and that section is written only for resident sellers. It requires a buyer to deduct 1 percent of the sale value when the property seller is a resident of India and the sale value is at least Rs 50 lakh. Read the wording closely and the limitation becomes obvious. The moment the seller is a Non Resident Indian, Section 194-IA steps aside and a completely different provision takes charge. This is not a minor technicality. It changes the rate, the amount on which you calculate the deduction, the paperwork you file, and the person who answers to the tax department if the numbers are wrong.

Many Bengaluru buyers only discover the seller's residential status late in the process, often after the price is agreed and the excitement has set in. That is why experienced conveyancing lawyers ask about residency early. If you want a refresher on how the straightforward resident case works, our guide to TDS on property purchase under Section 194-IA in Bengaluru walks through the simpler path step by step.

What is TDS on buying property from NRI Bengaluru under Section 195?

TDS on buying property from NRI Bengaluru is governed by Section 195 of the Income Tax Act, which covers payments made to non residents. Under this section you are not deducting a flat 1 percent. Instead you are withholding tax that broadly reflects the capital gains tax the NRI seller would owe on the transaction. For a property the seller has held longer than 24 months, the gain is treated as long term. After 23 July 2024, long term capital gains are taxed at 12.5 percent without indexation, and on top of that sit an applicable surcharge and a 4 percent health and education cess. Once surcharge and cess are layered in, the maximum effective rate can reach roughly 14.95 percent.

If the seller has held the property for 24 months or less, the gain is short term and is taxed at the seller's slab rate, which can be considerably higher. For a buyer this matters because the rate you apply flows directly from how long the seller owned the asset, so you need documentary proof of the seller's purchase date before you finalise the deduction. You can read a plain language explanation of the provision on ClearTax's overview of Section 195.

How much TDS must you deduct, and on what amount?

By default, Section 195 requires TDS to be calculated on the gross sale consideration, not merely on the seller's gains. This is the single biggest surprise for buyers who expected a modest 1 percent. If you apply the long term rate to the entire sale price, the amount you withhold and deposit can be substantial, and it is taken out of what the seller receives at closing. The seller may push back hard, because a large slice of the money is now parked with the tax department rather than in their account.

There is a legitimate way to bring the deduction down, and it belongs to the seller to pursue. The NRI can apply for a Lower Deduction Certificate, which allows TDS to be computed on the actual gains rather than the full sale value. Without that certificate, you are legally expected to deduct on the gross amount. As a buyer you cannot simply agree to deduct less because it feels fair. The default is the default until the certificate exists.

The contrast between the resident and NRI cases is easiest to see side by side.

What is a Lower Deduction Certificate and why does it matter?

A Lower Deduction Certificate is the tool that lets TDS be computed on the actual gains instead of the entire sale price. The NRI seller applies for it using Form 13, filed online through the TRACES portal, and the income tax department reviews the expected gain before issuing a certificate that specifies a lower deduction amount. For the seller this can free up a large amount of cash at closing. For you as the buyer it provides a clear, department sanctioned figure to deduct, which reduces the risk of getting the number wrong.

The practical catch is timing. Applying for and receiving the certificate takes time, and if the seller starts late it can delay your closing. If a deal is moving quickly, decide early whether you will wait for the certificate or deduct on the gross amount and let the seller claim a refund later when they file their return. Both paths are valid, but they have very different cash flow consequences for the seller, so it is worth agreeing the approach in writing.

Why do you need a TAN, and who is liable if something goes wrong?

When you buy from an NRI you must obtain a TAN, the Tax Deduction and Collection Account Number, in order to deduct and deposit the tax. This is a departure from the resident case, where a TAN is not required. Getting a TAN takes a little time and adds a step to your checklist, so factor it into your timeline rather than leaving it to the final week.

The heavier point is liability. Under Section 195 the legal responsibility for correct deduction and deposit falls on you, the buyer. If you under deduct, the department can pursue you, not the seller, for the shortfall along with interest and possible penalties. This is why buying from an NRI is not a place to cut corners or rely on informal assurances. When in doubt, verify residential status and rates directly through the government's own resources at the Income Tax Department portal, and engage a chartered accountant.

What are the trade-offs of buying from an NRI seller?

Buying from an NRI can genuinely work in your favour, but it comes bundled with a heavier compliance load. An owner living abroad is often a motivated seller, sometimes managing the property from a distance and keen to close, which can open real negotiating room on price and terms. That is the upside, and it can be worth pursuing.

The counterweight is that you take on more work and more personal risk. You need a TAN, you may deduct a much larger sum than the familiar 1 percent, you may have to wait on a Lower Deduction Certificate, and the legal liability for getting the deduction right sits with you. Weigh the negotiating advantage against these costs honestly. For a broader walk-through of the process, see our guide to buying property from an NRI in Bengaluru and handling TDS.

Here is a practical seven-point checklist for a Bengaluru buyer facing an NRI seller.

1. Confirm the seller's residential status in writing before you agree the price, because it decides which section applies.
2. Collect proof of the seller's original purchase date to establish whether the gain is long term or short term.
3. Apply for your own TAN early, since you cannot deposit TDS under Section 195 without it.
4. Ask the seller whether they intend to obtain a Lower Deduction Certificate through Form 13 on the TRACES portal.
5. Decide and document whether you will wait for the certificate or deduct on the gross sale consideration.
6. Calculate the deduction at the correct rate, including surcharge and the 4 percent health and education cess where applicable.
7. Engage a chartered accountant to review the deduction and deposit so the liability that rests on you is properly discharged.

Does the 1 percent TDS under Section 194-IA ever apply to an NRI seller?

No. Section 194-IA and its 1 percent rate apply only when the seller is a resident of India and the sale value is at least Rs 50 lakh. When the seller is an NRI, Section 195 applies instead, and the buyer must deduct at the higher applicable rate rather than a flat 1 percent.

On what amount is TDS calculated when buying from an NRI?

By default, Section 195 requires TDS on the gross sale consideration, not just the gains. The exception is when the NRI seller obtains a Lower Deduction Certificate using Form 13 on the TRACES portal, which allows the deduction to be computed on the actual capital gains instead of the full sale price.

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

Yes. To deduct and deposit TDS under Section 195 you must obtain a TAN, the Tax Deduction and Collection Account Number. This differs from the resident seller case, where no TAN is needed. Apply early, because the legal responsibility for correct deduction and deposit rests with you as the buyer.

What long term capital gains rate applies to an NRI seller after 23 July 2024?

For property held longer than 24 months, long term gains are taxed at 12.5 percent without indexation, plus applicable surcharge and a 4 percent health and education cess. Including surcharge and cess, the maximum effective rate can reach roughly 14.95 percent. Short term gains are taxed at the seller's slab rate.

Last updated 2026-07-02. PropNewz Team.