A Bengaluru buyer recently deducted one percent on a two crore flat, the way she had read about Form 26QB, and then learned the seller was an NRI. Months later a tax notice landed, holding her liable for the tax she should have deducted, plus interest. The mistake was not greed or carelessness. It was applying the resident buyer rule to a seller the rule does not cover. When you buy from an NRI seller, TDS on buying property from an NRI in Bengaluru runs under Section 195, and the number, the paperwork and the risk are all different.

The short answer. If your seller is a non-resident, you do not deduct the one percent that applies to resident sellers under Section 194-IA. You deduct under Section 195, where long-term capital gains on property held over 24 months are taxed at 12.5 percent plus surcharge and 4 percent cess, and short-term gains at the seller's slab rate. The deduction is on the full sale value unless the seller brings a lower deduction certificate. The upside of getting this right is a clean, dispute free purchase. The trade-off is more process, because you need a TAN and must file Form 27Q. Quick fact: for an NRI seller's long-term gain, TDS under Section 195 is 12.5 percent plus surcharge and cess, not the one percent buyers often assume.

This guide explains why the rule changes, what rate applies, how the Section 197 certificate helps, and the exact steps a Bengaluru buyer must follow.

Why is buying from an NRI seller different?

Because the tax law treats payments to a non-resident under a separate section with a much higher deduction. When the seller is a resident and the price is 50 lakh or more, you deduct a flat one percent under Section 194-IA and file Form 26QB, using nothing more than your PAN. When the seller is an NRI, that section does not apply at all. The payment falls under Section 195, which requires TDS at the rate the income is actually taxable in India for the seller, and that is a capital gains rate, not a token one percent.

This single distinction is where buyers lose money. The seller's residential status, not the property or the price, decides the rule. So the first question in any purchase is not how big the flat is, it is whether the person selling it is a resident or a non-resident for tax purposes, confirmed from their status and not merely from an Indian address.

What TDS rate applies under Section 195?

For an NRI seller, the rate follows the capital gains. If the property was held for more than 24 months, the gain is long term, and since the 2024 Budget it is taxed at 12.5 percent without indexation, plus the applicable surcharge and a 4 percent health and education cess. If it was held for 24 months or less, the gain is short term and taxed at the seller's slab rate, again with surcharge and cess. The table below places these against the familiar resident rule so the contrast is clear.

The surcharge is set by the seller's income band and is capped at 15 percent for these capital gains, so the effective long-term rate on the gain generally lands between about 13 and 15 percent. The exact figure depends on the sale value and the surcharge slab, which is one reason the deduction is worth getting right on paper rather than by guess.

Is TDS on the full value or only the gains?

By default, TDS under Section 195 is deducted on the entire sale consideration, not merely on the seller's profit. That is a large sum on a Bengaluru flat, and it is why NRI sellers so often feel over deducted. The law does this deliberately, because the buyer cannot reliably compute the seller's true capital gain, so it defaults to the safe, higher base and lets the seller reclaim any excess later.

The fix is the Section 197 certificate. An NRI seller can apply to the Income Tax Department for a lower or nil deduction certificate, which computes the tax on the actual gain and tells the buyer exactly how much to deduct. If the seller produces a valid certificate, you deduct at the rate it states, which can be dramatically lower than 12.5 percent of the whole price. If the seller does not, you must deduct on the full value, however much the seller protests. The certificate is the seller's job to obtain, and your protection to insist on.

What must a Bengaluru buyer actually do?

You take on the role of a tax deductor, which is more than a single online challan. First, you obtain a TAN, the tax deduction account number, because Section 195 deductions cannot be filed on your PAN the way Form 26QB can. You then deduct the correct amount before paying the seller, deposit it with the government, file the quarterly return in Form 27Q, and issue the seller a TDS certificate in Form 16A. Because compliance details can change, confirm the current procedure on the income tax portal before you file.

None of this is optional or cosmetic. The obligation to deduct correctly sits on you as the buyer, and the seller's paperwork does not transfer that duty. Building these steps into the deal, ideally with a chartered accountant handling the TAN and the return, is how you keep a high value purchase clean.

What happens if you get it wrong?

If you under deduct, the shortfall becomes your problem, not the seller's. The Income Tax Department can recover the tax that should have been deducted from you, the deductor, and add interest for the delay and a penalty for the default. Once the seller has been paid in full and has moved the money abroad, recovering the shortfall from them is often impractical, which is exactly why the law leans on the buyer.

The trade-off here is stark and one sided. Doing it correctly costs you a TAN, a CA fee and a little time. Doing it wrong can cost you lakhs in tax, interest and penalty on a transaction you thought was closed. For a purchase this size, treating the TDS as a core part of the deal rather than an afterthought is simply cheaper. If you are also taking a loan for the purchase, coordinate the deduction with your lender, as covered in our guide to the NRI home loan in Bengaluru.

What should you check before paying an NRI seller?

Run this sequence before any money moves.

1. Confirm the seller's tax residential status in writing, not just from an Indian address or passport.
2. Establish whether the gain is long term or short term from the seller's actual holding period.
3. Ask the seller for a Section 197 lower or nil deduction certificate before you fix the deduction.
4. Apply for a TAN in the buyer's name if you do not already hold one.
5. Deduct the correct Section 195 amount on the full value, or on the certificate rate, before paying.
6. Deposit the TDS, file Form 27Q, and issue Form 16A to the seller.
7. Keep every challan and certificate, since they are your proof of compliance if questioned.

This applies even beyond resale flats. If you take over an under construction allotment from an NRI, for instance a unit in a project like Birla Trimaya in Devanahalli, the Section 195 rule still governs your payment. And since the resident equivalent trips up so many buyers, it is worth reading our companion guide to Form 26QB TDS on property purchase to see exactly how the two regimes differ.

How do you run a Section 195 purchase safely?

Treat the TDS as part of the price negotiation, not a formality bolted on at registration. Agree in the sale agreement how much will be deducted, whether the seller will obtain a Section 197 certificate, and by when, so there is no dispute at the payment stage. Bring in a chartered accountant early to handle the TAN, the deduction working and Form 27Q, because the cost of that advice is trivial next to the exposure it removes.

The honest summary is that buying from an NRI is entirely doable, it just runs on a different set of rules. Confirm the seller's status, deduct under Section 195 at the right rate, respect the full value default unless a certificate says otherwise, and file the correct form. Do that, and the higher TDS is simply a step in the process rather than a notice waiting to arrive.

Is TDS 1 percent when buying property from an NRI in India?

No. The 1 percent rate under Section 194-IA applies only to resident sellers. When the seller is an NRI, TDS falls under Section 195, at 12.5 percent plus surcharge and cess for long-term gains, or the slab rate for short-term gains. Applying the 1 percent rule to an NRI seller leaves the buyer liable for the shortfall.

Is Section 195 TDS deducted on the full sale value or the gains?

By default it is deducted on the full sale consideration, not just the capital gain. The only way to deduct on the lower gains figure is if the NRI seller obtains a Section 197 lower or nil deduction certificate from the Income Tax Department. Without that certificate, the buyer must deduct on the entire sale value.

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

Yes. Unlike Form 26QB for resident sellers, which uses your PAN, a Section 195 deduction requires the buyer to hold a TAN, the tax deduction account number. You deduct the TDS, deposit it, file the quarterly return in Form 27Q and issue Form 16A. Confirm the current procedure on the income tax portal before filing.

What is the risk if I deduct the wrong TDS on an NRI purchase?

The buyer, as the deductor, is liable for any short deduction, plus interest for the delay and a penalty for the default. Since the seller may have moved the funds abroad, the department recovers the shortfall from the buyer. This is why confirming the seller's status and deducting correctly under Section 195 is essential before paying.

Last updated 2026-07-10. PropNewz Team.