A Bengaluru buyer closed a clean, well priced deal in 2026 on a flat in Marathahalli, deducted 1 percent as tax the way everyone told him to, and paid the seller the rest. Months later a notice arrived. The seller was a non resident, and the law had required the buyer to deduct far more than 1 percent, and to deduct it in a completely different way. Because he had not, the tax office was holding him, the buyer, responsible for the shortfall along with interest. His mistake was simple and common. He treated a sale by a non resident like a sale by a resident, and the two are not the same at all.

The short answer. When you buy a property from a non resident Indian, the tax you deduct is governed by Section 195, not the familiar 1 percent rule that applies to resident sellers. There is no 50 lakh threshold, the tax is deducted on the full sale value at a much higher rate, and you need a TAN and must file Form 27Q rather than Form 26QB. The trade off is effort and cash flow, but the far bigger risk is skipping it, because a buyer who deducts too little is left carrying the seller's tax. The single most useful step is to have the seller obtain a lower deduction certificate.

These rules come from the income tax law on payments to non residents, as guides such as ClearTax explain. Here is how a Bengaluru buyer should handle such a purchase.

Why is buying from an NRI different?

Buying from a non resident is different because a separate section of the law, Section 195, governs the tax you must deduct. The 1 percent rule that most buyers know applies only when the seller is a resident. When the seller is a non resident Indian, that rule does not apply at all, and Section 195 takes over with higher rates and stricter compliance. The reason is that the tax authorities want to collect the non resident seller's tax at source, before the money leaves the country, so the deduction is designed to cover the seller's likely liability rather than a token 1 percent.

This is why the residency of the seller is one of the first things a buyer should establish. A seller who lives abroad, holds an overseas passport, or is otherwise a non resident for tax purposes moves the whole transaction into Section 195, and the buyer's duties change accordingly.

How much TDS do you deduct from an NRI seller?

You deduct a much higher rate than 1 percent, and it depends on how long the seller held the property. For a long term holding, held for more than 24 months, the base tax rate for the capital gain is 12.5 percent in the current framework, to which a surcharge and a cess of 4 percent are added, so the effective rate is higher still. For a short term holding the rate is higher again, closer to the seller's slab. Because these rates carry surcharge and cess and can change with each budget, confirm the current figures before you deduct rather than relying on a number from an old article.

The practical point for a buyer is that the amount involved is large, often many lakhs, so it cannot be treated casually. Getting the rate wrong in either direction causes problems, which is why professional help on an NRI purchase is money well spent.

Why is the TDS on the full sale value, not the gain?

By default the tax is deducted on the entire sale value, not just the seller's profit, unless the seller obtains a certificate to reduce it. This is a crucial difference from a resident sale. Section 195 applies to the whole amount paid to the non resident, and there is no 50 lakh threshold, so even a smaller deal attracts it. Deducting the higher rate on the full value can hold back a very large sum, far more than the seller's actual tax on the gain, which is why sellers are keen to reduce it through the proper route.

That route protects the buyer as much as the seller. If the deduction is based on the full value because no certificate was obtained, the buyer must still deduct and deposit that large amount, or bear the consequences of under deducting. The table below sets the resident and non resident cases side by side.

What is the lower deduction certificate, and why does it matter?

A lower deduction certificate lets the tax be deducted on the seller's actual capital gain rather than the full sale value. The non resident seller applies to the assessing officer, in Form 13, with supporting documents, and if granted, the certificate fixes a lower or nil rate that matches the real tax liability. For the buyer, this is the difference between holding back a huge sum on the whole price and holding back a fair amount on the gain. It is almost always in both parties' interest to get one before the deal closes.

Because the certificate takes time to obtain, it should be planned early rather than left to the last week. A buyer negotiating with a non resident seller is right to ask, before signing, whether the seller will secure this certificate, since it directly affects how much the buyer must deduct and deposit.

What paperwork does the buyer need?

The buyer needs a TAN, and must deposit the tax and file Form 27Q, which is different from the resident process. Unlike a resident sale, where a PAN and Form 26QB are enough, an NRI purchase requires the buyer to obtain a Tax Deduction Account Number, deposit the deducted tax by the due date, and file quarterly returns in Form 27Q. The buyer then issues the seller a TDS certificate for the amount deducted. These steps are procedural, but missing them carries penalties, so they belong on the buyer's checklist from the outset.

None of this is a reason to avoid buying from a non resident, since many such properties are perfectly sound. It is simply a reason to prepare, because the compliance is heavier and the amounts are larger than a routine resident purchase. Our guide to the 1 percent TDS on a resident sale shows the simpler process this replaces.

How should a Bengaluru buyer protect themselves?

Protect yourself by confirming the seller's residency early and taking professional help before you pay anything. Establish for certain whether the seller is a resident or a non resident, because that single fact decides which rules apply. If the seller is non resident, engage a tax professional to handle the TAN, the deduction, and Form 27Q, and press for the lower deduction certificate so the tax tracks the gain rather than the full value. A project such as Orchid Parc in Thanisandra can have resale flats owned by non residents, so a resale buyer there should ask the question rather than assume. The seller's own tax planning, including the exemptions covered in our guide to capital gains on selling a home, also feeds into the certificate they can obtain.

The overriding rule is never to deduct 1 percent by default. That single assumption is what left the Marathahalli buyer holding a bill that was never his to pay, and it is entirely avoidable with one question asked at the right time.

What should you check before you buy from an NRI?

Run through these seven steps so an NRI purchase does not leave you carrying the seller's tax.

1. Confirm early whether the seller is a resident or a non resident for tax purposes.
2. Remember that a non resident sale falls under Section 195, not the 1 percent rule.
3. Note there is no 50 lakh threshold, so TDS applies whatever the value.
4. Ask the seller to obtain a lower deduction certificate before the deal closes.
5. Apply for a TAN in your name, since Form 26QB does not apply here.
6. Deposit the deducted tax on time and file Form 27Q for the quarter.
7. Engage a tax professional, given the higher rates and heavier compliance.

Is TDS on buying property from an NRI just 1 percent?

No. The 1 percent rule applies only to resident sellers. When you buy from a non resident, Section 195 applies, and the tax is deducted at a much higher rate on the full sale value, plus surcharge and cess. There is also no 50 lakh threshold, so it applies whatever the deal is worth. Confirm the seller's residency before you deduct anything.

Do I deduct on the sale price or the seller's profit?

By default on the full sale price, not just the profit. Under Section 195 the deduction is computed on the entire sale value unless the seller obtains a lower deduction certificate from the tax officer, which allows the tax to be based on the actual capital gain instead. Securing that certificate before closing greatly reduces the amount you must hold back.

What is Form 27Q, and do I need a TAN?

Form 27Q is the quarterly TDS return a buyer files when deducting tax on payments to a non resident, and yes, you need a TAN to do it. Unlike a resident purchase, which uses your PAN and Form 26QB, an NRI purchase requires you to obtain a Tax Deduction Account Number, deposit the tax, and file Form 27Q, then issue the seller a TDS certificate.

What happens if I deduct too little from an NRI seller?

You, the buyer, can be held responsible for the shortfall, along with interest and possible penalties. Because the duty to deduct correctly sits with the buyer, deducting only 1 percent on a non resident sale can leave you liable for the difference. This is why confirming residency and getting professional help before you pay are so important on an NRI purchase.

Last updated 2026-07-20. PropNewz Team.