Buying From an NRI Seller: TDS Under Section 195 a Bengaluru Buyer Must Handle
Why buying from an NRI seller triggers Section 195 TDS at the capital gains rate, needs a TAN, and leaves the buyer liable, unlike the simple 1% for resident sellers.
A Bengaluru buyer finalising a resale flat in Indiranagar assumed the tax side was simple: deduct one percent as everyone does, and register. Then a document check revealed the seller was a non resident Indian, and the rules changed completely. Buying from an NRI seller is governed by a different section of the income tax law, with a much higher deduction, a separate registration the buyer must obtain, and real personal liability if it is done wrong. This is one of the most misunderstood traps in the resale market, and it lands entirely on the buyer.
The short answer. When the seller is a non resident, tax is deducted under Section 195, not the Section 194-IA that applies to resident sellers. The buyer must deduct tax at the capital gains rate, which for a long term gain is currently 12.5 percent plus surcharge and cess, deposit it against a TAN the buyer has to obtain, and do so regardless of the property value. The trade-off to grasp: this is more work and a higher deduction than a resident sale, but getting it wrong makes you, the buyer, liable, so confirm the seller's residential status early.
Why does it matter whether the seller is an NRI?
It matters because the seller's residential status decides which tax rule you, as the buyer, must follow when you pay. For a resident seller, Section 194-IA applies, and you deduct a simple one percent where the value crosses fifty lakh rupees. For a non resident seller, Section 195 applies instead, and the deduction is based on the seller's capital gains, at a much higher rate, with no such value threshold. The same flat, sold by two different people, can carry very different tax obligations for you.
This is why confirming the seller's status is not a formality but a first step. An NRI seller may be perfectly genuine and the sale perfectly fine, but the paperwork you must do is different and heavier. Discovering the seller is a non resident only at the registration stage, after you have planned for a simple one percent, can force a scramble. Establishing residential status at the start lets you plan the deduction, the registration, and the timeline correctly.
What TDS rate applies when you buy from an NRI seller?
When you buy from a non resident, you deduct tax at the rate applicable to the seller's capital gains, which is higher than the flat one percent for resident sellers. For a property the seller has held for more than twenty four months, the gain is long term, and the current long term capital gains rate is 12.5 percent, on top of which applicable surcharge and cess are added, so the effective rate is higher still. If the property was held for a shorter period, the gain is short term and taxed at the seller's slab rate, which can be higher again.
Because these rates change with budgets and depend on the seller's situation, confirm the current rate before you deduct, using the official Income Tax Department portal or a tax professional. One relief exists for the seller: an NRI can apply to the tax officer for a lower or nil deduction certificate where their actual capital gain is smaller than the sale value. If the seller obtains such a certificate, you deduct at the reduced rate it specifies, so ask whether they have one.
Why do you need a TAN, and what does the process involve?
You need a TAN, a Tax Deduction Account Number, because a Section 195 deduction is deposited against a TAN rather than through the simpler PAN based challan used for resident sales. This is one of the most practical differences for a buyer. Where a purchase from a resident lets you pay the one percent using your PAN, a purchase from an NRI requires you to obtain a TAN first, deduct the correct amount, deposit it, and file the relevant return.
The process therefore has more moving parts, and it is sensible to line them up before registration rather than after. You confirm the seller's status, apply for a TAN if you do not have one, establish the correct rate including any lower deduction certificate, deduct the tax from the payment to the seller, deposit it with the government, and issue the seller the deduction certificate they need. Many buyers use a chartered accountant for a Section 195 purchase precisely because the steps are unforgiving.
Timing also deserves attention when part of the price is paid in instalments. The deduction obligation attaches to each payment made to the seller, so if you are paying in tranches, the tax has to be handled correctly on each one rather than only at the end. This is easy to overlook when a deal is moving quickly, and it is another reason to settle the Section 195 mechanics before the first rupee is paid rather than trying to correct it afterwards.
How does this differ from buying from a resident seller?
The two situations differ on almost every practical point, so it helps to see them side by side. The table below sets out how a purchase from an NRI seller under Section 195 compares with a purchase from a resident under Section 194-IA.
| Aspect | NRI seller, Section 195 | Resident seller, Section 194-IA |
|---|---|---|
| TDS rate | Capital gains rate, higher | One percent of value |
| Value threshold | Applies at any value | Only above fifty lakh rupees |
| Buyer needs | A TAN to deposit the tax | Only a PAN |
| Lower deduction certificate | Seller can obtain one | Not applicable |
| Complexity for the buyer | Higher, advice often needed | Relatively simple |
What happens if you deduct the tax wrongly?
If you deduct too little, or fail to deduct at all, the liability falls on you as the buyer, which is what makes this issue so important. The obligation to deduct correctly under Section 195 rests with the person making the payment, so a buyer who deducts one percent by mistake, treating an NRI seller as a resident, can be pursued for the shortfall along with interest and penalties. The seller receiving the money is not the one the tax department comes to first.
This is why the residential status of the seller is not a detail to take on trust. Ask for it in writing, and where the seller is an NRI, base your deduction on Section 195 rather than habit. If the seller pushes you to simply deduct one percent to keep things easy, understand that the risk of that shortcut is entirely yours. Our guide to TDS on property purchase under Section 194-IA covers the simpler resident case for comparison.
How do you handle a purchase from an NRI seller, step by step?
You handle it by confirming the tax position early and following the Section 195 process carefully rather than defaulting to the resident rule. Given the personal liability involved, this is a good place to use professional help. Work through this checklist.
- Confirm the seller's residential status in writing before you agree on the payment terms.
- If the seller is a non resident, plan for Section 195, not the one percent under Section 194-IA.
- Obtain a TAN if you do not already have one, since it is needed to deposit the tax.
- Establish the correct deduction rate, including any lower deduction certificate the seller holds.
- Deduct the tax from the payment to the seller and deposit it with the government on time.
- Issue the seller the deduction certificate and keep all records with your purchase file.
- Confirm the current rules on the official income tax portal or with a chartered accountant.
If any part of this feels uncertain, get professional advice before you pay, because the liability for errors is yours.
What should a Bengaluru buyer remember?
The key thing to remember is that the seller's residential status quietly changes your entire tax obligation as a buyer, so establish it before anything else. A resale flat that looks like a routine one percent deduction becomes a Section 195 purchase the moment the seller is a non resident, with a higher deduction, a TAN, and real liability attached. None of this makes an NRI sale unwise, it simply makes it different, and worth preparing for.
Treat the tax side as part of your due diligence rather than an afterthought at registration. Confirm the status, plan the deduction, and fold the process into your timeline and costs, alongside the other charges covered in our guide to the cost to register a home in Bengaluru. Handled early, a purchase from an NRI seller is entirely manageable. Handled late, it can derail your registration.
Frequently asked questions
What TDS do I deduct when buying property from an NRI?
You deduct under Section 195, at the seller's capital gains rate rather than the one percent for residents. For a long term gain the current rate is 12.5 percent plus surcharge and cess, and short term gains are taxed at slab rates. Confirm the current rate on the official income tax portal or with a chartered accountant before you deduct.
Do I need a TAN to buy from an NRI seller?
Yes. A Section 195 deduction is deposited against a TAN, unlike a purchase from a resident, which uses your PAN. So if the seller is a non resident, you must obtain a TAN before depositing the tax. Plan for this early, since arranging it at the last minute can delay your registration.
Does the fifty lakh threshold apply when the seller is an NRI?
No. The fifty lakh rupee threshold applies to resident sellers under Section 194-IA. When the seller is a non resident, Section 195 applies and tax must be deducted regardless of the property value. So even a lower value flat requires the full Section 195 process if the seller is an NRI.
Who is liable if the TDS is deducted incorrectly?
The buyer. The obligation to deduct correctly under Section 195 rests with the person making the payment, so if you deduct too little or not at all, you can be pursued for the shortfall with interest and penalties. This is why confirming the seller's status and deducting correctly matters so much to the buyer.
Last updated 2026-09-05. PropNewz Team.
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