Buying from an NRI Seller: TDS Under Section 195 for Bengaluru Buyers

A Whitefield buyer in 2026 closed a Rs 2 crore resale flat and deducted 1 percent TDS, the same Rs 2 lakh any buyer deducts from a resident seller. Months later the tax department came knocking, because the seller was an NRI who had moved to Singapore years earlier, and the correct deduction ran into tens of lakhs under a completely different section of the law. The shortfall, with interest, landed on the buyer, not the seller who had already left the country. The single fact the buyer never checked, the seller residential status, turned a clean purchase into a tax nightmare.

The short answer. When you buy from an NRI seller, TDS is governed by Section 195, not the familiar 1 percent under Section 194-IA, and the differences are large. There is no 50 lakh threshold, you must obtain a TAN, you file Form 27Q, and the rate follows capital gains, which for a long term asset is 12.5 percent plus surcharge and cess for transfers on or after 23 July 2024, down from the earlier 20 percent. The trade off and the trap in one: without a lower deduction certificate you must deduct on the entire sale price, a far larger sum, and if you under deduct, the department recovers it from you.

Why does it matter whether the seller is an NRI?

It matters because the seller tax residency, not the property or the price, decides which TDS law applies to you as the buyer. If the seller is a resident Indian, you deduct a simple 1 percent under Section 194-IA, as we explain in our guide to TDS under Section 194-IA. If the seller is a non resident, an entirely different and much heavier regime under Section 195 kicks in, and the duty to apply it correctly falls on you.

This is dangerous precisely because it is easy to miss. A seller may hold an Indian passport, speak like a local, and own a Bengaluru flat for decades, yet still be an NRI for tax purposes based on where they now live. Buyers routinely assume a 1 percent deduction and discover too late that they short deducted by a wide margin. The first job in any resale deal is therefore to establish the seller tax residency in writing, before you compute a single rupee of TDS.

What is Section 195, and how is it different from 194-IA?

Section 195 is the provision that governs TDS on payments to non residents, including the purchase price you pay an NRI for a property. It differs from Section 194-IA on almost every axis a buyer cares about, as the table below shows. Where 194-IA is a flat, light touch 1 percent with no TAN, Section 195 is a heavier, gains linked deduction with full compliance machinery.

The practical upshot is that buying from an NRI is a compliance project, not a checkbox. These distinctions are set out in income tax explainers such as TaxAdda and in the Income Tax Act itself, and they exist because taxing a seller who lives abroad is harder once the money has left the country.

How much TDS must you deduct on an NRI sale?

The rate follows the seller capital gains, not a flat percentage of the price. For a long term capital asset, meaning property held for more than two years, the long term capital gains rate applies, which the government reduced to 12.5 percent plus surcharge and cess for transfers on or after 23 July 2024, down from the earlier 20 percent with indexation. For a short term asset, the gains are taxed at the seller slab rates, which can reach 30 percent.

Two layers push the real number higher than the headline. Surcharge applies on top and rises with the size of the gain, and a health and education cess is added over that, so the effective deduction on a large gain can be meaningfully above 12.5 percent. Because the computation depends on the seller cost and holding period, which you may not know, the law offers a cleaner route through a certificate, covered next. The capital gains themselves are a subject in their own right, explored in our guide to capital gains and Section 54.

On the full price or only the gains?

By default, and this is the costly part, you should deduct on the entire sale consideration, not just the seller gain. Since you usually cannot verify the seller cost of acquisition or holding period, deducting on the full price protects you from a shortfall, even though it locks up a large sum of the seller money until they reclaim the excess by filing a return. On a Rs 2 crore flat that default can mean withholding tens of lakhs.

The cleaner path is the lower or nil deduction certificate. The NRI seller can apply to the assessing officer under Section 197 or Section 195 for a certificate that fixes the TDS at the actual capital gains rather than the whole price. When the seller produces a valid certificate, you deduct the lower amount it specifies. This is why a well prepared NRI seller arranges the certificate in advance, and why a buyer should ask for it early rather than discovering the full price deduction at the last minute.

Do you need a TAN, and which form do you file?

Yes, you need a TAN, and this is one of the sharpest breaks from a resident purchase. For a resident seller your PAN is enough, but for an NRI seller you must obtain a Tax Deduction and Collection Account Number, the TAN, before you deduct. You then deposit the TDS, file Form 27Q for the quarter in which you deducted, and issue the seller a Form 16A certificate, rather than the Form 26QB and 16B used for resident sellers.

Form 27Q is a quarterly return, filed within the window after each quarter end, so the timing differs from the one off Form 26QB too. None of this is difficult once you know it is required, but every step depends on having the TAN in hand, so apply for it as soon as you learn the seller is an NRI. A buyer who leaves the TAN to the last week risks missing deadlines and the interest that follows.

It also helps to understand why the law puts this burden on you rather than the seller. Once the sale money reaches an NRI and is remitted abroad, the tax department has little practical way to recover tax from a person living overseas. Collecting it at source, from the buyer who is still in India, is the only reliable lever, which is why the rules are strict and the consequences of a shortfall land squarely on the resident buyer. Seen that way, the compliance is less red tape than self protection.

How should a Bengaluru buyer protect themselves?

The whole risk is manageable if you treat the seller residency as a gating question at the very start of a resale deal. Work through this seven step checklist.

1. Establish the seller tax residency in writing before you agree anything, since it decides which TDS law applies.
2. If the seller is an NRI, switch your plan from Section 194-IA to Section 195 and from Form 26QB to Form 27Q.
3. Apply for a TAN early, because you cannot deduct or file correctly without one.
4. Ask the seller for a lower or nil deduction certificate from the assessing officer, and deduct on the full price if none exists.
5. Compute the deduction at the capital gains rate with surcharge and cess, not the 1 percent used for residents.
6. Deposit the TDS on time and file Form 27Q for the relevant quarter, then issue Form 16A to the seller.
7. Engage a tax professional for an NRI purchase, since the cost of a mistake falls on you, the buyer.

None of this is advice on whether to buy a particular property or a comment on any seller; it is simply the compliance that rides along with a non resident sale. The Whitefield buyer learned that the hard way, paying for a deduction the law always expected them to make. Ask one question early, is the seller a resident or an NRI, and the rest of the process falls into a clear and safe order.

Frequently asked questions

Is TDS different when I buy from an NRI seller?

Yes, completely. When the seller is an NRI, TDS falls under Section 195, not the 1 percent under Section 194-IA that applies to resident sellers. There is no 50 lakh threshold, the rate is much higher and tied to capital gains, you need a TAN, and you file Form 27Q rather than Form 26QB. Getting this wrong makes you liable.

What TDS rate applies on a property bought from an NRI?

For a long term capital asset the long term capital gains rate applies, which the government reduced to 12.5 percent plus surcharge and cess for transfers on or after 23 July 2024, down from the earlier 20 percent. Short term gains are taxed at slab rates. Surcharge rises with the gain, so the effective deduction can be higher.

Is the TDS on the whole sale price or only the gains?

By default, without a certificate, you should deduct on the full sale consideration, which can lock up a large sum. If the NRI seller obtains a lower or nil deduction certificate from the assessing officer under Section 197 or 195, the TDS is limited to the actual capital gains, which is why sellers usually apply for one.

Do I need a TAN to buy from an NRI?

Yes. Unlike a purchase from a resident, where your PAN is enough, buying from an NRI requires you to obtain a TAN, deduct the TDS, deposit it, and file Form 27Q every quarter, then issue the seller a Form 16A. Apply for the TAN early, because the whole compliance chain depends on it.

Last updated 2026-10-04. PropNewz Team.