Buying Property From an NRI Seller? The TDS Rules Are Nothing Like a Resident Deal

A buyer in Bengaluru agreed to pay ₹2 crore for a resale flat. He did what every buyer does: deducted 1% TDS — ₹2 lakh — filed Form 26QB, and thought the job was done. Then he discovered the seller was an NRI. The correct deduction was roughly ₹29.9 lakh — 12.5% plus surcharge and cess on the full ₹2 crore — and the shortfall was recoverable from him, the buyer, with interest. For the resident-side rules, start with our Form 141 walkthrough — the property TDS guide for resident sellers, and keep the TDS hub open for rates and forms.

Why an NRI seller changes everything

When the seller is a resident and the consideration is ₹50 lakh or more, you deduct a flat 1% under Section 194-IA of the old Act — now Section 393(1), Table Sl. No. 18, of the Income-tax Act, 2025 — and file one Form 26QB (now Form 141, Schedule B). When the seller is a non-resident, none of that survives. The transaction moves to Section 195 of the old Act — now Section 393(2), Table Sl. No. 17, of the Income-tax Act, 2025 — the provision governing payments to non-residents. The differences are structural:

Here is the catch: the rate follows the seller’s capital-gains position, but the deduction is computed on the full price, not the gain. A seller who bought for ₹1.6 crore and sells for ₹2 crore has a gain of ₹40 lakh — but without a lower-deduction certificate, you deduct on ₹2 crore. That is why the certificate matters so much, and why it is covered below.

How much to deduct: the rates

The holding period decides the rate. Immovable property held for more than 24 months is a long-term capital asset: deduct at 12.5% plus surcharge and 4% cess (the 12.5% rate without indexation applies to transfers on or after 23 July 2024). At the surcharge slabs a ₹1 crore-plus deal sits in, the effective rate works out to about 14.95%. Held for 24 months or less — common in under-construction resales — the gain is short-term and taxed at the seller’s slab rates, which means deducting at 30% plus surcharge and cess, up to about 42.74% at the highest surcharge slab.

Worked example: a ₹2 crore flat, held 5 years. Long-term rate 12.5% = ₹25,00,000; surcharge at 15% adds ₹3,75,000; 4% cess adds ₹1,15,000. Total TDS: ₹29,90,000 — roughly 14.95% of the price. Deduct 12.5% on what turns out to be a short-term hold and the shortfall is recoverable from you, so get the holding period in writing from the seller before you deduct.

The 1 October 2026 change: PAN instead of TAN

Until 30 September 2026, the worst part of the NRI purchase was not the rate — it was the paperwork. A resident individual buying from an NRI had to apply for a TAN (Tax Deduction and Collection Account Number, Form 49B) just for this one transaction, deposit the TDS against that TAN, file a quarterly statement (Form 27Q, or Form 144 for deductions from 1 April 2026), and issue Form 16A (Form 131 from 1 April 2026) to the seller. A buyer from a resident seller needed none of this — just a PAN.

Budget 2026 removed that gap. Under Section 397(1)(c) of the Income-tax Act, 2025, as amended by the Finance Act, 2026, from 1 October 2026 a resident individual or HUF buying immovable property from a non-resident can deduct and deposit the TDS through a PAN-based challan — the same route already used for resident-to-resident purchases — without obtaining a TAN and without filing a quarterly return. Companies, firms and LLPs buying from a non-resident still need a TAN. The rate, the base and the seller’s tax do not change; only the mechanism does. The PAN route applies to transactions on or after 1 October 2026; if your purchase completed before that date, the TAN route still applied.

Step by step: what the buyer must do

1. Confirm the seller’s residential status in writing. Ask for it before the agreement is signed — an NRI who became a resident during the year, or a seller whose status is unclear, changes the whole regime. Do not rely on an Aadhaar card or an Indian bank account; residential status is a tax test, not an identity document.
2. Get the holding period and the purchase cost. You need the holding period to pick the rate, and the purchase cost to judge whether a lower-deduction certificate is worth pursuing.
3. Ask the seller about a lower-deduction certificate. The seller can apply to their Assessing Officer — the Form 13 application, in the numbering everyone still uses — for a certificate computed on the actual expected gain rather than the full price. On a ₹2 crore sale with a ₹40 lakh gain, the certificate can cut the deduction from ~₹29.9 lakh to roughly ₹6 lakh. It is the single highest-value step in the transaction, and it must be obtained before payment. If the seller cannot get one, you deduct on the full price — and our lower-TDS certificate guide explains who needs one and how to apply.
4. Deduct at the right rate on the full consideration (or on the certified amount, if a certificate exists).
5. Deposit by the 7th of the month following the month of deduction — 30 April for March deductions. From 1 October 2026, resident individuals and HUFs use the PAN-based challan; companies and firms use the TAN challan.
6. File and certify. On the TAN route: Form 27Q (Form 144 from 1 April 2026) for the quarter, and Form 16A (Form 131) to the seller so the credit shows against their PAN. On the PAN route, the challan-cum-statement is the record — keep it with the sale deed.

Miss the deposit and interest runs at 1.5% per month; fail to deduct at all and it is 1% per month from the date the tax was deductible, plus exposure to a penalty up to the TDS amount itself. If TDS was deducted but is missing from the seller’s 26AS or AIS, the fix path — deductor correction, TRACES and grievance — is covered in our missing-TDS guide.

The seller’s side: what the NRI should know

The TDS is not the seller’s final tax — it is an advance. The seller files an Indian return, computes the actual capital gain (12.5% on the gain for long-term, without indexation, for transfers on or after 23 July 2024), and claims a refund of the excess. On the ₹2 crore example above, the seller’s actual tax on a ₹40 lakh gain is about ₹5.2 lakh, against ₹29.9 lakh deducted — a refund of nearly ₹24.7 lakh. If the seller is selling a house they lived in, our guide to capital gains on selling a house, old vs new computation, works through the indexation choice with examples. And before relying on any figure, work out the numbers on the income-tax calculator.

FAQs

The seller has an NRO account and an Indian PAN. Does Section 195 still apply?
Yes. A PAN and an Indian bank account do not make a person a resident. Residential status is decided by the number of days in India and the tax-law test. If the seller is a non-resident for the tax year, Section 195 (Section 393(2) of the Income-tax Act, 2025) applies from the first rupee.

The flat costs ₹45 lakh — below the ₹50 lakh threshold. Do I still deduct?
Yes. The ₹50 lakh threshold belongs to resident-seller purchases under Section 194-IA. For an NRI seller there is no threshold at all — TDS applies on a ₹45 lakh purchase exactly as it does on a ₹2 crore one.

Can I deduct only on the capital gain instead of the full price?
Not on your own say-so. The default rule is deduction on the full consideration. The only way to deduct on the gain is a lower-deduction certificate (Form 13) issued by the seller’s Assessing Officer before payment.

Does the buyer need a TAN at all now?
From 1 October 2026, a resident individual or HUF buyer does not — the PAN-based challan replaces it. Companies, firms and LLPs still need a TAN, and any buyer whose transaction predates 1 October 2026 needed one for that transaction.

Sources

Section 195 of the Income-tax Act, 1961, carried forward as Section 393(2), Table Sl. No. 17, of the Income-tax Act, 2025 (in force from 1 April 2026) — TDS on payments to non-residents; 12.5% long-term capital gains rate for transfers on or after 23 July 2024 (Finance Act, 2024). Section 397(1)(c) of the Income-tax Act, 2025, as amended by the Finance Act, 2026 — PAN-based challan for resident individual and HUF buyers of immovable property from non-residents, effective 1 October 2026. Income-tax Rules, 2026 — Form 141 (challan-cum-statement, successor to Form 26QB), Form 144 (successor to Form 27Q), Form 131 (successor to Form 16A). Section 194-IA / Section 393(1) cited for the resident-seller comparison only.