Buying Property From an NRI? Your TDS Obligations as the Buyer

Somewhere in the middle of a straightforward-looking purchase, a buyer often discovers the seller lives in Dubai, London or Toronto, and everything about the TDS process changes. If you were expecting to withhold a token 1% the way you would from a resident seller, you’re about to find out the real number is much larger, and that you, not the seller, carry the risk of getting it wrong.

Why buying from an NRI is different

For a resident seller, Section 194-IA is almost an afterthought: 1% of the price, and only if the property costs ₹50 lakh or more. Section 195 governs a non-resident seller instead, and it works nothing like that. There is no ₹50-lakh threshold, TDS applies from the first rupee. And unless the seller hands you a specific certificate, you must deduct on the entire sale price, not their profit, because you have no legal way of knowing what they originally paid. On a ₹1.2 crore flat, that can mean withholding close to ₹18 lakh rather than the ₹1.2 lakh you’d deduct for a resident seller at the same price. Sellers understandably want that number renegotiated or explained; as the buyer, understanding it protects you from a much bigger problem than an awkward conversation.

Step 1: confirm the seller’s residential status, in writing

Don’t assume. Residential status for tax purposes turns on days spent in India over the relevant years, not on passport or citizenship, so ask the seller directly and get their answer into the agreement to sell. If a buyer deducts the ordinary 1% under Section 194-IA and the seller turns out to have been a non-resident, the tax department can and does come after the buyer for the shortfall, with interest and penalties. Protecting yourself here is simple: ask early, get it in writing, and see their PAN before you finalise the deduction rate.

Step 2: work out the correct rate

How long the seller has held the property decides the rate. Over 24 months is a long-term sale; under 24 months is short-term and taxed, and withheld, at their slab rate, effectively 30% plus surcharge and cess. For a long-term sale, here are the effective rates you’re withholding against, absent a certificate:

Base rate of 12.5% on the gain plus applicable surcharge and 4% cess, applied to the full sale price without a certificate. Rates move with each year’s Finance Act, confirm the current figures before you rely on them.

If the seller has held the property under two years, expect to withhold at roughly 30% plus surcharge and cess instead, materially higher, and one more reason sellers who can wait out the two-year mark generally do. Our NRI TDS calculator turns a sale price and holding period into the amount you actually have to withhold.

Step 3: get a TAN and deposit the tax, the current process

Through September 2026, deducting under Section 195 requires you, the buyer, to obtain a TAN (Tax Deduction Account Number) if you don’t already have one, deposit the TDS via Challan ITNS-281 within seven days of the end of the month you deducted it, file a quarterly Form 27Q return, and issue the seller a Form 16A certificate as proof. It is genuinely more paperwork than most individual buyers have handled before, applying for a TAN you’ll likely never use again is the step that most surprises people, and it’s a large part of why deals with NRI sellers sometimes stall at this stage.

What changes on 1 October 2026

A Finance Act 2026 amendment removes the TAN requirement for this specific situation. From 1 October 2026, a resident individual or HUF buyer purchasing property from an NRI can deposit TDS using their own PAN through a challan-cum-statement, the same simplified pattern already used for resident sellers under Form 26QB, instead of applying for a TAN and filing a separate quarterly Form 27Q. The tax rates and your liability as a buyer are unchanged, only the compliance mechanics get lighter. If your purchase completes close to that date, check which regime applies before you start the TAN application, there’s no point starting a process the law is about to retire.

If the seller has a lower-deduction certificate

Many NRI sellers apply for a certificate under Section 197 (commonly called Form 13) before the sale completes, which instructs you to deduct tax only on their actual expected gain rather than the full price. If your seller produces one, deduct exactly what it specifies and keep a copy for your records, it’s your protection if the deduction amount is ever questioned later. Don’t accept a verbal assurance that a certificate is coming, if it isn’t in hand by the time you pay, deduct at the standard rate above and let the seller recover any excess through their own tax return. It helps to know what the certificate looks like from the other side of the table: our guide to TDS on an NRI property sale covers the Form 13 application, how long it takes, and why a seller who has not started it early will usually rather delay than complete without it.

What happens if you get it wrong

This is the section worth reading twice. If you deduct too little, whether because you assumed a seller was resident, applied the wrong rate, or skipped withholding altogether, the tax department pursues you, the buyer, for the shortfall plus interest, and potentially a penalty. The seller having already received and possibly spent the money doesn’t change that. This asymmetry is exactly why careful buyers confirm status and rate before they pay, rather than after a tax notice arrives.

A practical checklist

1. Get the seller’s residential status confirmed in writing in the agreement to sell.
2. Ask whether they hold, or are applying for, a Section 197 lower-deduction certificate, and get a copy before you finalise the rate.
3. Apply for a TAN early if your transaction falls before 1 October 2026, it takes time you don’t want to lose at closing.
4. Deposit the TDS on time, file Form 27Q (or the simplified PAN-based statement after October 2026), and issue Form 16A to the seller promptly, they need it to claim credit and any refund.
5. Keep every document, the certificate, challan and return acknowledgement, for your own records well beyond the sale itself.

The bottom line

Buying from an NRI seller means more paperwork and a much larger withholding than buying from a resident, but none of it is optional and all of it is manageable if you start early. The process is also about to get materially simpler: once the October 2026 change lands, a one-off property purchase from an NRI won’t require a TAN you’ll never use again. Until then, budget the time for it, and treat the seller’s residential status and certificate paperwork as things to settle before you pay, not after.

Tax rules and thresholds change with each Finance Act. Confirm the current rates and process with a chartered accountant before you deduct or deposit TDS on an actual transaction.