Looking for expert help with TDS on property purchase from NRI, Section 195 property NRI, NRI property TDS 2026, TDS on buying property from NRI, 194IA vs 195? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Quick answer
If the seller is a non-resident, the 1% TDS under Section 194-IA does not apply. The buyer deducts under Section 195 (Section 393(2) of the Income-tax Act, 2025 from 1 April 2026): 12.5% for long-term gains or 30% for short-term gains, plus surcharge and 4% cess, with no Rs 50 lakh threshold. Without a lower deduction certificate, buyers usually deduct on the full price. From 1 October 2026, resident individual and HUF buyers can deposit this TDS with their PAN instead of a TAN.
Why the 1% Rule Can Be Wrong
Section 194-IA requires a buyer to deduct 1% when the seller is a resident and the consideration or stamp duty value is Rs 50 lakh or more. From 1 April 2026 the same rule sits in Section 393(1) of the Income-tax Act, 2025. Our Section 194-IA guide covers that route in full.
The seller's residence is a condition of the section. If the seller is a non-resident, Section 194-IA simply does not apply, and Section 195 takes over. Section 195 covers any payment to a non-resident that is chargeable to tax in India, and the gain on Indian property always is.
| Aspect | Resident seller: Section 194-IA / 393(1) | NRI seller: Section 195 / 393(2) |
|---|---|---|
| TDS rate | 1% | 12.5% (long-term) or 30% (short-term), plus surcharge and cess |
| Threshold | Rs 50 lakh | None |
| Base | Higher of consideration or stamp duty value | Capital gain portion; in practice full price without a certificate |
| TAN | Not needed | Needed up to 30 Sep 2026; not for resident individual or HUF buyers from 1 Oct 2026 |
| Deposit and statement | Form 26QB, Form 141 from 1 April 2026 | Challan and Form 27Q, Form 144 from 1 April 2026 |
| Certificate to seller | Form 16B, Form 132 from 1 April 2026 | Form 16A, Form 131 from 1 April 2026 |
The ITAT Indore Case: Rs 5.15 Lakh Penalty on Each Buyer
In Jitendra Sharma v. JCIT (International Taxation), ITA 500-502/Ind/2018, order dated 14 October 2020 for AY 2015-16, three buyers jointly purchased a property for Rs 75 lakh, paying Rs 25 lakh each through a broker.
The sale deed gave the seller's address in Farrukhabad, Uttar Pradesh and his then address in Colorado, USA. The buyers had his PAN, deducted 1% under Section 194-IA (Rs 25,000 each) and deposited it.
The department held that the seller was a non-resident, so Section 195 applied at 20.6%, the long-term rate at that time. The buyers then paid TDS at 20.6% (Rs 5.15 lakh each on their Rs 25 lakh shares, against the Rs 25,000 already deducted), plus about Rs 1.03 lakh interest each. The Assessing Officer still levied a penalty of Rs 5.15 lakh on each buyer under Section 271C, which the CIT(A) confirmed.
The Tribunal deleted the penalty under Section 273B, accepting reasonable cause: the buyers had a bona fide belief that Section 194-IA applied, and they corrected the shortfall as soon as it was raised.
The lesson is not that the mistake is free. The buyers still paid the full shortfall and interest, and went through three levels of litigation to escape the penalty. An Indian address, an Indian PAN or an Aadhaar card does not prove a seller is resident. Residence depends on days of stay in India under Section 6, year by year. Get the seller's residential status in writing before agreeing the payment schedule.
TDS Rates When the Seller Is an NRI
| Gain | Holding period | Base rate | With 4% cess and surcharge |
|---|---|---|---|
| Long-term (Section 112) | More than 24 months | 12.5% without indexation, for transfers on or after 23 July 2024 | 13.00% (no surcharge), 14.30% (10%), 14.95% (15%) |
| Short-term | 24 months or less | 30% for a non-resident individual | 31.20% (no surcharge), 34.32% (10%), 35.88% (15%), 39.00% (25%), 42.74% (37%) |
Surcharge for individuals is 10% above Rs 50 lakh, 15% above Rs 1 crore, 25% above Rs 2 crore and 37% above Rs 5 crore (old regime; the new regime caps it at 25%). On long-term gains under Section 112 it is capped at 15%. For TDS under Section 195, the surcharge slab is decided by the amount paid or credited.
A non-resident cannot use the option of 20% with indexation for land or buildings bought before 23 July 2024. That choice is only for resident individuals and HUFs. For the seller's side of the transaction, see our NRI capital gains guide.
Worked example
An NRI sells a flat for Rs 90 lakh. They bought it seven years ago for Rs 50 lakh, so the gain before expenses is about Rs 40 lakh. There is no lower deduction certificate.
- Buyer deducts on the full price: Rs 90 lakh x 14.30% (12.5% + 10% surcharge + 4% cess) = Rs 12.87 lakh
- Seller's actual tax, if the Rs 40 lakh gain is their only Indian income (no surcharge): Rs 40 lakh x 13.00% = Rs 5.20 lakh
- Excess withheld: Rs 7.67 lakh, which the seller gets back only by filing an ITR in India
This gap is why the seller, not the buyer, should apply for a lower deduction certificate before the deal closes.
From 1 October 2026: PAN Instead of TAN
Until now, a resident individual buying from an NRI had to apply for a TAN just for this one transaction, deposit the TDS against that TAN, file a quarterly Form 27Q and issue Form 16A. A buyer from a resident seller needs none of this and uses only their PAN.
Budget 2026-27 removed that gap. 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, without a TAN.
- Companies, firms and LLPs buying from a non-resident still need a TAN.
- The TDS rate, the base and the seller's tax do not change. Section 195 still applies from the first rupee.
Up to 30 September 2026 the TAN route still applies. If you are registering in the next few days, either get a TAN or schedule the payment for on or after 1 October once the PAN-based challan is live on the e-filing portal. Before you pay, check the portal for the exact form it uses.
Lower Deduction Certificate: The Seller's Job
| Item | Detail |
|---|---|
| Provision | Section 395(1), Income-tax Act, 2025 (earlier Section 197) |
| Form | Form 128, from 1 April 2026 (earlier Form 13) |
| Who applies | The NRI seller, online |
| What it does | Lets the buyer deduct at a lower or nil rate based on the actual gain |
| When | Well before the registration date; processing takes time |
Our Section 197 lower deduction certificate guide covers the application in detail. As the buyer, you can make the certificate a condition in the sale agreement. If there is no certificate by the payment date, deduct on the full price.
Step-by-Step Checklist for the Buyer
- Confirm residential status in writing. Ask the seller for a declaration of residential status for the current year, with passport stamps or days-of-stay details. Do not rely on the address in the deed.
- Find out the holding period. Get the seller's purchase deed to see whether the gain is long-term (more than 24 months) or short-term.
- Ask for the Form 128 certificate early. If the seller has one, deduct at the certified rate.
- Work out the TDS. Without a certificate, apply the rate to the full price, including surcharge and cess.
- Deduct at payment or credit, whichever is earlier. This applies to every instalment, including the advance.
- Deposit. Up to 30 September 2026: challan with your TAN, by the 7th of the next month (30 April for March deductions). From 1 October 2026 (resident individual or HUF): PAN-based challan.
- File the statement and issue the certificate. On the TAN route: Form 27Q (Form 144 from 1 April 2026) and Form 16A (Form 131) from TRACES.
- Remittance forms. If the seller sends the money abroad, Form 145 is filed before the remittance, with a CA certificate in Form 146 where the taxable remittance exceeds Rs 5 lakh in the financial year. These replace Form 15CA and 15CB.
- Keep records. Seller's declaration, certificate, challans, statements and the sale deed.
Consequences of Getting It Wrong
The buyer carries the risk, not the seller. A clause saying "the seller will pay their own taxes" does not move the liability.
| Consequence | Provision | Impact |
|---|---|---|
| Shortfall in TDS | Section 201(1) | Buyer is an assessee in default for the balance |
| Interest | Section 201(1A) | 1% per month from when TDS was deductible to when deducted; 1.5% per month from deduction to deposit |
| Late statement | Section 234E | Rs 200 per day, up to the TDS amount |
| Statement not filed or incorrect | Section 271H | Rs 10,000 to Rs 1 lakh |
| Penalty for not deducting | Section 271C | Up to the TDS not deducted; can be deleted for reasonable cause |
| Deducted but not deposited | Section 276B | Prosecution |
Section numbers above are under the Income-tax Act, 1961, which applies to deductions up to 31 March 2026. The Income-tax Act, 2025 carries equivalent provisions for later deductions.
Key Takeaways
- The 1% rule is only for resident sellers. For an NRI seller, Section 195 applies from the first rupee.
- Long-term gain TDS is 13.00% to 14.95% after cess and surcharge. Short-term starts at 31.20%.
- Without a Form 128 certificate, deduct on the full price.
- TAN is needed up to 30 September 2026. From 1 October 2026, resident individual and HUF buyers can use their PAN.
- If you get the section wrong, you pay the shortfall with interest, and a penalty is possible.
Where Tax Garden Helps
Tax Garden helps property buyers confirm the seller's residential status, decide between Section 194-IA and Section 195, compute TDS on the right base with surcharge and cess, deposit it through the TAN or PAN route, file the statement, issue the certificate, and reply to any short-deduction notice.
This article is general information based on the Income-tax Act, 1961, the Income-tax Act, 2025 and Budget 2026-27 announcements. Check the e-filing portal for the current forms before depositing TDS.
