Buying Property From an NRI: TDS, the Lower-Deduction Certificate and the Paperwork
When you buy from an NRI, you must deduct TDS from the whole price, not 1%. On a long-term sale that is 12.5% plus surcharge and cess, up to 14.95%, unless the seller gives you a lower-deduction certificate. From 1 October 2026, a resident individual or HUF buyer no longer needs a TAN: you deposit and report the tax on Form 141 using your own PAN.
Key takeaways
- The provision is section 393(2) of the Income-tax Act, 2025 (the old section 195). There is no Rs 50 lakh threshold: TDS applies from the first rupee.
- TDS is worked out on the full sale price unless the seller hands you a certificate under section 395 on Form 128 (the old section 197 and Form 13) fixing a lower rate.
- The Income-tax (Fifth Amendment) Rules, 2026, notified on 22 September 2026, added Schedule E to Form 141. From 1 October 2026, individual and HUF buyers use their PAN; companies and firms still need a TAN.
- Get the seller's residential status in writing. Treating an NRI as a resident and deducting 1% leaves you liable for the shortfall, with interest.
- Pay the balance into the seller's own bank account (normally an NRO account), even when an attorney signs the deed.
Why the buyer carries the tax risk
When a resident sells a flat, you deduct 1% on deals of Rs 50 lakh or more and move on; that route is covered in our guide to TDS on property purchase. A non-resident seller is different. India cannot easily collect tax from someone abroad, so the law makes the buyer withhold the likely tax before the money leaves the country, and makes the buyer answerable if it is short.
That is the whole reason this deal feels heavier. The seller's side, from the capital gains computation to repatriating the proceeds, sits in our guide for an NRI selling property in India. This page covers only what you, the buyer, must do.
The rate you deduct
You deduct at the rate that applies to the seller's capital gain, applied to the whole amount you pay:
| Seller's holding | Base rate | Price Rs 50 lakh to Rs 1 crore (10% surcharge) | Price above Rs 1 crore (15% surcharge) |
|---|---|---|---|
| Long-term (more than 24 months) | 12.5% | 14.3% | 14.95% |
| Short-term (24 months or less) | 30% | 34.32% | 35.88% |
| Price below Rs 50 lakh (no surcharge) | Base rate plus 4% cess | 13% long-term | 31.2% short-term |
All figures include the 4% health and education cess. Guides differ slightly on the surcharge a buyer should apply, so where the seller has a certificate, use the certificate's rate and the question disappears. Check the seller's purchase deed yourself to confirm the holding period rather than accepting a verbal "long-term".
The lower-deduction certificate
Deducting 14.95% of the price when the real tax is on the gain alone ties up a large part of the seller's money until a refund comes through. The fix is a certificate under section 395(1), applied for on Form 128 online. The tax officer fixes a rate based on the estimated capital gain, and the certificate names the buyer.
- It is the seller's application, supported by the purchase deed, the agreement to sell, cost and improvement proof and a gain computation.
- Processing takes weeks, not days: guides quote anything from two to eight weeks.
- Put it in the agreement: either the certificate is in hand before registration, or you deduct at the full rate.
- Deduct at exactly the rate and amount the certificate states, and keep a copy with your records.
Worked example: a Rs 1.5 crore flat
An NRI bought a flat in 2018 for Rs 90 lakh and is selling it to you for Rs 1.5 crore. It is long-term, and the price is above Rs 1 crore.
- Without a certificate: 14.95% of Rs 1.5 crore = Rs 22,42,500 deducted. The seller receives Rs 1,27,57,500.
- The seller's real tax: the gain, ignoring costs, is Rs 60 lakh. At 12.5% that is Rs 7.5 lakh; with a 10% surcharge (Rs 75,000) and 4% cess (Rs 33,000), Rs 8,58,000. The seller waits for a refund of Rs 13,84,500.
- With a certificate fixing TDS at the estimated tax: you deduct Rs 8,58,000 (5.72% of the price) and pay the seller Rs 1,41,42,000.
- If it were short-term: 35.88% of Rs 1.5 crore = Rs 53,82,000, which is why sellers holding for less than two years almost always apply for a certificate.
Depositing the tax: before and after 1 October 2026
| Step | Payment on or before 30 September 2026 | Payment from 1 October 2026 (individual or HUF buyer) |
|---|---|---|
| Registration number | TAN required | Your PAN; no TAN |
| Deposit and reporting | Challan under TAN, then quarterly TDS return on Form 144 (which replaced Form 27Q) | Form 141, new Schedule E, filed through PAN login |
| Details reported | Deductee, amount, rate, tax | For each seller: amount paid, date, amount liable, rate, tax deducted |
| Certificate to seller | Issued after the quarterly return is filed | Form 132 |
Guides on the new route say Form 141 must be filed within a month from the end of the month in which you deduct. Each co-buyer files a separate Form 141 for their share. If you are a company, LLP or partnership, nothing changes: you still need a TAN and a quarterly return.
If you already paid an instalment under the old route, finish that quarter's return under your TAN. Use the PAN route for payments you make from 1 October.
Paying the seller, and sales signed under a power of attorney
Many NRI sellers do not fly in for registration and sign through an attorney in India. That is lawful if the power of attorney was executed properly abroad (notarised and apostilled or attested at an Indian mission, then adjudicated for stamp duty in India) and expressly allows sale and receipt of money. Our guide to NRI power of attorney for property covers what the document must say.
Your protection is to pay the seller, not the attorney. Transfer the balance to an account in the seller's own name, normally the NRO account where Indian sale proceeds are credited, and quote the seller's PAN in the TDS filing. Ask for a recent confirmation from the seller directly (a video call and an email from the seller's own address) that the power of attorney is still in force, because a revoked or forged power is the classic NRI-sale fraud.
What goes wrong when TDS is short
Section 398 of the 2025 Act (the old section 201) treats a buyer who fails to deduct or deposit as an assessee in default. Interest runs at 1% a month from when tax should have been deducted until it is, and 1.5% a month from deduction until deposit. A penalty equal to the tax not deducted can follow.
On the Rs 1.5 crore flat, a buyer who wrongly deducts 1% (Rs 1.5 lakh) is short by Rs 20,92,500. Interest alone is about Rs 20,925 for every month the shortfall stands, and the department can recover the full shortfall from you, not the seller who has left the country.
Your checklist
- Written declaration of residential status, with passport and visa or overseas address proof.
- Seller's PAN, verified against the name on the deed.
- The purchase deed, to confirm the holding period and the chain of title.
- The Form 128 certificate if the seller wants lower TDS, obtained before registration.
- If signing through an attorney, the original power of attorney and its adjudication.
- Balance paid into the seller's own account; TDS deposited and reported on time; certificate issued.
Who should think twice
If you are buying on a tight timeline, a seller who has not started the Form 128 application will either cost you weeks or leave you negotiating over a large deduction the seller dislikes. If the seller refuses to confirm non-resident status in writing, walk away. And if a home loan funds most of the price, plan the TDS from your own funds, because banks disburse to the seller's account and the tax still has to come from you.
For an NRI seller living in the US, the deduction you make is also what the seller's US foreign tax credit is built on, as our guide to US tax on selling property in India explains.
Frequently asked questions
How much TDS does a buyer deduct when the seller is an NRI?
On a long-term sale, 12.5% of the full price plus surcharge and 4% cess: 13% below Rs 50 lakh, 14.3% up to Rs 1 crore and 14.95% above it. On a short-term sale the base is 30%. The seller can bring the deduction down only with a lower-deduction certificate issued on Form 128.
Do I still need a TAN to buy a flat from an NRI?
Not from 1 October 2026 if you are a resident individual or HUF. New rules notified on 22 September 2026 let you deposit and report the tax through Schedule E of Form 141 using your PAN. Payments made on or before 30 September still go through a TAN, and companies, LLPs and firms still need one.
What if I deducted only 1% by mistake?
You are liable for the shortfall. Deposit the balance as soon as you find the error. Interest runs at 1% a month on tax not deducted and 1.5% a month on tax deducted but not deposited, and a penalty up to the tax not deducted is possible. Correct the filings rather than waiting for a notice.
Can an NRI seller's attorney receive the sale money?
The attorney can sign the deed if the power of attorney allows it, but you should pay the seller's own bank account, normally the NRO account. Payment to the attorney personally makes it harder to prove the seller was paid, and exposes you if the power was revoked or forged.
How long does a lower-deduction certificate take?
Weeks. Guides quote two to eight weeks from a complete Form 128 application, and the certificate names the buyer, so the seller usually applies once the agreement to sell is signed. Build the wait into the registration date, or agree in writing that you will deduct at the full rate if it has not arrived.
If you are buying from an owner who lives abroad, Realty Hunting can help you check the paperwork and line up the tax steps before the registration date.
Sources
The figures and rules in this post were researched against these sources. Rates, fees and rules change; check the current figure with the authority before you pay or sign.
