TDS on Buying Property from an NRI
Buying a property from an NRI is not the same as buying from a resident. The TDS rules are different, and many buyers get this wrong. If you deduct the wrong amount, the tax department can hold you responsible, not the seller. This guide explains how much TDS to deduct, why you need a TAN, and how to stay safe when buying from an NRI seller.
Quick summary
- Buying from an NRI falls under Section 195, not the usual 1% under Section 194-IA.
- TDS is on the full sale value, not only the gain, unless the seller has a lower deduction certificate.
- For long-term gains, TDS is 12.5% plus surcharge and cess. For short-term, it is at slab rates.
- The buyer must have a TAN and deposit the TDS using Form 27Q.
- The seller can apply for a lower or nil TDS certificate to cut the deduction.
Why the rule is different
When you buy from a resident for Rs 50 lakh or more, you deduct 1% TDS under Section 194-IA. That simple rule does not apply to NRI sellers. Sale by an NRI is covered by Section 195, which deals with payments to non-residents. The rate is much higher and the process is stricter.
How much TDS to deduct
The rate depends on how long the NRI held the property.
| Holding period | Type of gain | TDS rate |
|---|---|---|
| More than 24 months | Long-term | 12.5% plus surcharge and cess |
| 24 months or less | Short-term | At the seller's slab rate (up to 30%) plus surcharge and cess |
Surcharge depends on the sale value. With cess added, the effective long-term rate usually lands between about 13% and 15%. When in doubt, deduct on the higher side or ask the seller for a certificate.
TDS is on the full sale value
This is the part buyers miss. Under Section 195, TDS is deducted on the entire sale amount, not only on the profit. So on a Rs 1 crore purchase from an NRI with long-term gains, the base TDS at 12.5% is Rs 12.5 lakh plus surcharge and cess. The only way to lower this is if the seller gets a lower deduction certificate.
The lower deduction certificate
The NRI seller can apply to the income tax department under Section 197 for a certificate that fixes TDS on the actual gain instead of the full value. This can cut the deduction sharply. As a buyer, always ask if the seller has this certificate. If they do, deduct as per the certificate. If they do not, deduct on the full value to protect yourself.
You need a TAN
For an NRI purchase, the buyer must have a TAN (Tax Deduction Account Number). A PAN is not enough here. Apply for a TAN before the deal closes. You deduct the TDS, deposit it with the government, and file Form 27Q, which is the return for TDS on payments to non-residents. You then give the seller a TDS certificate in Form 16A.
Step by step for the buyer
- Confirm the seller is an NRI and how long they held the property.
- Apply for a TAN if you do not have one.
- Ask the seller for a lower deduction certificate. If none, plan to deduct on the full value.
- Deduct TDS at the time of payment.
- Deposit the TDS and file Form 27Q.
- Give the seller Form 16A.
Compare: resident vs NRI seller
| Point | Resident seller | NRI seller |
|---|---|---|
| Section | 194-IA | 195 |
| Rate | 1% of value | 12.5% or slab, on full value |
| Buyer needs | PAN | TAN |
| Return | 26QB | 27Q |
For the resident rules, see TDS on property purchase.
Frequently asked questions
What TDS applies when buying from an NRI?
Section 195. For long-term gains it is 12.5% plus surcharge and cess. For short-term it is at slab rates. It is on the full sale value.
Is TDS 1% when buying from an NRI?
No. The 1% rate is only for resident sellers under Section 194-IA. NRI sales are taxed much higher under Section 195.
Do I need a TAN to buy from an NRI?
Yes. The buyer must have a TAN to deduct and deposit TDS and to file Form 27Q. A PAN alone is not enough.
Is TDS on the gain or the full value?
On the full sale value, unless the seller gives you a lower deduction certificate that limits it to the actual gain.
How can the seller reduce the TDS?
By applying under Section 197 for a lower or nil deduction certificate. As a buyer, deduct as per the certificate if provided.
What form is used to file this TDS?
Form 27Q, the return for TDS on payments to non-residents. After filing, give the seller Form 16A.
What if I deduct too little?
The tax department can treat you as in default and recover the shortfall with interest and penalty from you, the buyer. Deduct correctly.
Does the seller still file a return?
Yes. The seller files their own income tax return, computes the real gain, and can claim a refund if the TDS was more than the actual tax.
Can I use the seller's PAN instead of a TAN?
No. Section 195 needs your own TAN. This is different from the resident buyer process.
What if the seller reinvests the gain?
The seller can still claim exemptions like Section 54 or 54EC in their return. That does not remove your duty to deduct TDS unless a certificate says otherwise.
The safe path is simple. Get a TAN, ask for a lower deduction certificate, and if there is none, deduct on the full value. That protects you as the buyer. To repatriate proceeds, the NRI seller can read our guide on repatriation of property sale proceeds.
