How to Pay TDS on Property Purchase from NRI (FY 2026-27): A Buyer's Complete Guide
If you're buying a house, flat, or plot from an NRI seller in India, there's one rule you cannot afford to get wrong: TDS under Section 195. It works very differently from the TDS you'd deduct while buying property from a resident Indian, and getting it wrong can leave you facing interest, penalties, and even scrutiny from the Income Tax Department.
Most buyers only find out about these rules after they've already signed the sale agreement which is exactly the wrong time to learn them. So let's walk through what the law actually requires, step by step, in plain language.
Why NRI Property Deals Are Taxed Differently
When you buy property from a resident Indian seller, TDS is governed by Section 194IA. It's simple: deduct 1% of the sale value, but only if the property costs more than ₹50 lakh.
None of that applies when the seller is an NRI. Instead, Section 195 takes over, and it changes almost everything:
- There's no ₹50 lakh threshold. Even a ₹20 lakh property purchase from an NRI attracts TDS.
- TDS isn't a flat 1%. It's based on the seller's actual capital gains tax rate, which depends on how long they owned the property.
- TDS applies to the entire sale value, not just the profit — unless the seller has a special certificate saying otherwise.
- You'll need a TAN, not just a PAN, to deposit this tax (though this is changing — more on that below).
- The form is different. You file Form 27Q, not Form 26QB.
The Step-by-Step Compliance Process
Step 1: Confirm the Seller Is Actually an NRI
Before anything else, get proof. Ask for the seller's passport and visa, or an OCI/PIO card, along with something establishing their non-resident status for tax purposes. This isn't just a formality deducting TDS under the wrong section because you assumed someone was a resident is a common and costly mistake.
Step 2: Apply for a TAN
Unlike resident property deals where your PAN is enough, Section 195 traditionally requires the buyer to hold a Tax Deduction Account Number (TAN). You can apply for this online through the NSDL or UTIITSL portal it usually takes just a few days to get.
Step 3: Work Out the Holding Period and the Right TDS Rate
This is the part most buyers get wrong, because the rate isn't fixed it depends on whether the seller made a long-term or short-term capital gain.
Long-term capital gains (property held over 24 months):
TDS is deducted at 12.5% of the full sale consideration, without the benefit of indexation, plus applicable surcharge and 4% health and education cess.
Short-term capital gains (property held 24 months or less):
TDS is deducted at the seller's applicable income tax slab rate (which can effectively work out close to 30% at the top end), again plus surcharge and cess.
Ask the seller for proof of their original purchase date and price you'll need it to calculate the holding period correctly, and it protects you if the deduction is ever questioned later.
Step 4: Remember — TDS Applies to the Whole Sale Price
This trips up a lot of buyers. With resident sellers, you deduct tax only on the profit portion in certain cases. With NRI sellers, TDS by default applies to the entire sale consideration, not just the capital gain even if the seller barely made any profit on the deal.
There's one way around this: if the seller has obtained a Lower or Nil Deduction Certificate under Section 197 (via Form 13, filed with their Assessing Officer), you deduct TDS only at the rate mentioned on that certificate. This certificate typically takes a few weeks to a couple of months to process, so if the seller wants one, they need to apply well before the deal closes not the week before registration.
Step 5: Deduct TDS Before You Pay
Once you know the applicable rate, deduct that amount from every payment you make to the seller whether it's a token advance, an installment, or the final payment. This isn't a one-time deduction at the end; if payments are staggered, TDS has to be deducted on each tranche.
The remaining amount is paid to the seller's NRO (Non-Resident Ordinary) account.
Step 6: Deposit the TDS with the Government
The deducted TDS must reach the government by the 7th of the month following the deduction. For example, if you deduct TDS on 20 August, it must be deposited by 7 September.
This is done through an online challan payment (via your TAN), similar in spirit to how any other TDS deposit works, but filed under Section 195 rather than 194IA.
Step 7: File Form 27Q Quarterly
After depositing the tax, you're required to file a TDS return in Form 27Q this is the NRI-specific return, and it's separate from Form 26QB (which only applies to resident sellers). It's filed quarterly, with due dates as follows:
| Quarter Period | Filing Due Date |
|---|---|
| April – June | By 31 July |
| July – September | By 31 October |
| October – December | By 31 January |
| January – March | By 31 May |
Step 8: Issue Form 16A to the Seller
Once the return is filed, you need to give the NRI seller a Form 16A the TDS certificate within 15 days of the due date for filing that quarter's return. The seller will need this to claim credit for the tax you deducted when they file their own return in India.
Common Mistakes to Avoid
- Using Form 26QB instead of Form 27Q. It's the single most frequent error — 26QB is only for resident sellers.
- Deducting only 1%, like a resident deal. The NRI rate is much higher and depends on the seller's capital gains position.
- Deducting TDS only on the profit. You can only do this if the seller has a valid Section 197 certificate in hand.
- Skipping TAN registration, or trying to deposit tax using your own PAN instead.
- Missing the quarterly Form 27Q filing — buyers often deposit the tax and forget the return entirely, which still attracts a late fee.
- Not verifying the seller's NRI status properly before assuming which section applies.
What Happens If You Get This Wrong
If you fail to deduct TDS, deduct too little, or deposit it late, the consequences fall entirely on you as the buyer:
- You can be treated as an "assessee in default" and made personally liable for the shortfall, plus interest.
- Interest of around 1.5% per month applies on late deposits.
- Late filing of Form 27Q attracts a fee of ₹200 per day.
- Under Section 271C, a penalty equal to the TDS amount not deducted can be levied.
None of this is recoverable from the seller after the fact — it's the buyer's compliance responsibility, so it's worth getting right the first time.
A Quick Real-World Example
Say you're buying a flat from an NRI seller for ₹80 lakh, and they've owned it for six years (making it a long-term capital asset).
• Base TDS: 12.5% of ₹80 lakh = ₹10 lakh
• Add surcharge and cess on top, depending on the seller's income slab
• You deduct this amount from the payment and remit the balance to their NRO account
• You deposit the TDS by the 7th of the following month and file Form 27Q for that quarter
If the seller instead has a Section 197 certificate specifying, say, 6% TDS based on their actual computed gain, you'd deduct at that lower rate instead.
0 Discussion Comments
No comments yet
Be the first to share your thoughts on this article.