Navigating TDS When Buying NRI Property

Buying Property From an NRI? The TDS Mistakes Buyers Commonly Make

• If the seller is an NRI, TDS applies under Section 393(2) of the Income-tax Act, 2025. The 1% resident-seller rule does not apply.
• There is no minimum amount. Even a small purchase needs TDS.
• The rate is 12.5% on long-term gains and slab rates on short-term gains, plus surcharge and cess.
• A lower or nil TDS certificate can release a lot of your cash. Ask for it before you pay.
• You, as the buyer, carry the liability if TDS is short or late.

Buying property from an NRI feels like any other purchase, until the sub-registrar or the seller's bank asks for your TDS challan. The tax rules for an NRI seller are very different from those for a resident seller. A wrong deduction can leave you paying the tax, interest and penalty from your own pocket. The short answer: you must deduct TDS on every payment to an NRI seller, with no minimum limit, at 12.5% on long-term gains and at slab rates on short-term gains, plus surcharge and cess. This guide covers the seven mistakes buyers make most often, a worked example and the deposit process.

Table of Contents

1. What Are the TDS Rules When You Buy Property From an NRI?
2. 7 Common TDS Mistakes Buyers Make
3. Worked Example: How Much TDS Should You Deduct?
4. How to Deposit TDS and File the Return
5. Frequently Asked Questions
6. Conclusion

What Are the TDS Rules When You Buy Property From an NRI?

When a non-resident sells immovable property in India, the capital gain is taxable in India. The law makes the buyer the tax collector. From 1 April 2026, this sits in Section 393(2) of the Income-tax Act, 2025 (earlier Section 195 of the 1961 Act). It is one part of the wider framework of capital gains tax planning for HNIs (replace with pillar guide URL).

Point	Resident seller	NRI seller
Provision	Section 393(1) (earlier 194-IA)	Section 393(2) (earlier 195)
Threshold	Applies from ₹50 lakh	None
Rate	1%	12.5% on long-term gains; slab rates on short-term gains; plus surcharge and cess
Long-term holding		More than 24 months

7 Common TDS Mistakes Buyers Make

1. Treating the deal like a resident sale

Many buyers assume 1% TDS and a ₹50 lakh limit. Neither applies to an NRI seller. Using the wrong provision means short deduction from the very first payment.

2. Not verifying the seller's residential status

Do not rely on the seller saying "I am an NRI" or "I am resident". Ask for a passport copy, visa or residency proof, PAN and a signed declaration. If you assume "resident" and the seller is a non-resident, the shortfall is yours.

3. Using the wrong rate or forgetting surcharge and cess

Long-term and short-term gains are taxed differently. The base rate is not the final rate, because surcharge and 4% cess are added. A missing PAN can push the rate higher still.

4. Deducting on the wrong amount

The tax is on the gain, not necessarily the sale price. But without a certificate or a reliable computation of the gain, banks and registrars often insist on deduction on the full consideration. Guessing the gain is risky.

5. Ignoring the lower or nil TDS certificate

The seller can apply under Section 395(1) for a certificate that fixes a lower rate or nil deduction. Buyers often pay first and ask later. Ask for the certificate before the agreement or registration date, and deduct exactly as it says. Read our guide on the lower TDS certificate for NRIs (replace with older post URL).

6. Paying advances and instalments without TDS

TDS applies at the earlier of credit or payment. Token money, advances and each instalment all count. Paying ₹20 lakh in advance without deduction is already a default.

7. Missing the compliance trail

Common slips are depositing late, not filing the quarterly return (Form 144, which replaces Form 27Q), not issuing the TDS certificate to the seller and not keeping the challan. Deposit is due by the 7th of the month after deduction. Until 30 September 2026, a TAN was compulsory. From 1 October 2026, resident individuals and HUFs can deposit using their PAN. Joint buyers should each deposit their own share.

Worked Example: How Much TDS Should You Deduct?

An NRI sells a flat for ₹1.5 crore. The cost was ₹80 lakh, and the flat was held for more than 24 months. The long-term gain is ₹70 lakh. The surcharge rate below is illustrative, and the actual rate depends on the seller's total income.

	On the gain (₹70 lakh)	On full price (₹1.5 crore)
TDS at 12.5%	₹8,75,000	₹18,75,000
Surcharge (10% / 15%)	₹87,500	₹2,81,250
Cess at 4%	₹38,500	₹86,250
Total TDS	₹10,01,000	₹22,42,500

The gap is about ₹12.4 lakh. A lower-deduction certificate or a proper gain computation can keep that money with the seller, and keep you out of disputes.

How to Deposit TDS and File the Return

1. Confirm status and PAN of the seller and collect the lower-deduction certificate, if any.
2. Deduct TDS from each payment, including advances.
3. Pay online through the e-Pay Tax module on the Income Tax portal. The challan is generated at the time of payment.
4. Deposit by the 7th of the following month.
5. File the quarterly return and issue the TDS certificate to the seller.
6. Keep the challan and certificate safe, since many sub-registrar offices ask for them at registration.

For official guidance, refer to the Income Tax Department portal and CBDT notifications. The rules above apply to Tax Year 2026-27 (Financial Year 2026-27, earlier called Assessment Year 2027-28).

Frequently Asked Questions

Is there a minimum limit for TDS when buying property from an NRI?

No. Resident-seller TDS applies only from ₹50 lakh, but TDS on an NRI seller applies to every transaction, whatever the amount. Even a ₹10 lakh plot needs deduction, a challan and a return filing. Always confirm the seller's residential status first.

Can the NRI seller get lower or nil TDS?

Yes. The seller can apply to the Assessing Officer under Section 395(1) of the Income-tax Act, 2025, usually using Form 128. The certificate states the rate or amount you must deduct. Apply before the registration date, and deduct strictly as the certificate says.

Do I need a TAN to deposit TDS?

Until 30 September 2026, yes. From 1 October 2026, resident individuals and HUFs buying from an NRI can deposit TDS using their PAN instead. Other buyers, such as companies and firms, should confirm their position with a CA before paying.

What happens if I deduct less TDS or deposit it late?

You can be treated as an assessee in default. That means paying the shortfall with interest, and penalty or prosecution can follow in serious cases. The department can recover the tax from you even if the seller later settles their own liability. Compliance is cheaper than correction.

Conclusion

Most TDS problems in NRI property deals come from assumptions: treating the seller as resident, using the 1% rate, or paying first and asking later. Verify residential status, decide the deduction base, use a lower-TDS certificate where possible and keep every challan. If you are about to sign, get the numbers checked first through our NRI taxation services (replace with service page URL).

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Navigating TDS When Buying NRI Property