Income Tax · Section 195
TDS On Purchase Of Property From Nri Section 195 (India, 2026)
Buying a flat or plot from an NRI seller is not the same as buying from a resident. When the seller is a non-resident, the buyer must deduct tax at source under section 195, not the simple 1 percent that applies to resident sellers, and the amount is far larger. This guide explains what section 195 asks of the buyer, how much to deduct, how to deposit it, and the mistakes that leave the buyer, not the seller, holding the liability.
- Which section: buying from an NRI falls under section 195, not the 1 percent section 194-IA.
- Rate: based on the seller's capital gain (long term or short term) plus surcharge and cess, as notified; not a flat 1 percent.
- No threshold: section 195 applies whatever the sale value; there is no Rs 50 lakh floor.
- TAN needed: the buyer must have a TAN to deduct and deposit section 195 TDS.
- Lower rate: only with a section 197 certificate the seller obtains in Form 13.
- Report: deposit the TDS, file Form 27Q and issue Form 16A to the seller.
01Why section 195 applies, not section 194-IA
When you buy immovable property worth Rs 50 lakh or more from a resident seller, you deduct a flat 1 percent TDS under section 194-IA. That rule does not apply when the seller is a non-resident Indian (NRI).
For an NRI seller, the payment is a payment to a non-resident, so it falls under section 195. Section 195 covers TDS on any sum paid to a non-resident that is taxable in India, and the gain on sale of Indian property is taxable in India. The rate is based on the seller's capital gain, not a flat 1 percent, and it applies whatever the sale value, with no Rs 50 lakh floor.
The seller's residential status decides the section
What matters is whether the seller is a resident or a non-resident for income tax purposes, not whether they are an Indian citizen or hold an Indian passport. If the seller is a non-resident in the relevant year, section 195 applies. Check the seller's status in writing before you pay.
02How much TDS you must deduct
Under section 195 the TDS is deducted on the seller's taxable capital gain, and the rate depends on whether the gain is long term or short term.
| Type of gain | When it applies | TDS rate (as notified) |
|---|---|---|
| Long-term capital gain | Property held for more than 24 months | The notified long-term rate plus surcharge and cess |
| Short-term capital gain | Property held for 24 months or less | The seller's applicable slab rate plus surcharge and cess |
In practice the deduction is often computed on the full sale consideration unless the seller gets a certificate (see below) that lets you deduct on the lower gain amount. Surcharge and a health and education cess are added on top of the base rate, which is why the effective deduction on a long-term sale by an NRI can run well into double digits as a percentage of the price.
Because the base rate, surcharge and indexation position were all revised in recent Finance Acts, confirm the current figure for the date of transfer rather than relying on an old percentage.
03The buyer needs a TAN
This is the step most first-time buyers miss. To deduct TDS under section 195 you, the buyer, need a TAN (Tax Deduction and Collection Account Number). A PAN is not enough. Section 194-IA on resident sales is deliberately TAN-free, but section 195 is not.
- Apply for a TAN before you deduct or deposit the tax. A TAN is applied for with a standard set of identity and address documents, and a PAN alone will not do.
- Both buyers need a TAN if the property is bought jointly and both are deducting.
- Quote the TAN on the challan, the return and the TDS certificate you give the seller.
Deducting without a TAN, or depositing under the wrong challan, is a common reason these transactions unravel at the registration or banking stage.
04Lower or nil deduction certificate
Deducting on the full sale price can lock up far more of the seller's money than their actual tax. To avoid this, the seller can apply to the Assessing Officer under section 197 for a certificate authorising deduction at a lower rate, or nil, based on the real capital gain.
- The seller applies in Form 13 on the income tax portal and shares the certificate with you.
- If you receive a valid certificate, deduct at the rate it specifies, not the default.
- Without a certificate, deduct at the full notified rate. You cannot decide a lower rate on your own judgement.
The lower deduction certificate is the seller's job to obtain, but it protects the buyer too: it is the only safe way to deduct less than the default rate.
05How to deposit and report the TDS
Once deducted, the TDS has to reach the government and be reported, on time.
- Deposit the deducted amount using challan-cum-statement through the income tax or TIN portal, by the 7th of the month after deduction.
- File a quarterly TDS return in Form 27Q, which is the return for TDS on payments to non-residents.
- Issue Form 16A (the TDS certificate) to the NRI seller after filing.
- Keep the challan, the return acknowledgement and the certificate with your purchase papers.
Form 27Q and the general process overlap with any other TDS you file; the mechanics are similar to those explained in TDS on salary (section 192B). Late deposit or late filing attracts interest and a daily late fee, so the dates matter.
06Mistakes that cost the buyer
With section 195 the buyer carries the liability, so a mistake here is the buyer's problem, not the seller's.
- Treating it as a 1 percent deduction. That is the resident rule. Under-deducting leaves you liable for the shortfall, interest and penalty.
- Not getting a TAN. You cannot validly deposit section 195 TDS without one.
- Relying on the seller's word about residential status. Get it in writing and verify.
- Deducting a lower rate without a section 197 certificate. Only a valid certificate justifies deducting less.
- Missing the deposit or Form 27Q dates. Interest and late fees build up quickly.
Because the amounts are large and the buyer bears the risk, this is one of the filings where it is worth getting the computation checked before you pay the seller, not after.
07How Claw Tax helps
Claw Tax and Accounts is an online tax, GST and accounting service for India that connects you with a verified chartered accountant at a fixed, published price, with a Claw reviewer checking every filing before it is submitted.
Section 195 on an NRI property purchase is not a do-it-yourself form for most buyers, because the rate turns on the seller's capital gain, the surcharge and cess, whether a section 197 certificate exists, and getting the TAN, deposit and Form 27Q right. A single wrong assumption sits with you as the buyer.
A verified chartered accountant from a network of 300+ partner CAs can confirm the seller's status, compute the correct deduction, help you obtain the TAN, deposit the tax and file Form 27Q at a fixed, published price, with a Claw reviewer checking it before submission, and reminders before the due dates. A free 20-minute call lets you lay out the transaction first. See the services and prices at clawlaw.in/tax.
This is general information, not tax advice; a verified CA handles the specifics of your case.
08Frequently asked questions
Is TDS on buying property from an NRI 1 percent?
No. The 1 percent rate under section 194-IA applies only when the seller is a resident. When the seller is a non-resident (NRI), the payment falls under section 195, and the TDS is based on the seller's capital gain plus surcharge and cess, which is far higher than 1 percent. There is also no Rs 50 lakh threshold under section 195.
Do I need a TAN to buy property from an NRI?
Yes. To deduct and deposit TDS under section 195 you need a TAN (Tax Deduction and Collection Account Number), not just a PAN. This is different from a purchase from a resident under section 194-IA, which does not need a TAN. Apply for the TAN before you deduct the tax, and quote it on the challan, return and TDS certificate.
How is the TDS calculated when I buy from an NRI?
The deduction is on the seller's taxable capital gain. If the property was held more than 24 months the gain is long term and taxed at the notified long-term rate plus surcharge and cess; if held 24 months or less it is short term and taxed at the applicable slab rate. The base rate and surcharge were revised recently, so confirm the current figure for the date of transfer. If the seller has no section 197 certificate, deduction is often on the full sale value.
Can the TDS be reduced below the full rate?
Yes, but only if the seller obtains a lower or nil deduction certificate from the Assessing Officer under section 197, applied for in Form 13 on the income tax portal. With a valid certificate you deduct at the rate it specifies. Without one, you must deduct at the full notified rate; you cannot decide a lower rate on your own.
What return do I file for TDS on an NRI property purchase?
You deposit the deducted tax by challan, then file a quarterly TDS return in Form 27Q, which is the return for TDS on payments to non-residents, and issue Form 16A to the seller. Keep the challan, the return acknowledgement and the certificate with your purchase documents, as they are needed for registration and future proof.
What happens if I deduct too little?
Under section 195 the buyer carries the liability, so if you under-deduct (for example by using the 1 percent resident rate) you can be treated as an assessee in default for the shortfall, with interest and a possible penalty. Because the buyer bears this risk, it is worth confirming the computation before paying the seller rather than after.