Buying Property From an NRI: The TDS the Buyer Must Deduct Under Section 195, the TAN, Form 27Q, and the Penalties Nobody Warns You About

You are buying a flat in Bengaluru for Rs 1,80,00,000. Your lawyer has drafted the agreement, the home loan is sanctioned, and you are ready to register. Then someone, the seller's CA or your own banker, asks the question that changes everything: is the seller a resident or an NRI. You assumed it did not matter. It matters more than almost anything else in the transaction, because the answer decides whether you deduct 1% TDS and move on, or step into Section 195, obtain a TAN, deduct closer to Rs 27 lakh, file a quarterly return, and carry a penalty risk that can follow you for years after the seller has flown back to Dubai.

Most buyers walk into this blind. They know about the 1% rule, the one that applies when you buy from a resident, and they assume it covers every property purchase over Rs 50 lakh. It does not. The instant the seller is a non-resident, the rule you half-remember falls away and a tougher one takes its place, with a higher rate, a different base, more paperwork, and the liability resting squarely on you.

The 30-second answer: When you buy property from an NRI seller, you do not deduct the 1% under Section 194-IA that applies to resident sellers. You deduct under Section 195, on the seller's capital gain, with no Rs 50 lakh threshold. For a long-term gain (property held over 24 months) the rate is 12.5% without indexation plus surcharge and 4% cess, an effective 14.95% at the top; for a short-term gain the seller's slab rate, in practice 30% plus surcharge and cess. Because you cannot compute the seller's gain, in practice you deduct on the entire sale consideration unless the seller gives you a Section 197 lower-deduction certificate. You need a TAN, must deposit the TDS by the 7th of the next month, file Form 27Q quarterly, and issue Form 16A. The liability for any default, with interest and penalty, falls on you, the buyer, not the seller.

Filing or transacting this year? This guide sits alongside our wider NRI tax series. For the seller's side of the same deal, read selling property in India as an NRI; for the buyer's full FEMA and funding picture, read buying property in India as an NRI.

This guide is written for two people at once: the resident buyer who has just discovered the seller is an NRI and is now responsible for getting the deduction right, and the NRI seller who needs to understand the obligation the buyer carries so the deal does not stall or, worse, leave the buyer exposed. What follows is the whole arc: why the rule switches from Section 194-IA to Section 195, what rate and base actually apply, the TAN and Form 27Q machinery the buyer must run, a worked example showing TDS on the full value versus on the gain with a Section 197 certificate, the penalties that land on the buyer, and the edge cases (instalments, joint buyers and sellers, NRO credit, repatriation) that quietly derail otherwise clean transactions.

The rule switches the moment the seller is a non-resident

Start with the fork, because everything else flows from it. When you buy immovable property from a resident seller for Rs 50,00,000 or more, you deduct 1% TDS under Section 194-IA, deposit it on a PAN-based challan through Form 26QB, and you are done. No TAN, no quarterly return, a flat 1% on the consideration, and the matter closes at registration. It is deliberately simple, designed so that ordinary buyers can comply without a CA.

The instant the seller is an NRI, that entire regime falls away. Section 194-IA does not apply to a non-resident seller at all. The provision that takes over is Section 195, the catch-all withholding section for any sum chargeable to tax paid to a non-resident. And Section 195 is a different animal in four ways that every buyer needs to understand before they sign:

• No threshold. Section 194-IA only bites at Rs 50 lakh. Section 195 has no minimum. Buy a Rs 25,00,000 plot from an NRI and you still deduct under Section 195. The Rs 50 lakh line simply does not exist here.
• The base is the gain, not the value. Section 194-IA's 1% sits on the whole consideration. Section 195 is charged on the amount chargeable to tax, which for a property sale is the seller's capital gain, not the gross price. That sounds like it should mean less tax. In practice, as you will see, it usually means more is withheld, because you cannot compute the gain and must err high.
• The rate is far higher. Not 1%. For a long-term gain the rate is 12.5% plus surcharge and cess; for short-term, the seller's slab rate, up to 30% plus surcharge and cess.
• You need a TAN and a quarterly return. Section 194-IA runs on your PAN. Section 195 requires a TAN and a quarterly Form 27Q, with a Form 16A certificate to issue afterwards.

The reason buyers miss this is structural: nothing in the property listing, the agreement, or the registration process automatically flags the seller's residential status to you. A seller who has been an NRI for years may still hold an Aadhaar, a resident-era PAN, and an Indian phone number, and may not volunteer that they are now non-resident. So the first hard rule for any buyer is to establish the seller's residential status in writing before you part with a single rupee, and to treat the answer as load-bearing, because if you guess "resident" and deduct 1% when you should have deducted under Section 195, the shortfall is recovered from you. More on that in the penalties section, but hold the thought: the residency question is not the seller's problem to disclose, it is your problem to confirm.

The rate is on the gain, but the base in practice is the whole sale value

Here is the part that confuses everyone, including some lawyers. Section 195 charges tax on the sum chargeable to tax, which for a property sale is the seller's capital gain, not the full consideration. So in theory, on a Rs 1,80,00,000 sale where the seller's gain is only Rs 50,00,000, you should deduct on Rs 50,00,000, not on Rs 1,80,00,000.

In practice you almost never can. You, the buyer, cannot compute the seller's capital gain. You do not have their purchase deed, their record of capital improvements, their acquisition history, or the indexed cost workings. You are not permitted to simply accept a number the seller scribbles for you. And under Section 195 you, the deductor, are personally liable for any shortfall. Put those three facts together and the only safe move for a buyer is to deduct on the entire sale consideration, treating the whole price as if it were the taxable amount. That is not over-caution; it is the rational response to carrying the liability without the information to size it correctly.

So the rate sits on the gain in the statute, and on the full sale value at the table, unless the seller breaks that deadlock with a Section 197 certificate (covered below), which is the only document that lets you legally deduct on the actual gain.

Now the rate itself. It turns on how long the seller held the property:

Long-term (held more than 24 months). The gain is long-term and, for any transfer registered on or after July 23, 2024, is taxed at 12.5% without indexation. Add surcharge, scaled to the income, and 4% health and education cess. On long-term gains the surcharge is capped at 15% under the proviso to Section 112, so even a very large sale does not attract the punitive 25% or 37% surcharge bands. At the top, 12.5% grossed up by 15% surcharge and 4% cess gives an effective 14.95%. That is the figure you will see quoted as "the NRI property TDS rate", and it is the maximum long-term effective rate.

Short-term (held 24 months or less). The gain is short-term and taxed at the seller's applicable slab rate, which for a large gain is the 30% top slab. In practice, lacking the seller's other income, the buyer deducts at the maximum slab, roughly 30% plus surcharge and cess, an effective rate that can reach around 39% in the highest surcharge band. None of the long-term exemptions apply to a short-term sale.

The surcharge is the part buyers get wrong most often. When you deduct on the full sale consideration without a certificate, the surcharge is determined by the bracket that consideration falls into: 10% where it is above Rs 50 lakh, 15% above Rs 1 crore (for long-term, capped there). So on a Rs 1,80,00,000 long-term sale, you apply 12.5%, then 15% surcharge because the figure crosses Rs 1 crore, then 4% cess, landing at the full 14.95% of the entire price. The seller's true surcharge, computed on their actual gain, might fall in a lower band or none at all, but you do not get to apply that. You apply the surcharge to the base you are actually deducting on. This is one more way the no-certificate route over-withholds.

The buyer's machinery: TAN, challan, Form 27Q, Form 16A

Deducting the right amount is only half the obligation. The buyer also has to run the compliance machinery, and each step has a deadline with a penalty attached. Walk through it in order.

Get a TAN first. Before you deduct anything under Section 195 you need a Tax Deduction and Collection Account Number (TAN), which is a separate identifier from your PAN. You apply through Form 49B on the NSDL/Protean or TRACES portal, and it typically issues within a week or two. In a joint purchase, each buyer who is contributing funds and is a party to the deduction needs their own TAN; you cannot share one. Plan the timing: a TAN that arrives after you have paid the seller is too late, because the deposit challan will not accept your TDS without it, and a payment made without deducting is already a default.

One change is coming that buyers should know about but not rely on prematurely. From October 1, 2026, under the Finance Act 2026, the TAN requirement is being removed for these property transactions, and the buyer will deposit the Section 195 TDS on a PAN-based challan, much like the resident 194-IA process. This is a genuine simplification of the deposit mechanism. Read it precisely, though: it removes the TAN paperwork; it does not change the rate, the base, or the buyer's liability. If your transaction closes before that date applies, you still need the TAN.

Deduct at payment, deposit by the 7th. You deduct the TDS at the time of credit or payment to the seller, whichever is earlier, including on advances. You then deposit it with the government using a TDS challan by the 7th of the month following the month of deduction (the deduction in a given month is deposited by the 7th of the next month).

File Form 27Q every quarter. The TDS return for payments to non-residents is Form 27Q, filed quarterly, due by the last day of the month following the quarter (so the 31st of the month after quarter-end). This is the analogue of the resident-side Form 26QB, but it is a recurring quarterly return, not a one-off challan-cum-statement. You report the seller's PAN, the consideration, the TDS deducted, and the challan details. If the seller has no PAN, the consequences are severe (see Edge cases).

Issue Form 16A to the seller. After filing Form 27Q you download and issue Form 16A, the TDS certificate, to the NRI seller, within 15 days of the due date of the quarterly return. This is not a courtesy. The seller needs Form 16A to claim credit for the TDS in their Indian return and, just as importantly, to satisfy their bank that tax has been paid before they can repatriate the proceeds. A buyer who deducts and deposits correctly but never issues Form 16A leaves the seller unable to reconcile the credit, which is exactly the kind of friction that sours a deal after completion.

To see the contrast in one frame:

Step	Resident seller (Section 194-IA)	NRI seller (Section 195)
Threshold	Rs 50 lakh and above	No threshold; any value
Rate	1% on consideration	12.5% LTCG / slab STCG, plus surcharge and cess, on the gain (full value in practice)
Identifier	Buyer's PAN	Buyer's TAN (until October 1, 2026)
Deposit form	Form 26QB (challan-cum-statement)	TDS challan, then Form 27Q
Return	None separate	Quarterly Form 27Q
Certificate	Form 16B	Form 16A
Who is liable	Buyer	Buyer

Worked example: full value versus the gain, with and without a Section 197 certificate

Numbers make this concrete. Take Vikram, a resident in Bengaluru, buying a flat from Anil, an NRI in Dubai, for Rs 1,80,00,000. Anil bought the flat in 2016 for Rs 1,00,00,000, so his actual long-term capital gain is Rs 80,00,000. The property has been held well over 24 months, so it is long-term, taxed at 12.5% without indexation.

Scenario A: no Section 197 certificate. Vikram cannot compute Anil's gain and is personally liable for any shortfall, so he deducts on the entire Rs 1,80,00,000. The consideration crosses Rs 1 crore, so the surcharge is 15% (capped there for long-term gains), and 4% cess applies on top.

• 12.5% of Rs 1,80,00,000 = Rs 22,50,000
• 15% surcharge on Rs 22,50,000 = Rs 3,37,500
• Subtotal = Rs 25,87,500
• 4% cess on Rs 25,87,500 = Rs 1,03,500
• Total TDS deducted = Rs 26,91,000 (exactly 14.95% of Rs 1,80,00,000)

Vikram wires Anil Rs 1,53,09,000 and sends Rs 26,91,000 to the department.

Now compute what Anil actually owes. His gain is Rs 80,00,000:

• 12.5% of Rs 80,00,000 = Rs 10,00,000
• The gain crosses Rs 50 lakh but not Rs 1 crore, so 10% surcharge: Rs 1,00,000
• Subtotal = Rs 11,00,000
• 4% cess = Rs 44,000
• Anil's true tax = Rs 11,44,000

So Vikram has withheld Rs 26,91,000 against a real liability of Rs 11,44,000. The difference, Rs 15,47,000, is Anil's own money, parked with the government until he files his return the following year and the refund processes. The deduction was correct from Vikram's standpoint; he had no lawful way to deduct less. But Anil is out more than fifteen lakh of liquidity for the better part of a year.

Scenario B: Anil obtains a Section 197 certificate. Before completion, Anil applies on Form 13 for a lower-deduction certificate (covered in the next section). His CA files the computation showing a Rs 80,00,000 gain and a true tax of Rs 11,44,000. The Assessing Officer reviews it and issues a certificate directing the buyer to deduct Rs 11,44,000, or an equivalent rate.

Vikram now deducts strictly to the certificate: Rs 11,44,000, not Rs 26,91,000. He wires Anil Rs 1,68,56,000 and deposits Rs 11,44,000.

The certificate changed Anil's tax by zero rupees, he owed Rs 11,44,000 either way. What it changed was his cash flow by Rs 15,47,000, his now rather than a year from now. And it changed Vikram's life too: he deducts a clean, certified figure, with no judgment call and no liability exposure for under-deduction, because he simply followed the officer's certificate. The Section 197 certificate is the single thing that makes a high-value NRI purchase smooth for both sides. The seller keeps their liquidity; the buyer deducts a number that is officially blessed.

Section 197: how the NRI seller hands the buyer a clean number

The over-withholding in Scenario A is not a bug the buyer can fix on their own. The fix belongs to the seller, and it is the most valuable thing an NRI seller can do before completion: apply for a Section 197 lower or nil deduction certificate.

The seller applies on Form 13 through the TRACES portal, ahead of the sale, submitting the full computation of the capital gain, the purchase deed, proof of cost and improvements, the draft sale agreement, the seller's recent returns, and the PAN and TAN of the buyer as the named deductor. A jurisdictional Assessing Officer in the international taxation ward reviews it under Rule 28AA and, if satisfied that the seller's real tax justifies a lower rate, issues a certificate naming the exact rate or amount of TDS the named buyer must apply, up to a stated threshold.

Three things make this work, and the buyer should understand them because the deal timeline depends on them:

• Timing. The disposal instruction to officers is 30 days from the end of the month in which a complete application is received, but in practice NRI applications run 15 to 45 days, longer if the officer raises queries. A certificate that arrives after registration is worthless. So the seller should start Form 13 four to six weeks before completion, and the buyer is entitled to ask, before fixing the registration date, whether the seller has applied.
• The certificate names the buyer. The certificate is tied to the specific deductor's TAN. The buyer cannot rely on a certificate issued for a different transaction. This is one more reason the buyer's TAN has to exist early.
• Exemptions fold in. If the seller intends to claim Section 54, 54EC or 54F reinvestment relief, those can be built into the Form 13 computation, and the officer can certify a deduction on the net taxable gain after exemptions, sometimes close to nil. The full mechanics of these reliefs are in the capital gains exemptions guide, and the certificate process itself is covered in depth in the Form 13 lower-TDS certificate guide.

The honest read for the buyer: if the seller has a valid Section 197 certificate naming your TAN, deduct exactly what it says and not a rupee more, because deducting to the certificate fully discharges your obligation. If the seller does not have one, you deduct on the full consideration, because that is the only position that protects you. Do not let a seller talk you into deducting on "just the gain" on the strength of figures they hand you informally. Without a certificate, an informal gain calculation gives you no protection at all; the liability for the shortfall is still yours.

The penalties land on the buyer, not the seller

This is the part that should make every buyer take the residency question seriously, because the asymmetry is stark: the seller is a non-resident who may leave India the week after registration, and the department's recovery machinery is pointed at you, the buyer, the deductor it can actually reach.

If you fail to deduct, or deduct too little, or deduct at the resident 1% when Section 195 applied, you become an assessee in default under Section 201(1). The consequences stack:

• Recovery of the shortfall. The tax you failed to deduct can be recovered from you. You may have an indemnity from the seller in the agreement, but enforcing it against someone abroad is its own ordeal, and the department does not care about your private contract; it pursues the deductor.
• Interest under Section 201(1A). Interest runs at 1% per month from the date you should have deducted to the date you actually deduct, plus 1.5% per month from the date of deduction to the date of deposit. Part of a month counts as a full month, so delays compound quickly.
• Penalty under Section 271C. A penalty equal to the tax not deducted can be levied for failure to deduct. That is a 100% penalty on top of the tax itself.
• Late-filing fee under Section 234E. A late Form 27Q attracts a fee of Rs 200 per day of delay, up to the amount of the TDS.

The lived risk here is not theoretical. There are decided cases where a buyer who treated an NRI seller as resident and deducted only 1%, or deducted nothing, was held liable years later for the full tax plus interest, long after the seller had left and the trail had gone cold. The buyer thought the deal closed at registration. The department thought otherwise. The closing of a sale does not close the buyer's TDS exposure on an NRI purchase; that exposure can be reopened for years.

There is also a quieter cost the buyer rarely anticipates. If the seller cannot get clean Form 16A and a settled tax position, the seller cannot repatriate the proceeds, because the bank requires proof that tax was discharged before releasing funds for an outward remittance. A botched deduction does not just expose the buyer; it can freeze the seller's money in India and turn a completed sale into a months-long dispute between two parties who no longer wish to speak to each other. Getting the TDS right at the table is the cheapest insurance both sides will ever buy.

Edge cases worth pricing in

The general rule is clear. These are the situations where it bends, and where buyers and sellers most often come unstuck.

Payment in instalments. Section 195 requires deduction at each credit or payment, whichever is earlier, so if you pay the seller in tranches, an advance at agreement and the balance at registration, you deduct TDS on each instalment, not in one lump at the end. The same applies to a booking advance. Deposit each deduction by the 7th of the month following that instalment, and report all of them across the relevant quarterly Form 27Q filings. A buyer who pays a large advance and forgets to deduct on it has already defaulted before registration day.

Joint buyers. Where two or more people buy together and contribute funds, each buyer is a deductor in their own right, needs their own TAN, deducts TDS proportionate to their share of the payment, deposits separately, and files their own Form 27Q. A husband and wife buying jointly run two parallel sets of compliance. A Section 197 certificate, if obtained, should name each buyer's TAN, or the officer should be told there are multiple deductors.

Joint sellers, mixed residency. This is the trap that catches buyers off guard. If the property is co-owned by, say, an NRI and a resident (a common pattern where one sibling emigrated and the other did not), the buyer must split the deduction: Section 195 on the NRI co-owner's share, Section 194-IA's 1% on the resident co-owner's share. You cannot apply one rule to the whole price. Establish each seller's residential status and ownership share in writing, and deduct on each share under the correct section. Get the split wrong and you have under-deducted on the NRI portion.

Seller without a PAN. If the NRI seller does not furnish a PAN, Section 206AA can force TDS at the higher of the prescribed rate or 20% (and there are positions pushing it higher on the full value), which is even more punitive than the default. The fix is for the seller to obtain a PAN well before the sale. A seller who let their PAN lapse or never linked it should sort that out first; see PAN for NRIs.

NRO credit and routing. Proceeds from property the seller bought while resident, or inherited, generally must be credited to the seller's NRO account first, net of the TDS the buyer has already deducted. The buyer should know this only to the extent of where to send the funds: confirm the account the seller nominates is an NRO (or the correct account for their case) rather than wiring to a resident account, which can itself create FEMA issues. The seller's side of this, including the routing and the cap, is in NRE, NRO and FCNR accounts compared.

Repatriation depends on the TDS being clean. After the sale, the seller's repatriation of the net proceeds, up to USD 1 million per financial year from the NRO account, runs through Form 15CA and 15CB (renumbered Forms 145 and 146 under the Income Tax Act 2025 from April 1, 2026). The CA will not certify the 15CB, and the bank will not release the funds, unless the tax position is settled, which means the buyer's TDS must have been deducted, deposited, and reflected in Form 16A and the seller's Form 26AS. So the buyer's diligence at the table directly determines whether the seller can ever move the money abroad. The full process is in the NRO repatriation process.

Stamp-duty value above the agreement price. If the agreed price is below the circle-rate (stamp-duty) value, the higher value is generally treated as the consideration for computing the seller's gain, subject to a tolerance band. This is the seller's tax problem primarily, but it can also affect the base on which a conservative buyer deducts, so flag it during diligence rather than at registration.

The closing read

The mistake that costs the most in an NRI property purchase is made before any money moves, and it is almost always the same mistake: the buyer assumes the 1% rule applies and never checks the seller's residential status. It does not apply. The moment the seller is an NRI, Section 194-IA falls away and Section 195 takes over, with no threshold, a 12.5% long-term rate on the gain that in practice sits on the full sale value, a TAN, a quarterly Form 27Q, a Form 16A to issue, and a penalty regime that points at the buyer and stays open for years.

So here is the recommendation, and it holds for both sides of the table. If you are the buyer, confirm the seller's residential status in writing before you pay, get your TAN early, and deduct on the full consideration unless the seller hands you a Section 197 certificate naming your TAN, in which case deduct exactly to the certificate. Do not deduct on an informal gain figure; without a certificate, that informal number protects nobody but the seller. If you are the NRI seller, your job is to make the buyer's life easy: apply for the Section 197 certificate on Form 13 four to six weeks before completion, fold any 54, 54EC or 54F exemption into it, and hand the buyer a clean, officially-blessed number so they deduct on your gain, not your sale value, and you keep your liquidity.

What both sides miss is that this is not a tax-saving exercise; the seller owes the same tax either way. It is a liquidity and risk exercise. The certificate moves cash from "trapped with the department for a year" to "in the seller's account now", and it moves the buyer from "exposed to a penalty for a wrong judgment call" to "fully discharged by following an officer's instruction". On a deal worth crores, the few weeks of paperwork are the best-paid hours of the whole transaction. Skip them and the law will still let you complete the sale. It will just hand the buyer a liability that outlives the closing and leave the seller's money stuck in India.

Related guides

• Selling property in India as an NRI: the TDS trap and the Section 197 fix
• Buying property in India as an NRI: FEMA rules and funding
• The Section 197 lower-TDS certificate (Form 13)
• Capital gains exemptions: Sections 54, 54EC and 54F
• Capital gains tax for NRIs on shares and mutual funds
• Selling inherited property as an NRI and the tax on it
• NRI joint property income and tax
• TDS for NRIs and how to claim refunds
• PAN for NRIs: why the seller must have one
• Form 26AS and AIS for NRIs
• Filing your ITR as an NRI for AY 2026-27
• NRI residency and RNOR rules
• The NRO repatriation process, step by step
• NRE, NRO and FCNR accounts compared
• All taxation guides

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This guide is general information for Indian expats and the residents transacting with them, not personal tax, legal or investment advice. TDS rates, surcharge thresholds, the TAN requirement, return forms, and repatriation rules change, and the correct treatment depends on the seller's residential status, the holding period, and the year of the transfer. Section 197 outcomes are at the discretion of the Assessing Officer. Confirm the seller's residential status in writing, and confirm the current rules and your specific facts with a qualified chartered accountant before deducting, depositing, or registering, particularly on the timing of a Section 197 application and any 15CA/15CB remittance.