Buying Property From an NRI? One TDS Error Can Cost Lakhs
Buying Property From an NRI: TDS Rules & Risks 2026
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A resale flat in Mumbai or Pune may look legally clean, fairly priced and ready for registration. Yet one overlooked question: is the seller a resident or non-resident for Indian income-tax purposes?, can turn an otherwise routine purchase into a demand for tax, interest and penalties.
That is the warning behind a recent tax case highlighted by Financial Express. Three buyers purchased a ₹75 lakh property jointly and deducted 1% TDS, believing the resident-seller rule applied. When the seller was treated as a non-resident, the department said the buyers should have followed the non-resident withholding provision.
Each buyer later deposited the shortfall and interest but also faced a ₹5.15 lakh penalty. The tribunal ultimately deleted the penalties because it accepted their bona fide error and prompt correction. The tax shortfall and interest, however, did not disappear.
For anyone searching for an NRI flat in Mumbai, an NRI flat in Pune, or a resale property anywhere in real estate India 2026, the message is blunt: TDS is the buyer’s statutory responsibility. A clause passing it to the seller does not erase that responsibility.
What is the TDS rate when buying property from an NRI in India in 2026?
There is no single all-inclusive TDS rate for every NRI property sale. For long-term immovable property held for more than 24 months, the base capital-gains rate is typically 12.5%, plus applicable surcharge and 4% health and education cess. Short-term gains are generally taxed at the applicable normal rate, which can produce a substantially higher withholding figure. Unless the tax authority issues a lower or nil deduction certificate, the buyer commonly deducts tax from the gross amount paid or credited, not merely the seller’s estimated gain. The ₹50 lakh threshold used for resident sellers does not apply.
This is why an exact TDS rate for buying property NRI Section 195 2026 calculation should come from a chartered accountant before the first token, advance or instalment is released. Bajaj Finserv likewise explains that the applicable rate depends on whether the gain is long-term or short-term and that surcharge and cess may change the final rate.
One legal transition also deserves care. Current market guides continue to call this Section 195, while the Income Tax Department’s e-filing page cross-references Form 27Q/Form 144 under the newer framework. Use the section, form and payment procedure applicable on the actual transaction date rather than copying an older online checklist.
The 1% shortcut is the mistake that costs buyers lakhs
The distinction is easy to miss but financially enormous:
| Point | Resident seller | NRI seller |
| Common provision | Section 194-IA | Section 195 or corresponding current provision |
| Basic trigger | 1% when consideration or stamp-duty value reaches ₹50 lakh | No ₹50 lakh minimum threshold |
| Withholding base | Consideration or stamp-duty value, as applicable | Generally gross payment unless a lower-deduction order applies |
| Common filing route | Form 26QB and Form 16B | Form 27Q/Form 144 route and Form 16A, subject to current rules |
| Rate | Generally 1% | Depends on taxability, holding period, surcharge and cess |
An Indian PAN does not prove that a seller is resident. Neither does Indian citizenship, an Indian bank account, nor the address printed on a sale deed. Residence is determined under the income-tax residence tests, based substantially on physical presence and other statutory conditions for the relevant financial year.
That makes seller-status verification the first step in any NRI property TDS rules buyer responsibility 2026 checklist. Ask for the seller’s PAN, passport and travel details, a written residential-status declaration, overseas contact information and a tax professional’s confirmation.
Where facts are unclear, pause the payment. A polished property in Mumbai or a property in Pune is not worth inheriting a preventable tax dispute.
Why tax may be withheld on ₹1 crore, not just the profit
Suppose a buyer agrees to purchase a ₹1 crore flat from an NRI who has held it for more than 24 months. It is tempting to calculate the seller’s profit, apply 12.5% only to that gain and release the balance. That can be unsafe.
Under the usual withholding approach, the buyer deducts tax on the amount being paid unless an assessing authority has determined a smaller taxable sum or issued an appropriate lower or nil certificate. At a 12.5% base rate, the base withholding on ₹1 crore is ₹12.5 lakh. Cess takes the amount higher, while surcharge may apply depending on the seller’s circumstances. This example is illustrative, not a transaction-specific calculation.
The seller can seek a lower TDS certificate under Section 197, commonly through Form 13, based on the expected capital gain and available deductions. The familiar Section 195 framework also provides a route to determine the appropriate taxable proportion.
PropNewz and Toolisky both stress the practical point: do not reduce TDS on your own because the seller says the actual gain is small. Wait for a valid order or certificate and follow it exactly.
For the seller, excess withholding may ultimately be claimed as a refund through the income-tax return. For the buyer, under-deduction can create an immediate liability. That asymmetry is why professional computation before payment matters.
The October 2026 TAN change needs a date check
Until the new procedure takes effect, an individual buyer following the NRI-property route generally needs a Tax Deduction and Collection Account Number, deposits the tax within the prescribed time, files the relevant quarterly return and issues Form 16A to the seller.
Budget 2026 materials and current tax guides describe a PAN-based challan-cum-statement simplification for specified resident individual or HUF buyers from October 1, 2026. As of September 24, 2026, that date is still ahead. It would therefore be wrong to say “TAN is already abolished” for a payment made today. Companies, firms and other buyers may also remain outside the relief.
Because forms and portal workflows can change at commencement, confirm the live Income Tax Department process for every payment made on or after October 1. The reform may simplify compliance; it does not remove the duty to deduct the correct tax.
A buyer-safe process before paying the NRI seller
A robust TDS on NRI property purchase Section 195 complete guide begins before the agreement is signed:
- Establish residential status. Obtain supporting evidence and a written declaration; do not infer status from PAN or nationality.
- Map every payment. Include the token, loan disbursement and later instalments. TDS is generally tied to the time of credit or payment, whichever occurs earlier.
- Get a written computation. Confirm the holding period, base rate, surcharge, cess and whether more than one buyer or seller changes the filings.
- Check the lower-deduction certificate. Verify its validity, amount, names, PANs and conditions directly; do not rely on a screenshot.
- Put the mechanism in the sale agreement. State the gross consideration, TDS treatment, cooperation duties, certificate delivery and consequences of incorrect seller disclosures.
- Deposit, report and preserve evidence. Keep the challan, return acknowledgement, Form 16A, lower-deduction certificate, correspondence and payment trail with the title papers.
For a home loan, tell the lender at the sanction stage that the seller is an NRI. The bank’s transfer of loan funds does not shift the withholding obligation away from the buyer. This is especially relevant when buyers move quickly to buy a flat in Pune or buy a flat in Mumbai and the seller is coordinating remotely.
What happens if the buyer gets it wrong?
The buyer can be treated as an assessee in default for tax not deducted or deposited. The exposure may include the TDS shortfall, statutory interest, late-filing fees and a possible penalty. Serious defaults can also bring prosecution provisions into view.
Relief may depend on the facts, including whether the seller reported the income and paid the corresponding tax, but it is not a planning strategy.
The Financial Express case is memorable precisely because the buyers escaped the ₹5.15 lakh penalties only after litigation. Their reasonable-cause defence succeeded, but they had already paid the differential TDS and interest. A tribunal victory years later is not cheaper than correct compliance on day one.
If an error has already occurred, stop further payments and speak to a chartered accountant and property lawyer immediately. Recalculate the shortfall, deposit what is due, correct the return and assemble proof of the seller’s tax treatment. Do not attempt to “adjust” the mistake informally in the final instalment without documented advice.
The real closing checklist
Buying property from an NRI can be entirely legitimate and commercially attractive. It simply requires a different tax workflow.
Whether the deal involves an NRI selling a flat in Mumbai, a resale flat in Pune, an NRI property in Bengaluru or a home in Delhi NCR, the central checks are the same: establish the seller’s status, calculate the applicable rate, secure any lower-deduction certificate, follow the correct TAN or PAN process, file the prescribed statement and issue the certificate.
The most expensive TDS mistake is usually not arithmetic. It is treating an NRI sale like an ordinary resident resale. Before transferring the token or asking a bank to disburse, have the transaction reviewed for the payment date and the seller’s facts.
Planning to buy property from an NRI? Use RealtyConnect to organise your property search, then appoint an independent chartered accountant and conveyancing lawyer before signing or paying. Verify first, deduct correctly and protect the home you are buying.
Disclaimer: This article provides general information, not tax or legal advice. Rates, forms and procedures depend on the transaction date, seller status and applicable law.
