Buying Property from an NRI? The Ultimate Guide to TDS & Section 195

If you are planning to buy a house, plot, or commercial property in India, the first question you must ask the seller is: “Are you a Resident Indian or a Non-Resident Indian (NRI)?”

Your answer to this question completely changes the legal and tax procedures of the transaction. Many buyers mistakenly assume they just need to deduct 1% TDS using Form 26QB, as they would with a resident seller. If you do this with an NRI seller, the Income Tax Department will hold you—the buyer—liable for millions of rupees in unpaid taxes and penalties.

Here is the ultimate guide from Pardeep Jha & Associates on how to safely navigate TDS under Section 195 when buying real estate from an NRI.

The Big Mistake: Section 194-IA vs. Section 195

When buying property from a Resident Indian, Section 194-IA applies. You only deduct 1% TDS, and it only applies if the property value is over ₹50 Lakhs. You do this easily using Form 26QB.

When the seller is an NRI, Section 195 of the Income Tax Act takes over. The rules become much stricter:

• No Minimum Threshold: Even if you are buying a property for just ₹5 Lakhs, TDS must be deducted.
• Massive TDS Rates: Instead of 1%, you must deduct TDS at 20% to 30% (plus surcharge and cess) depending on how long the NRI held the property.
• TAN is Mandatory: You cannot use your PAN to deposit this tax. The buyer must apply for a Tax Deduction Account Number (TAN) and file Form 27Q (not Form 26QB).

How Much TDS Must the Buyer Deduct?

The TDS rate depends on whether the NRI’s profit is classified as a Short-Term Capital Gain (STCG) or a Long-Term Capital Gain (LTCG).

• Short-Term (Held for 24 months or less): The buyer must deduct TDS at 30% (plus applicable surcharge and 4% health & education cess).
• Long-Term (Held for more than 24 months): Under the latest tax rules, the buyer must deduct TDS at 12.5% (plus surcharge and cess).

The Danger Zone: By default, the Income Tax Department requires the buyer to calculate this massive percentage on the Total Sale Value of the property, not just the profit! For example, if you buy a flat for ₹1 Crore, you might have to deduct and deposit ₹12.5+ Lakhs straight to the government.

How the NRI Seller Can Reduce This Burden (Form 13)

Having 12.5% or 30% deducted from the total sale price creates a massive cash flow problem for the NRI seller.

To fix this, the NRI seller must apply for a Lower Deduction Certificate (LDC) using Form 13 from the Income Tax Department before the transaction takes place.

An expert Chartered Accountant can calculate the exact Capital Gains (Sale Price minus Purchase Price) and submit this to the Assessing Officer. The officer will issue a specialized certificate allowing the buyer to deduct TDS only on the actual profit, rather than the entire sale value. This can save the NRI seller lakhs of rupees from getting blocked in the form of excess TDS.

Don’t Risk an Income Tax Notice

Whether you are the buyer who needs to apply for a TAN and file Form 27Q, or the NRI seller who desperately needs a Form 13 Lower Deduction Certificate, real estate transactions require specialized CA oversight. A single paperwork error can freeze the transaction or block the NRI’s ability to repatriate funds outside of India.

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