TDS on Property Purchase from NRI: Sec 195 Rules (2026)

When purchasing property valued at ₹50 lakh or more from a tax-resident seller, Section 194-IA applies: the buyer deducts 1% of the higher of the sale consideration or the property's stamp-duty value (SDV) and deposits it using Form 26QB against the seller's PAN. No TAN is required.

When the seller is an NRI or OCI non-resident for tax purposes, Section 194-IA is inapplicable. The transaction falls strictly under Section 195 of the Income Tax Act, where TDS must be deducted at applicable capital gains tax rates (plus surcharge and cess).

The critical legal trap: The burden of determining the seller's residential status sits squarely on the buyer. If the seller resides abroad but claims resident status to deduct only 1%, the tax authorities hold the buyer personally liable for the shortfall, interest under Section 201(1A) (1% per month for failure to deduct, 1.5% for failure to deposit), and penalties.

Unlike resident transactions, Section 195 requires the buyer to obtain a Tax Deduction and Collection Account Number (TAN) under Section 203A before executing the sale payment.

Tax withholding rates depend on the asset holding period: for transfers on or after 23 July 2024, Long-Term Capital Gains (LTCG) on immovable property for an NRI seller are taxed at a flat 12.5% (no indexation, plus surcharge and cess), while Short-Term Capital Gains (STCG) on properties held for 24 months or less are taxed at the seller's applicable slab rate (up to 30% plus surcharge and cess). Critically, absent a Section 197 certificate the buyer must deduct on the full sale consideration, not on a self-assessed capital gain.

The deducted tax must be deposited using Challan ITNS 281 within 7 days from the end of the month in which the deduction was made — except for tax deducted in March, which must be deposited by 30 April — followed by filing quarterly TDS returns in Form 27Q and issuing Form 16A to the NRI seller.

If TDS is deducted on the total sale consideration without certification, substantial capital gets locked up with the tax department until the seller files an annual return.

To avoid excessive withholding, the NRI seller can apply for a Lower or Nil TDS Deduction Certificate under Section 197 through the Income Tax portal (Form 13).

Once the assessing officer evaluates the actual capital gains (factoring in acquisition cost and reinvestment exemptions under Sections 54 or 54EC; indexation on immovable-property gains is no longer available for transfers on or after 23 July 2024), they issue a formal certificate specifying the exact reduced withholding rate for that specific transaction.

Timing advice: Section 197 processing time is administrative and varies — commonly a few weeks to a few months — so apply as early as possible and do not schedule the registry against a fixed timeline.

When an NRI buyer purchases an under-construction apartment directly from an Indian corporate developer (e.g., DLF, Godrej, M3M), the seller is an Indian resident entity.

The transaction falls under Section 194-IA: once the total consideration is ₹50 lakh or more, the NRI buyer (or their lending bank) deducts 1% from every installment — computed on the higher of the total consideration or the property's stamp-duty value, and including installments below ₹50 lakh — and remits it via Form 26QB.

In every transaction facilitated through Truth Estate's NRI Desk, our vetted cross-border chartered accountants verify seller residency declarations, calculate precise capital gains liabilities, manage TAN issuance, and assist with Section 197 certification.

On the asset side, our forensic due diligence ensures the underlying title, occupancy certification, and RERA compliance are uncompromised — because clean tax compliance cannot compensate for a legally compromised asset.