TDS on Property Purchase in India: The 1% Rule & Buying from an NRI (Section 195)
Dasadia Editorial Team · Updated July 2026
Most buyers know they must deduct ‘1% TDS’ on a property purchase — and most stop there. But that 1% rule applies only when you buy from a resident seller. Buy from a Non-Resident Indian, and you step into an entirely different regime, with far higher deductions and real personal liability if you get it wrong. This 2026 guide explains both — the simple 1% rule under Section 194-IA and the very different rules under Section 195 for buying from an NRI — so you deduct the right amount and stay on the right side of the law.
Key takeaways
- The TDS you deduct depends entirely on whether the seller is a resident of India or an NRI.
- From a resident seller, it is a flat 1% on property of ₹50 lakh or more (Section 194-IA).
- From an NRI seller (Section 195), TDS is on capital gains — 12.5% for long-term, or slab rates for short-term.
- For NRI sales, TDS applies to the full sale value by default, not just the profit — unless a lower-TDS certificate is obtained.
- The long-term rate is 12.5% (without indexation) plus surcharge and cess, up to about 14.95% — the old 20% no longer applies.
- Buying from a resident needs only your PAN; buying from an NRI currently needs a TAN, with PAN allowed from 1 October 2026.
- An NRI seller should get a Section 197 lower-TDS certificate before the sale to avoid locking up lakhs in a refund.
- A buyer who under-deducts can be held personally liable for the shortfall, plus interest and a penalty.
Source: CA for NRI · NoBroker
What is TDS on property, and why it matters
Tax Deducted at Source, or TDS, is a mechanism by which the government collects tax at the moment of a transaction rather than waiting for the seller to file a return. On a property purchase, the law makes you — the buyer — responsible for deducting a slice of the payment and depositing it with the Income Tax Department on the seller’s behalf. It sounds like a formality, but it carries real weight: if you deduct too little, or not at all, you can be held personally liable for the shortfall, plus interest and penalty. And crucially, how much you must deduct depends entirely on one thing — whether the person you are buying from is a resident of India or a Non-Resident Indian. The two are worlds apart.
Source: Income Tax Department · CA for NRI
The 1% rule: buying from a resident seller (Section 194-IA)
When you buy from a resident seller, the rule is refreshingly simple. Under Section 194-IA, if the property’s value is ₹50 lakh or more, you deduct 1% of the sale consideration — or the stamp-duty value, whichever is higher — and pay it to the government. You do not need a TAN; your PAN is enough. You deposit the amount using Form 26QB, a combined challan-and-statement, within 30 days of the end of the month in which you made the payment, and you then issue the seller a TDS certificate on Form 16B. If the seller cannot provide a PAN, the rate jumps to 20%, so always collect it. Where payment is made in instalments, you deduct 1% from each. For most home purchases from resident owners, that is the whole story.
Source: Income Tax Department · NoBroker
Buying from an NRI: Section 195 (a different world)
Buying from an NRI is an entirely different, and far riskier, proposition — and it catches out buyers who assume the same 1% applies. It does not. Under Section 195, TDS is deducted on the seller’s capital gains, at the rate at which those gains are taxed. For a property held more than 24 months, that is long-term capital gains, taxed since July 2024 at 12.5% without indexation, plus surcharge and a 4% cess — an effective rate that reaches about 14.95% at the top. For a property held 24 months or less, the gains are short-term and taxed at the NRI’s slab rate, which can be as high as 30% plus surcharge and cess. The sting in the tail is this: by default, you must deduct on the entire sale value, not merely on the profit, unless the seller produces a lower-TDS certificate. On a ₹1.5 crore flat, that can mean withholding around ₹18.75 lakh upfront rather than a tax on the actual gain. And you, the buyer, must obtain a TAN and file the return — get any of it wrong, and the department can treat you as an assessee-in-default, liable for the tax, interest and a penalty equal to the TDS.
Source: CA for NRI · NoBroker
Resident vs NRI seller: side by side
The two regimes differ on almost every point. Here they are set out together.
Source: NoBroker · CA for NRI
The lower-TDS certificate that saves NRI sellers lakhs
This is where the lower-TDS certificate becomes essential — the single most important tool in an NRI property sale. Because the default deduction is on the full sale value, it almost always exceeds the seller’s actual tax on the gain, tying up lakhs that can then take months to recover as a refund. To avoid that, the NRI seller can apply to the Income Tax Department, under Section 197, for a certificate authorising TDS at a lower rate — or even nil, where the gain is reinvested and the tax works out to zero. The certificate is applied for on Form 13 (being renumbered under the new Income-tax Act) through the TRACES portal, ideally 30 to 60 days before the sale, along with the capital-gains computation and supporting documents. Once it is issued, the buyer simply deducts at the certified rate. For any serious NRI sale, obtaining it before closing is far wiser than over-paying and chasing a refund afterwards.
Source: CA for NRI · Assetly
Forms, TAN and the 2026 change
A quick word on the paperwork, which differs sharply between the two cases and is itself changing. For a resident seller, you use your PAN and Form 26QB — no TAN, one form. For an NRI seller, historically you have needed a TAN (a separate tax-deduction account number), through which you deposit the TDS by the 7th of the following month and file a quarterly return on Form 27Q, issuing the seller a Form 16A certificate. Here is the important 2026 update: from 1 October 2026, resident individual and HUF buyers purchasing from an NRI will be able to use their PAN and a challan-cum-statement instead of a TAN, on the same pattern as Form 26QB — a welcome simplification. Until then, through 30 September 2026, the TAN route remains mandatory. Note carefully that this change is procedural only: the rates, and your legal liability to deduct correctly, are entirely unchanged.
Source: Assetly · CAclubindia
The costly mistakes to avoid
Because the buyer carries the liability, a few avoidable errors can prove very expensive. Watch for these.
- Deducting only 1% when buying from an NRI — the rate is far higher, and you are personally liable for the shortfall.
- Not checking the seller's residential status — a foreign address or an NRO account is a clear signal to investigate.
- Skipping the lower-TDS certificate as an NRI seller, and locking up lakhs in a refund that can take months.
- Forgetting the TAN, currently required for NRI purchases, or missing the deposit and return deadlines.
- Assuming a tax treaty exempts capital gains on Indian property — it generally does not.
- Deducting on the gain rather than the full sale value when no lower-TDS certificate is in place.
Source: NoBroker · CA for NRI
The bottom line
TDS on a property purchase turns on one question above all: is your seller a resident or an NRI? From a resident, it is a simple 1% on deals of ₹50 lakh or more, deposited on Form 26QB with your PAN. From an NRI, it is a far larger deduction — 12.5% on long-term gains, or slab rates on short-term ones, plus surcharge and cess — applied to the full sale value unless a lower-TDS certificate is in hand, with the buyer carrying real liability for getting it right. So before you sign, establish the seller’s status, budget for the correct deduction, and — if the seller is an NRI — insist they arrange a Section 197 certificate and make sure the forms and deadlines are met. Handled properly, TDS is routine; handled carelessly, especially in an NRI sale, it can cost the buyer lakhs. When in any doubt, take professional advice.
Frequently asked questions
From a resident seller, 1% of the sale value if it is ₹50 lakh or more (Section 194-IA). From an NRI seller, it is much higher — based on the capital gains under Section 195.
When you buy an immovable property (other than agricultural land) worth ₹50 lakh or more from a resident seller. You deduct 1% of the consideration or the stamp-duty value, whichever is higher.
Entirely. Under Section 195, TDS is on the seller’s capital gains — 12.5% for long-term (held over 24 months) or slab rates for short-term — plus surcharge and cess, and by default on the full sale value, not just the gain.
For long-term gains, 12.5% without indexation, plus surcharge and 4% cess — up to about 14.95%. For short-term gains, the NRI’s slab rate (up to 30%) plus surcharge and cess. The old 20% rate no longer applies to sales after July 2024.
By default, on the full sale value, not just the gain — which is why the amount is often far more than the actual tax. The seller can reduce it with a lower-TDS certificate.
A certificate the NRI seller obtains from the Income Tax Department under Section 197, authorising TDS at a lower or nil rate based on the actual capital gain rather than the full sale value. It is applied for before the sale.
Currently, yes — a TAN is required for a Section 195 deduction. From 1 October 2026, resident individual and HUF buyers will be able to use their PAN instead. The rates are unchanged.
Form 26QB when buying from a resident (with Form 16B to the seller), and Form 27Q when buying from an NRI (with Form 16A). The mechanism for NRI purchases is being simplified from October 2026.
The TDS rate rises to 20%, so always obtain the seller’s PAN before the transaction.
You can be treated as an assessee-in-default under Section 201, personally liable for the TDS, interest of about 1-1.5% a month, and a penalty equal to the TDS. Your registration may also be delayed.
No. Section 195 has no minimum threshold, so TDS applies to a purchase from an NRI regardless of value. The ₹50 lakh threshold is only for resident sellers under Section 194-IA.
Generally no. Double Tax Avoidance Agreements typically do not protect an NRI from Indian capital gains tax on immovable property located in India.
Verified — key facts
- Resident seller (Section 194-IA): 1% TDS on property of ₹50 lakh or more, on consideration or stamp-duty value (whichever higher); buyer uses PAN, files Form 26QB within 30 days, issues Form 16B; 20% if the seller has no PAN.
- NRI seller (Section 195): TDS on capital gains — LTCG (held >24 months) at 12.5% without indexation (post-23 July 2024) + surcharge + 4% cess (max ≈ 14.95%); STCG (≤24 months) at slab rates (up to 30%) + surcharge + cess.
- The pre-July-2024 rate of 20% with indexation no longer applies to LTCG on transfers from that date; the 20%-with-indexation option given to resident sellers for older property does not extend to NRIs.
- For NRI sales, TDS is on the full sale consideration by default, unless the seller obtains a lower or nil TDS certificate under Section 197 (applied for before the sale).
- Section 195 has no threshold; the ₹50 lakh threshold applies only to resident sellers under Section 194-IA.
- Buying from an NRI currently requires a TAN and Form 27Q; from 1 October 2026, resident individual/HUF buyers may use their PAN and a challan-cum-statement (rates and liability unchanged).
- A buyer who fails to deduct correctly can be an assessee-in-default under Section 201 (tax + interest ≈ 1-1.5%/month + penalty up to 100% of TDS); tax treaties generally do not exempt NRI capital gains on Indian property.
Sources & references
- Income Tax Department — TDS on property (Section 194-IA / 195)
- CA for NRI — TDS on sale of property by NRI, 2026 (why not 20%)
- NoBroker — TDS on sale of property by NRI: 2026 rates & process
- Assetly — NRI property rules 2026: TAN & TDS changes
- CAclubindia — property purchase from an NRI: TDS deduction rules
Disclaimer: This article is for informational purposes only and is not tax or legal advice. TDS rates, thresholds, forms, surcharge and cess, and the procedures for resident and NRI transactions are set by law, can change (including under the Income-tax Act, 2025 and annual Finance Acts), and depend on the specific facts of each transaction. NRI capital-gains taxation is especially complex. Always verify the current rules on the Income Tax Department portal and consult a qualified chartered accountant before deducting TDS or completing a purchase.
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