Most resident buyers assume the TDS rule on property purchase is a flat 1 percent, because that is what applies under Section 194-IA when buying from a resident seller above Rs 50 lakh. If the seller is a Non-Resident Indian, that assumption is wrong, and getting it wrong is the buyer's problem, not the seller's. Section 195 applies instead, at a materially higher rate, with no minimum threshold.
Why the Rule Is Different for NRI Sellers
Section 194-IA taxes the resident seller's gain at a flat 1 percent as a rough proxy, collected at source. Section 195 works differently: it requires TDS on the NRI seller's actual capital gains rate, because the Income Tax Department has limited ability to pursue a non-resident seller for tax due after the money has left the country. The compliance burden sits with the buyer, who is legally the "person responsible for paying" under the Act.
What Rate Actually Applies
For long-term capital gains (property held over 24 months), the applicable rate is 12.5 percent on the gain, without indexation, following the Budget 2024 changes. With applicable surcharge and 4 percent cess, the effective rate typically works out to roughly 13 to 15 percent. For short-term gains, TDS is deducted at the seller's applicable slab rate, which can run considerably higher. Critically, this is calculated on the capital gain, not automatically on the full sale value, but only if the seller has obtained a certificate confirming the actual gain. Without one, buyers are expected to deduct on the full sale consideration, which is why the Lower Deduction Certificate step below matters so much.
The Lower Deduction Certificate (Form 13)
An NRI seller can apply to the Income Tax Department for a Form 13 certificate authorising a lower or nil TDS deduction, based on their actual computed capital gain rather than the full sale value. This has to be applied for and obtained before the transaction closes. If your seller has not obtained one and expects you to deduct only on the profit portion informally, that is not how the law works. Without a certificate, deduct on the full consideration and let the seller claim a refund through their Income Tax Return.
Your Obligations as the Buyer
- Obtain a TAN: Unlike the resident seller process under Section 194-IA, which uses your PAN, Section 195 deductions have traditionally required a Tax Deduction Account Number (TAN) for the buyer. Note that from October 2026, a simplified process allows resident buyers to deduct and deposit this TDS using PAN and a challan-cum-statement instead, so check the current requirement at the time of your transaction.
- Deduct at the correct rate: Based on the Form 13 certificate if one exists, or on the full sale value if it does not.
- Deposit the TDS: Within the prescribed timeline to the Income Tax Department, and file the corresponding TDS return.
- Issue Form 16A: To the seller as proof of deduction, which they will need to file their own return and claim credit.
What Happens If You Get This Wrong
If a buyer deducts TDS at the resident 1 percent rate on a transaction with an NRI seller, either by mistake or because the seller did not disclose their NRI status, the buyer remains liable for the shortfall, along with interest and potential penalty proceedings. This is precisely why confirming a seller's residential status, not just their nationality or the address on their PAN card, is one of the first checks in any property purchase. NRI status is a tax-residency question under the Income Tax Act, and it can catch buyers off guard when a seller has lived abroad for years but still holds an Indian passport and local documents.
Where This Fits Into Due Diligence
This TDS obligation sits alongside, not instead of, standard title and encumbrance verification. See our related guide on capital gains tax when NRIs sell property for the seller-side view of these same rules, and our guide on NRI property rules under FEMA if the transaction involves reciprocal considerations.
Clawrity assists resident buyers with Section 195 compliance as part of full purchase due diligence, confirming seller residency status upfront so the correct TDS rate is applied from the start rather than corrected after the fact. Contact us before you finalise a deal with an NRI seller.