TDS When Buying Property From an NRI Seller: Rates, Forms and Steps
Purchasing a resale home or plot whose owner lives abroad comes with a tax duty that ordinary purchases do not carry. Whoever pays an NRI owner has to withhold tax at capital gains rates, pay it to the government and report it, and any shortfall becomes that payer's problem. This guide explains how the withholding works in October 2026, how big it is and the steps that keep a Bangalore purchase clean.
Why Residence Changes the Rule
Income tax rules split property sellers into two groups. An owner who is resident in India gets a flat 1% withheld once the deal value (or the stamp duty value, if higher) crosses Rs. 50 Lakhs. An NRI owner is treated differently: the purchaser withholds at the capital gains rate that would apply to that owner, plus surcharge and cess.
Residence in this sense is about tax status, which turns on the number of days spent in India, not on a passport or an Indian address. Someone with an Indian PAN, an account at a Bangalore bank and parents in the city may still count as an NRI for the year of the deal. That makes status the first thing to settle, ahead of any price talk.
The Law From April 2026
A new law, the Income-tax Act, 2025, took over from the 1961 Act on 1 April 2026. Old Section 194-IA (resident owners) and old Section 195 (NRI owners) are now folded into Section 393 of the new law, and many form numbers changed with it. The core duty is unchanged: whoever makes the payment withholds the tax.
Many agreements and advisers still quote the old section numbers, and both sets are widely understood. The procedure that counts is the one in force on the day money is paid.
How Much Is Withheld
The holding period of the NRI owner decides the rate. Ownership beyond 24 months makes the profit a long-term gain, while a shorter holding makes it short-term. The main figures look like this:
- Long-term gain: 12.5%, with a 10% or 15% surcharge that rises with the amount, and 4% cess
- Short-term gain: 30%, with the applicable surcharge and cess
- Minimum deal size: none, so small deals are covered too
- Amount it applies to: the whole consideration, unless the NRI produces a certificate for a lower rate
Take a flat owned for many years and sold for Rs. 1.2 Crore: the effective rate is about 14.95%, or roughly Rs. 17.9 Lakhs. Had the owner been resident, the deduction would have been just Rs. 1.2 Lakhs. That difference is why treating an NRI deal like a normal 1% case is such an expensive error.
Certificate for Lower Withholding
Withholding on the whole consideration usually takes much more than the NRI's actual tax bill. To fix this, the NRI may ask the tax authorities, online, for a certificate that limits withholding to the real profit or to a reduced rate. The application carries the original cost, the agreed price and the expected gain.
Such a certificate names the purchaser and the permitted rate, and it has to exist before money changes hands. If the owner hands one over, follow its terms to the rupee and file a copy with the deal papers. If there is none, withhold on the whole consideration.
TAN, Forms and Deadlines
Up to the end of September 2026, anyone paying an NRI owner needed a Tax Deduction Account Number (TAN) and a quarterly return. Since 1 October 2026, resident individuals and HUFs make the payment and report it using only their PAN, on Form 141. Companies, firms and LLPs buying from NRIs continue to need a TAN.
The points to plan for are listed below:
- Payment and statement: due 30 days after the close of the month of withholding
- Certificate for the owner: Form 132, issued once the statement is processed
- Information required: PANs of both sides, the address, stamp duty value, price and share of each party
- Extra NRI details: the address abroad and, where held, the tax residency certificate
Who Carries the Risk
Responsibility for withholding rests with the purchaser, so any shortfall is collected from the purchaser. The tax department may declare the purchaser in default, add interest running from the date of payment and levy a penalty. It does not help that the owner was paid in full.
Chasing an owner who has already moved the money overseas is slow and rarely works. The simple safeguard is a written status declaration and an agreed TDS figure before any money moves, the token advance included.
Special Cases
Co-owners are handled one at a time. If one owner is resident and the other an NRI, withhold 1% on the resident's portion and the capital gains rate on the NRI's portion, and report each on its own.
A home loan leaves the duty where it was. Since the lender pays the owner for the purchaser, the purchaser must have the TDS kept back from the loan release and paid in time. Sale money normally goes to the NRI's NRO account, and that bank manages any onward remittance.
Steps for a Bangalore Buyer
A deal with an NRI owner runs well when tax is planned together with the price. Follow these steps in order:
- Take a written statement of the owner's tax status at the outset.
- Check whether a certificate for lower withholding exists or is being sought.
- Have a chartered accountant compute the TDS on the actual numbers.
- Record the TDS figure and each side's filing duties in the sale agreement.
- Keep back the TDS from every instalment, the loan release included.
- Pay the tax, file the statement on time and hand over the certificate.
- Store the challan, statement, certificate and status letter with the sale deed.
These steps run alongside the usual title search, the encumbrance certificate and the khata transfer. Done this way, the right tax is paid once and no notice arrives years after registration.
