Buying Property From an NRI Seller? Here's the TDS Rule Most Buyers Miss
Most guidance on buying property from an NRI focuses on the NRI as the buyer — this is the reverse situation, where you as a resident buyer are purchasing from an NRI seller, which comes with a specific tax deduction obligation that's easy to miss and expensive to get wrong.
Why the TDS rate is different here
When buying from a resident seller, standard TDS rules (typically under Section 194-IA, for transactions above the threshold) apply at a comparatively modest rate. When the seller is a non-resident, a different provision (Section 195) applies instead, generally at a meaningfully higher rate calculated on the capital gains (not simply the sale value), since the seller's tax residency changes how the transaction is treated.
Why this is the buyer's responsibility, not the seller's
As the buyer, you are the one legally required to deduct the applicable TDS and deposit it with the Income Tax Department before completing payment to the seller — failing to deduct correctly can make you personally liable for the shortfall, along with interest and penalties, regardless of what was agreed informally with the seller.
Practical steps before you finalize the deal
- ✦Confirm early in the process whether the seller is an NRI for tax purposes — this affects the deal structure, not just paperwork at the end
- ✦Obtain a Tax Deduction and Collection Account Number (TAN) if you don't already have one, since it's required for this kind of TDS deduction
- ✦Consider whether the seller has (or should apply for) a lower/nil TDS deduction certificate from the Income Tax Department, which can adjust the deduction based on their actual computed capital gains rather than the higher default rate
- ✦Get professional tax advice specific to this transaction — the calculation and compliance steps are genuinely more involved than a standard resident-to-resident sale
Why this shouldn't be handled informally
Because the compliance burden and liability sit with you as the buyer, this is not a detail to leave to a verbal understanding with the seller or their broker. A chartered accountant experienced in NRI property transactions can confirm the exact applicable rate and handle the deduction and filing correctly — worth the professional fee given what's at stake if it's done incorrectly.
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Frequently Asked Questions
Is the TDS rate for buying from an NRI seller always higher than for a resident seller?+
Generally yes, and it's calculated differently (on capital gains under Section 195, rather than a flat rate on sale value under Section 194-IA) — the exact applicable rate depends on current tax rules, so confirm with a CA at the time of your transaction rather than relying on a fixed figure.
What happens if I don't deduct TDS correctly when buying from an NRI seller?+
You as the buyer can be held liable for the shortfall along with interest and penalties, regardless of any private agreement with the seller — this is exactly why professional guidance on this specific transaction type is worth getting before you proceed.
Can the NRI seller reduce the TDS amount somehow?+
They can apply to the Income Tax Department for a lower or nil deduction certificate based on their actual computed capital gains, which — if obtained before the transaction — can reduce the TDS the buyer needs to deduct. This needs to be arranged in advance, not after the fact.
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