When you buy property from an NRI, you must deduct TDS on the full price: 12.5% plus surcharge and cess for property held over 24 months. From 1 October 2026, resident individual and HUF buyers can deposit this TDS using their PAN instead of obtaining a TAN, under a Finance Act 2026 change.
When this applies to you
These rules apply whenever the seller is a non-resident for tax purposes, whether an NRI, an OCI cardholder or a foreign national, and you are buying property in India. TDS falls under Section 393(2) of the Income-tax Act, 2025 (formerly Section 195). Unlike a purchase from a resident seller, there is no ₹50 lakh threshold and no flat 1% rate. Tax must be deducted from the first rupee, on the full sale consideration, unless the seller gives you a lower deduction certificate.
| Point | Resident seller | NRI or OCI seller |
|---|---|---|
| Section (2025 Act) | 393(1), formerly 194IA | 393(2), formerly 195 |
| Threshold | Consideration of ₹50 lakh or more | None |
| Rate | 1% | 12.5% (long term) or slab rate (short term), plus surcharge and cess |
| TAN needed by an individual buyer | No | No, from 1 October 2026 |
How much TDS to deduct
If the seller has held the property for more than 24 months, the gain is long term and taxed at 12.5% without indexation. Because the buyer cannot verify the seller's cost, TDS is applied to the full price, then surcharge and 4% cess are added.
| Sale consideration | Base rate | Surcharge | Effective rate with 4% cess |
|---|---|---|---|
| Up to ₹50 lakh | 12.5% | Nil | 13.00% |
| Above ₹50 lakh up to ₹1 crore | 12.5% | 10% | 14.30% |
| Above ₹1 crore | 12.5% | 15% | 14.95% |
For property held for 24 months or less, the gain is short term and taxed at slab rates. In practice buyers deduct at the maximum slab rate of 30% plus surcharge and cess, because they cannot know the seller's other income. If the seller has not furnished a PAN, deduction rises to at least 20% under Section 397(2).
Worked example
You buy a Kondapur flat from an NRI for ₹1.2 crore. The seller has owned it for ten years and has no certificate.
| Base TDS: ₹1,20,00,000 × 12.5% | ₹15,00,000 |
| Surcharge at 15% | ₹2,25,000 |
| Cess at 4% on ₹17,25,000 | ₹69,000 |
| Total TDS (14.95%) | ₹17,94,000 |
|---|
If the seller had obtained a certificate directing deduction at, say, 4%, TDS would fall to ₹4,80,000. That difference is why sellers should apply early.
What the October 2026 change means
Until 30 September 2026, a buyer purchasing from an NRI had to obtain a Tax Deduction Account Number (TAN), deposit TDS by challan, file a quarterly return and issue a TDS certificate, the same process a business follows. Many families found this confusing, and deals were delayed while a TAN was issued.
Budget 2026 amended Section 397(1)(c) so that, from 1 October 2026, a resident individual or HUF buyer can deposit this TDS using their PAN through a challan cum statement, much as buyers from resident sellers already do. The rate and the obligation do not change; only the mechanics do. Use the form notified on the Income Tax e filing portal at the time you pay, and keep the acknowledgement.
Deals that straddle 1 October 2026: if you paid an advance before that date, you may already have taken a TAN and deducted on it. Discuss with your CA whether later instalments should use the same TAN or the new PAN route, so the seller's credit is not split in a way that is hard to reconcile.
When to deduct and deposit
Deduct at the earlier of paying the seller or crediting the amount, and do it on every instalment, including the token advance and any payment made through the seller's attorney. Deposit the tax within the prescribed time, currently by the 7th of the following month. Failing to deduct, or deducting too little, can make you an assessee in default, liable for the shortfall plus interest, even though the tax belongs to the seller.
What the NRI seller should do
- Apply for a lower deduction certificate in Form 128 under Section 395, before signing the sale agreement. The certificate limits TDS to the tax on the actual gain.
- Give the buyer a copy of the certificate, PAN and a declaration of residential status.
- Receive the sale price in an NRO account through banking channels.
- Repatriate within the USD 1 million per financial year facility, supported by Forms 145 and 146 (formerly 15CA and 15CB). See our repatriation guide.
- File a return to claim any excess TDS as a refund.
If the seller signs through an attorney, check that the Power of Attorney is stamped, registered and specifically authorises the sale.
Buyer's document checklist
| Document | Purpose |
|---|---|
| Seller's PAN | Avoids the higher no PAN rate |
| Passport, visa or OCI card copy | Confirms non resident status |
| Form 128 certificate, if any | Authority to deduct at a lower rate |
| Seller's NRO account details | FEMA compliant payment route |
| Registered PoA, if an attorney signs | Valid execution of the sale deed |
| EC and title documents | Clean title; see our buyer documents checklist |
Frequently asked questions
Do I still need a TAN to buy property from an NRI?
From 1 October 2026, a resident individual or HUF buyer can deposit TDS on a purchase from a non-resident using their PAN, under the Budget 2026 amendment to Section 397(1)(c). The TDS rate itself is unchanged.
Is TDS deducted on the capital gain or on the full price?
On the full sale consideration, unless the seller provides a lower deduction certificate issued under Section 395 on an application in Form 128. The certificate usually limits deduction to the tax on the actual gain.
What if the NRI seller has a lower TDS certificate?
Deduct at the rate or amount stated in the certificate, for the period it covers, and keep a copy with your records. Deducting less than the certificate allows can make you liable for the shortfall.
Does the 1% TDS rule apply when the seller is an NRI?
No. The 1% rule with the ₹50 lakh threshold applies only to resident sellers. For NRI and OCI sellers, TDS falls under Section 393(2) at long term or short term capital gains rates with no threshold.
Which bank account should I pay the NRI seller into?
Sale proceeds are normally credited to the seller's NRO account through banking channels, from where repatriation is possible within the USD 1 million per financial year facility, subject to tax compliance.
Official sources checked
- Income Tax e filing portal
- Income Tax Department: FAQs on Interplay and Transition to the Income-tax Act, 2025
- Income Tax Department: Form No. 144 FAQs
- Reserve Bank of India
This guide is general information for property owners and is not legal, tax or financial advice. Rules change, and your facts matter. Confirm your specific situation with a Chartered Accountant or a Telangana advocate before acting.
Buying from an NRI, or selling as one?
We coordinate the documents, the lower deduction certificate and the registration, so the TDS is right the first time.