General information, not tax or legal advice. Rules as of October 2026.
Why this is your problem and not the seller's
When you buy from a resident Indian, you deduct 1% under the old Section 194-IA, pay it with a simple challan, and that is the end of it. Buying from a non-resident is a different section and a different world. The obligation sits on you, the rate is roughly fifteen times higher, and if you under-deduct, the Income Tax Department treats you as the person in default. It can recover the shortfall, the interest and the penalty from you. The seller will by then have taken their money abroad.
This catches ordinary buyers constantly. The seller says they are an OCI, or that they are "NRI only on paper", or that their accountant has it in hand. None of that moves the obligation. What matters is their residential status under the Act for the relevant year, and establishing that is on you before you release any money.
The rate you deduct
Two things decide it: how long the seller has owned the property, and the size of the sale. The surcharge steps up with the amount, and 4% cess sits on top of everything.
| Seller's holding period | Base rate | Sale price | Effective rate |
|---|---|---|---|
| More than 24 months (long term) | 12.5% | Up to ₹50 lakh | 13% |
| More than 24 months (long term) | 12.5% | ₹50 lakh to ₹1 crore | 14.3% |
| More than 24 months (long term) | 12.5% | Above ₹1 crore | 14.95% |
| 24 months or less (short term) | 30% | Any | 31.2% to 39% |
That percentage applies to the whole sale price, not to the seller's profit. On a ₹1.8 crore flat you are holding back roughly ₹26.9 lakh, even if the seller's actual gain was a fraction of that. It is not your money and it is not the seller's choice. It is the law's default, and the only thing that changes it is a certificate the seller obtains in advance.
Get a TAN before you pay anything
This is the step buyers miss. Deducting from a resident seller needs only your PAN. Deducting from a non-resident needs a TAN — a Tax Deduction and Collection Account Number — in your own name. You apply through Form 49B on the NSDL portal and it typically arrives within a week or two.
If the property is in joint names on your side, each buyer who pays part of the price needs their own TAN and files their own return. Start this when the agreement to sell is signed, not when the money is due, or the deadline arrives before the number does.
What you actually have to do, in order
- Establish the seller's residential status in writing before any money moves, and keep whatever they give you — passport pages, a tax residency certificate, a declaration.
- Apply for a TAN through Form 49B if you do not already hold one.
- Ask the seller whether they hold a Form 128 certificate (old Section 197 / Form 13). If they do, deduct at the rate written on it and keep a copy. If they do not, deduct at the full rate.
- Deduct on every payment, including the advance and each instalment, not only on the final one.
- Deposit what you deducted by the 7th of the month after you paid, using challan ITNS 281 against your TAN.
- File your quarterly return on Form 144 (old Form 27Q) by the due date for that quarter.
- Issue the seller a TDS certificate on Form 131 (old Form 16A), which they need to claim the credit.
If the seller brings you a lower-deduction certificate
A seller who expects to owe much less than the default rate can apply to their Assessing Officer for a certificate under Section 395 on Form 128 (old Section 197 / Form 13). It states the rate you should deduct at, which is often a small fraction of the default.
Three things to know as the buyer. The certificate must be issued before the sale closes — there is no retrospective version. It names you specifically, so a certificate obtained for a different buyer is no good. And once you have it, you must deduct at the certified rate: deducting more is not the cautious choice, it is simply wrong, and the seller will have to chase the excess for a year.
It is worth asking the seller early. A seller who has not started the application and wants to close in three weeks is a seller who is about to lose a large amount of cash flow, and that is often what delays a deal rather than the price.
Agricultural land and plots
The same section applies to land as to a flat. Rural agricultural land that falls outside the definition of a capital asset is not taxed as a capital gain, so no TDS arises — but "rural" is a statutory test about distance from a municipality and population, not a description of how the place looks. Urban agricultural land is a capital asset and is treated like any other property. If there is any doubt, deduct and let the seller reclaim, because the risk of not deducting sits with you.
What it costs you to get wrong
| What went wrong | What happens to you |
|---|---|
| You did not deduct, or deducted too little | You are treated as an assessee-in-default and the department recovers the shortfall from you |
| You deducted but paid it late | Interest at 1.5% per month, from the date of deduction until it is paid |
| You never deducted at all | Interest at 1% per month, from the date it was deductible |
| Your Form 144 return is late | A fee of ₹200 a day until it is filed, capped at the TDS amount |
| You used your PAN instead of a TAN | The return cannot be filed, so the seller never receives credit and comes back to you |
There is a further sting worth knowing: a property bought with unpaid TDS carries that liability with it. Buyers of that property from you, and their lenders, will find it in due diligence.
The old names and the new ones
The Income-tax Act, 2025 renumbered most of what people still say out loud. Both sets are in use, so this is the mapping you will need when a lawyer or a banker uses the older term.
| What it is | Old name (1961 Act) | Current name (2025 Act) |
|---|---|---|
| TDS on payments to a non-resident | Section 195 | Section 393(2) |
| Lower or nil TDS certificate | Section 197, Form 13 | Section 395, Form 128 |
| Buyer's quarterly TDS return | Form 27Q | Form 144 |
| TDS certificate given to the seller | Form 16A | Form 131 |
| TDS when the seller is a resident | Section 194-IA, Form 26QB | Form 141 |
Who deducts the TDS when the seller is an NRI, the buyer or the seller?
The buyer. Under Section 393(2) (old Section 195) the obligation is on the person making the payment. If you under-deduct, the department recovers from you, not from the seller.
What is the TDS rate on property purchase from an NRI?
12.5% plus surcharge and 4% cess where the seller held the property more than 24 months — 13% up to ₹50 lakh, 14.3% up to ₹1 crore and 14.95% above that. 30% plus surcharge and cess where they held it for 24 months or less.
Is TDS deducted on the sale price or on the seller's profit?
On the full sale price. Only a Form 128 certificate obtained by the seller before the sale brings it down to something nearer the real tax.
Do I need a TAN to buy property from an NRI?
Yes. A PAN is enough only when the seller is a resident. Buying from a non-resident needs a TAN in your own name, applied for on Form 49B, and each joint buyer who pays needs their own.
Is there a minimum property value below which no TDS applies?
No. The ₹50 lakh threshold applies when the seller is a resident. For a non-resident seller there is no floor — TDS applies from the first rupee.
What if the seller says they are an OCI, not an NRI?
What matters is their residential status under the Act for that year, not the card they hold. Get it in writing before any money moves, and deduct if there is doubt.
When do I have to deposit the TDS?
By the 7th of the month after the payment, on challan ITNS 281 against your TAN. The quarterly return on Form 144 follows, and then the Form 131 certificate to the seller.