TDS on purchase of property from NRI is a critical compliance requirement that every buyer should understand before completing a property transaction. Unlike purchases from resident sellers, NRI property transactions involve different TDS rules, rates, forms and reporting obligations.

With the Income Tax Act, 2025 applicable from 1 April 2026, buyers also need to understand the updated provisions and procedures. This guide explains the applicable TDS rules, rates, compliance process and potential consequences to help buyers avoid costly mistakes when purchasing property from an NRI.

TDS on Property Purchase from a Resident Seller Under Section 393(1)

When buying property from a resident seller, the buyer is generally responsible for deducting TDS under Section 393(1) of the Income Tax Act, 2025, which replaces the earlier Section 194-IA framework.

• Who deducts TDS? The property buyer.
• When does TDS apply? When the sale consideration or applicable stamp duty value is ₹50 lakh or more.
• TDS rate: 1% of the sale consideration or stamp duty value, whichever is higher.
• TDS compliance: The buyer must deposit the TDS and file the applicable Form 141 within the prescribed timeline. Form 16B is issued to the seller as proof of deduction.
• TAN: Generally not required for this transaction.
• Non-compliance: Failure to deduct or deposit TDS can result in interest, penalties and other consequences.

Key takeaway: Before completing a property purchase, buyers should determine the seller's residential status first, as NRI sellers are subject to different TDS provisions.

TDS on Property Purchase from NRI - Section 393(2) of the Income Tax Act, 2025

When purchasing property from an NRI seller, the TDS rules are significantly different from those applicable to a resident seller. The erstwhile Section 195 has been reorganised as Section 393(2) [Table Sl. No. 17] under the Income Tax Act, 2025. Understanding these provisions is essential for buyers to correctly handle TDS on purchase of immovable property from NRI.

No Minimum Threshold for TDS

Unlike the ₹50 lakh threshold applicable to resident sellers, there is no minimum threshold for TDS when purchasing property from an NRI.

Whether the property is valued at ₹5 lakh or ₹5 crore, Section 393(2) applies. Assuming that a low-value transaction is automatically exempt from TDS is therefore a common compliance mistake.

TDS Rate Depends on the Nature of Capital Gain

Under the Income Tax Act, 2025, the applicable TDS rate depends on whether the NRI seller's gain is classified as long-term or short-term capital gain, based on the property's holding period.

Long-Term Capital Gains - Property Held for More Than 24 Months

If the NRI seller has held the property for more than 24 months, the gain is treated as a long-term capital gain. The applicable TDS is as follows:

The maximum effective TDS rate on long-term capital gains from an NRI's property sale is 14.95%, including surcharge and cess, once the sale consideration crosses ₹1 crore.

Short-Term Capital Gains – Property Held for 24 Months or Less

Where the property has been held for 24 months or less, the gain is treated as a short-term capital gain and is taxable at the NRI seller's applicable slab rate.

Since the buyer generally does not have visibility into the seller's total taxable income, buyers in practice tend to deduct TDS conservatively, commonly at 30% plus applicable surcharge and cess, unless the seller provides a lower or nil TDS certificate specifying a different rate.

TDS Is Deducted on the Full Sale Consideration

A critical point in TDS on property purchase from NRI is that TDS is generally deducted on the entire sale consideration, not merely on the capital gain, unless a lower or nil TDS certificate has been obtained.

For example, if the property is sold for ₹2 crore but the NRI seller's actual capital gain is only ₹15 lakh, TDS may still be calculated on the full ₹2 crore. This can result in significant excess TDS and a refund claim by the seller.

This is why obtaining a lower or nil TDS certificate can be particularly important in NRI property transactions.

Other TDS Requirements for NRI Property Purchases

• TAN Requirement: Buyers must currently obtain a Tax Deduction Account Number (TAN) before deducting TDS on a purchase from an NRI. Form 141, which applies to resident-seller transactions, cannot be used here. Budget 2026 has amended Section 397(1)(c) so that, from 1 October 2026, individual and HUF buyers can deduct and deposit this TDS using PAN without obtaining a TAN. Until then, TAN remains mandatory.
• TDS Return Filing: The quarterly non-resident TDS statement, earlier Form 27Q, is now Form 144 under Section 397(3)(b). Once processed, it generates Form 131, the successor to Form 16A, as the TDS certificate for the NRI seller.
• Installment Payments: If the property purchase price is paid in installments, TDS must be deducted on each installment at the time of payment.
• NRO Account: The net sale consideration, after deducting TDS, is typically credited or remitted to the NRI seller's NRO account. Any subsequent repatriation abroad is governed separately by applicable FEMA requirements.

TDS on Property Purchase Above ₹50 Lakhs

When purchasing property from a resident seller, TDS generally applies when the sale consideration or stamp duty value is ₹50 lakh or more, subject to the applicable provisions.

• TDS rate: 1% of the applicable amount.
• Who deducts: The buyer is responsible for deducting TDS.
• When to deduct: TDS is generally deducted at the time of payment or credit to the seller, whichever is earlier.
• Compliance: The buyer must deposit the TDS and file the applicable statement within the prescribed timeline.
• Seller's proof: The buyer should provide the applicable TDS certificate to the seller.

Important: The ₹50 lakh threshold discussed here applies to purchases from a resident seller. If the seller is an NRI, different TDS provisions and compliance requirements apply.

Consequences of Non-Compliance with TDS Rules

Incorrect TDS compliance on the purchase of property from an NRI, whether due to under-deduction, applying the wrong rate, or missing filing deadlines, can result in significant financial and compliance consequences for the buyer.

Key Consequences of TDS Non-Compliance

• Interest Charges: Interest may apply at 1% per month for non-deduction of TDS and 1.5% per month for failure to deposit TDS after it has been deducted.
• Late Filing Fees: A late filing fee of ₹200 per day may apply for delayed filing of Form 144, the quarterly non-resident TDS statement that replaced Form 27Q. The fee is capped at the amount of TDS payable.
• Penalty: A penalty equal to the amount of TDS not deducted may be levied on the buyer. The erstwhile Section 271C, under which this penalty was imposed, is now Section 448 of the Income Tax Act, 2025.
• Income Tax Scrutiny: TDS non-compliance may attract departmental scrutiny for both the buyer and the NRI seller. It can also complicate the seller's subsequent repatriation of funds, as banks may require proper TDS documentation before permitting outward remittance.

TDS Compliance Checklist for Buyers Purchasing Property from an NRI

When purchasing property from an NRI, the buyer is responsible for meeting the applicable TDS requirements. Following a structured compliance process can help avoid interest, penalties and delays.

• Verify the seller's residential status: Check the seller's passport, PAN and other relevant records rather than relying only on the seller's declaration.
• Obtain TAN: Obtain a Tax Deduction Account Number (TAN) before the transaction, as required for TDS under Section 393(2).
• Confirm the holding period: Determine whether the property qualifies as a long-term or short-term capital asset, as this affects the applicable TDS rate.
• Deduct TDS correctly: Deduct TDS on the full sale consideration, unless the seller provides a valid lower or nil TDS certificate through Form 128.
• Complete TDS reporting: File Form 144 and provide Form 131 to the NRI seller as the applicable TDS certificate.
• Plan for Form 128 early: Encourage the seller to apply for a lower or nil TDS certificate well before the transaction, as the process may take several weeks.
• Deposit TDS on time: Ensure the deducted TDS is deposited within the prescribed timeline to avoid interest and penalty exposure.

TDS Deduction Process for Buying Property from an NRI

The TDS deduction process for an NRI property purchase should be completed carefully because the buyer is responsible for deducting and depositing the applicable tax.

1. Verify the seller's NRI status and collect the required PAN and property documents.
2. Obtain TAN before deducting TDS, where applicable.
3. Determine the applicable TDS rate based on the nature of the seller's capital gain and any valid lower or nil TDS certificate.
4. Deduct TDS from each payment or installment made to the NRI seller.
5. Deposit the deducted TDS within the prescribed timeline.
6. File Form 144 for the applicable non-resident TDS reporting.
7. Issue Form 131 to the seller as evidence of TDS deduction.

Following each step correctly helps the buyer avoid interest, penalties and future compliance issues.

Conclusion

TDS on Purchase of Property From NRI requires careful compliance because the rules differ significantly from those applicable to resident sellers. Under the Income Tax Act, 2025, the governing provision is Section 393(2), while the lower or nil TDS route is covered under Section 395(1) and Form 128. The applicable TDS rate also depends on whether the NRI seller's capital gain is long-term or short-term.

Buyers should verify the seller's residential status, obtain TAN, determine the correct TDS rate and complete all filing requirements to avoid interest, penalties and scrutiny. For NRIs, applying early for a lower or nil TDS certificate through Form 128 can help prevent excess deduction and subsequent refund delays.

Need Expert Assistance?

For professional guidance on TDS on NRI property transactions, capital gains planning, or the Form 128 lower/nil TDS certificate process, consult with Dinesh Aarjav & Associates. Our team specialises in NRI tax compliance and cross-border property transactions under the Income Tax Act, 2025.

Contact us today to ensure a hassle-free property purchase and full TDS compliance.