Section 195 of Income Tax Act makes anyone who pays a non-resident a taxable sum deduct tax first, and a flat bought from an NRI is the most common case: the buyer deducts 12.5% plus surcharge and cess when the seller held it for over two years. There is no ₹50 lakh floor and no 1% rate, which apply only when the seller is a resident.
This trips up many home buyers, because the deduction runs into lakhs and needs a TAN, a quarterly return and a certificate. The rules below are for FY 2025-26 under the 1961 Act, with the tax year 2026-27 changes after them. Our guide to how TDS works covers the basics. For resident sellers see TDS on property purchase.
Quick facts
Long-term (held over 24 months)
12.5% plus surcharge and 4% cessShort-term
Slab rate; buyers usually apply 30% plus surcharge and cessThreshold
NoneBuyer needs
TAN (PAN-based payment allowed for resident individual and HUF buyers from 1 October 2026)Return and certificate
Form 27Q quarterly; Form 16A to the sellerLower deduction
Section 197, Form 13 (FY 2025-26); section 395, Form 128 (tax year 2026-27)Under the 2025 Act
Section 393 TDS table, non-resident payments
NRI TDS rate on a property sale under section 195 of income tax act
| Sale price | Long-term gain rate | Short-term gain rate (30% slab) |
|---|---|---|
| Up to ₹50 lakh | 12.5% + 4% cess = 13% | 30% + 4% cess = 31.2% |
| Above ₹50 lakh up to ₹1 crore (10% surcharge) | 14.3% | 34.32% |
| Above ₹1 crore (15% surcharge) | 14.95% | 35.88% |
Surcharge on long-term gains is capped at 15%, which is why the long-term column stops at 14.95%. Short-term rows above ₹1 crore can go higher in practice if the seller's income crosses ₹2 crore; the table shows the common figure. An NRI cannot use the 20% with indexation option that resident individuals have for property bought before 23 July 2024.
Tds section 195 versus 194IA: what a buyer must know
| Point | Resident seller (194IA) | NRI seller (195) |
|---|---|---|
| Rate | 1% | 12.5% or slab, plus surcharge and cess |
| Threshold | ₹50 lakh or more | None |
| Buyer needs TAN | No; Form 26QB with PAN | Yes, for payments before 1 October 2026 |
| Filing | Form 26QB per deal | Form 27Q every quarter |
Always ask the seller for proof of residential status before signing. If the seller has lived abroad for work, assume NRI until shown otherwise; see residential status rules.
Worked example: TDS 195 on a ₹90 lakh flat
Without a certificate. Arjun lives in Dubai and sells a Pune flat he bought nine years ago. The buyer, a resident couple, agrees a price of ₹90,00,000 in FY 2025-26.
Step 1: the gain is long-term, so the base rate is 12.5%. Step 2: price is above ₹50 lakh, so add 10% surcharge: 13.75%. Step 3: add 4% cess: 14.3%. Step 4: TDS on ₹90,00,000 is ₹12,87,000. Arjun gets ₹77,13,000 at registration.
With a lower deduction certificate. Arjun's real gain is about ₹30,00,000. He applies before the sale and the officer allows deduction on that gain only. At 12.5% plus cess (13%), TDS is ₹3,90,000, and ₹86,10,000 reaches him. The tax itself is the same; less cash is locked up until his return is processed.
Section 197 of income tax act: lower deduction certificate for TDS
The buyer must deduct on the full price unless the seller produces a certificate from the assessing officer. Under section 197 of the 1961 Act, the seller applies online in Form 13 through TRACES with the sale deed draft, purchase cost and proof of improvements. For tax year 2026-27 the same relief is a section 395 certificate, applied for in Form 128 under the Income-tax Rules, 2026.
Apply early. The officer needs time, and the certificate names the buyer, the rate and an upper amount. A buyer who deducts less without one carries the shortfall plus interest. Apply at tdscpc.gov.in.
Steps for the buyer after deducting
- Get a TAN before the payment date, if the payment falls before 1 October 2026 or you are not an individual or HUF.
- Deduct at the agreed rate at the time of payment or credit, whichever is first, including on the token amount.
- Deposit the tax through the e-Pay Tax option of the government e-filing site (Challan 281) within seven days after the month of deduction ends; a March deduction can wait until 30 April.
- File the quarterly non-resident statement (Form 27Q for FY 2025-26) and keep the acknowledgement for the registration office.
- Download Form 16A from TRACES and give it to the seller.
Tds on foreign remittance and the 2025 Act
Section 195 is wider than property. Rent paid to an NRI landlord, interest, royalty and fees paid abroad also need TDS, at the rate in the Act or a lower treaty rate. Under sec 195 of income tax act, before sending money out of India, the payer files Form 15CA, with a chartered accountant's Form 15CB where needed, so the bank can release the remittance.
From 1 April 2026 the Income-tax Act, 2025 applies. Payments to non-residents now fall under section 393, and the TAN relief starts on 1 October 2026 for resident individual and HUF buyers, who can then pay using their PAN. Check the current form names on the portal for tax year 2026-27 before you file.
Where buyers go wrong
| Problem | Fix |
|---|---|
| Deducting 1% as for a resident | Check status first; the shortfall falls on the buyer |
| Deducting only on the gain without a certificate | Deduct on the full price unless a certificate allows less |
| Paying TDS with Form 26QB | That form is for resident sellers; use the non-resident route |
| Ignoring the token money | TDS applies to every instalment, including advances |
This is a plain explanation of the withholding rules, not advice for your deal. NRI property sales have many moving parts; a chartered accountant, or the department's own help pages, can confirm your figures.
Sources we checked
- Income-tax Act, 1961, section 195
- Income-tax Act, 1961, section 197
- Income-tax Act, 1961, section 112
- Income-tax Act, 2025, sections 393 and 395
- Income-tax Rules, 2026, Form 128
Frequently asked questions
What is TDS u/s 195 on property bought from an NRI?
The buyer deducts tax on the price before paying the NRI seller: 12.5% plus surcharge and cess on long-term gains, or slab rate (usually 30%) plus surcharge and cess on short-term gains. There is no minimum price.
Can the buyer deduct tds under section 195 only on the gain?
Only if the seller has a lower deduction certificate from the assessing officer. Without one, deduct on the full sale price.
What is the 195 section tds rate for an NRI selling a flat after three years?
The gain is long-term, so the rate is 12.5% plus surcharge and 4% cess. On a ₹80 lakh price that works out to 14.3%.
What replaces section 195 of income tax act 2025 onwards?
Under the Income-tax Act, 2025, payments to non-residents form part of the section 393 TDS table. Section 195 still governs payments in FY 2025-26.
Does the buyer still need a TAN for tds for nri sellers?
For payments before 1 October 2026, yes. From that date, resident individual and HUF buyers can deposit this TDS using their PAN instead of getting a TAN.