The buyer cut 1% TDS on your NRI sale. That's the resident rate. Here's what happens now.
TL;DR
For a resident seller, property TDS is 1%. For an NRI it's around 12.5% on the full sale value. When a buyer gets this wrong, and plenty do, the buyer is the one on the hook, but you still have to get your own tax right. Here's how to sort it.
By Vipul Sharma, Founder
Reviewed by Preetesh Maloo, Chartered Accountant, NRI Tax Partner
The short answer
If you're an NRI, the buyer should deduct TDS under Section 195, roughly 12.5% plus surcharge and cess on the sale value, not the 1% that applies to resident sellers (Section 194-IA). Buyers get this wrong all the time, usually because nobody told them clearly that you're an NRI.
Two things are true at once:
So it's the buyer's compliance problem, but your tax problem. Both need sorting, and it's far cheaper to fix before registration than after.
Why 1% is the wrong rate for an NRI
The 1% everyone quotes is Section 194-IA, and it only applies when the seller is a resident. The moment the seller is an NRI, a different section takes over: Section 195. By default it deducts on the full sale value, at the long-term rate of 12.5% plus surcharge and cess, which works out to roughly 13% to 15% depending on the size of the sale. (A short-term sale, held two years or less, is taxed higher, at slab rates.)
The gap is huge, and that's exactly why it gets 'missed'. On a ₹2 crore flat, 1% is ₹2 lakh. Under Section 195 it's about ₹30 lakh. The cash the buyer has to hold back is fifteen times larger, so a buyer who would rather not deal with it sometimes treats you as a resident.
Two more things change with an NRI sale. For a payment up to 30 September 2026 the buyer needs a TAN and files Form 27Q (Form 144 from 1 April 2026), not the Form 26QB used for resident sales. From 1 October 2026 a resident individual or HUF buyer instead uses Form 141, Schedule E, with no TAN. And there's no ₹50 lakh floor: Section 195 applies to an NRI sale of any size.
₹2 Cr sale: the 1% mistake
If buyer deducts 1% (wrong)
₹2 L
Section 194-IA, the resident rate.
Correct NRI deduction
about ₹30 L
Section 195 on the full value, 12.5% plus surcharge and cess.
The shortfall
about ₹28 L
The buyer can be chased for this, with interest and a penalty on top.
Illustrative. A Form 13 certificate can lower the correct deduction to your actual gain, so you don't lock up cash you'll only get back at refund time.
Buyer used the wrong rate on your sale?
Send us the sale deed and the TDS challan. We'll tell you the correct number, what you owe, and how to close it cleanly, before it becomes a notice.
Senior CA who specialises in NRI tax · we deal with the tax officer, you don't
Whose problem is it? Mostly the buyer's
Under the law the buyer is the deductor. If they deduct too little, or nothing, the tax department can treat the buyer as being in default (Section 201). In practice that means:
This is why a switched-on buyer's lawyer won't let the deal close until the NRI TDS is handled correctly. And if yours did close on 1%, don't be surprised when the buyer comes back once they realise, sometimes asking you to make good the gap.
The buyer often circles back to you
When the buyer's shortfall surfaces (a notice, a mismatch, their own CA at filing time), they frequently come back to the seller to cover it, or hold up the last tranche of the payment. A clean deduction at the sale protects you as much as them.
What you should do
If the sale hasn't closed yet, tell the buyer in writing that you're an NRI, and get them to deduct under Section 195, ideally at a lower rate using a Form 13 certificate (Form 128 from April 2026) so they don't over-withhold. That's the clean path, and it keeps ₹25-30 lakh from sitting idle with the department.
If the sale already closed on 1%, or on nothing, declare the full capital gain in your Indian return (usually ITR-2) and pay the balance tax with any interest. Don't sit on it. If you under-pay your own tax, the department can raise a demand on you separately, with interest for the shortfall (Section 234B). Getting a CA to compute the real gain and clear it cleanly is the safe move, especially once the buyer starts asking questions.
Fix it before registration
Sorting the correct Section 195 deduction, the buyer's TAN, and a Form 13 lower-rate certificate before the sale deed is registered is far cheaper than unwinding a wrong deduction later. Once it's registered on 1%, both sides are cleaning up after the fact.
A notice arrived years after the sale. What now?
Most NRI sellers hear about a 1% deduction long after the money has gone: the department's data shows a large sale against your PAN and only a small deduction, or no return for that year. Start by reading which notice it is, because each one has its own reply and its own window.
| The notice says | What it usually means | Where to start |
| --- | --- | --- |
| Show cause why a year should not be reopened (Section 148A) | The department found the sale in its data first, and your return did not show the gain, or you filed none | Answering a reassessment notice |
| File a return you did not file (Section 142(1)) | No return for the year of sale, and the department has asked you directly to file one | The non-filer notice |
| Intimation on a return you filed (Section 143(1); Section 270(1) under the 2025 Act) | The TDS you claimed does not match your tax statement, for example because the buyer paid on Form 26QB, used a wrong PAN or chose the wrong year | Recovering a 26QB credit and rectification (Section 154; Section 287 under the 2025 Act) |
Three things hold whichever notice it is.
If the buyer later deposits the shortfall on the full price and that is more than your real tax, the excess comes back to you as a refund through your return (an updated return cannot claim a refund). If the window to file that year's return has closed, the route is a condonation request under Section 119(2)(b); see claiming a time-barred refund.
Frequently asked questions
Q: The buyer deducted 1%. Is that my problem or theirs?
A: Both, in different ways. The buyer is the deductor, so the department can chase the buyer for the shortfall plus interest and a penalty. But you still owe the correct tax on your gain, so if too little was deducted you make up the difference in your return.
Q: Why is my TDS around 12.5% when residents pay 1%?
A: The 1% (Section 194-IA) only applies to a resident seller. An NRI falls under Section 195, deducted on the full sale value at 12.5% plus surcharge and cess. And Section 195 has no ₹50 lakh threshold; it applies to a sale of any size.
Q: The buyer deducted nothing at all. What now?
A: The buyer is exposed to the shortfall plus interest and penalty. You declare the gain and pay your tax through your ITR. Sort it before it becomes a notice on either side.
Q: Can I stop the buyer over-deducting the full 12.5%?
A: Yes. Apply for a lower-TDS certificate (Form 13, becoming Form 128) before the sale, so the buyer deducts on your actual gain rather than the full price.
Q: Does the buyer need a TAN?
A: For a payment up to 30 September 2026, yes, with Form 27Q (Form 144 from 1 April 2026). From 1 October 2026 a resident individual or HUF buyer needs no TAN and uses Form 141, Schedule E; other buyers still need one.
Q: The deal closes next week and the buyer used the 1% route. Can we fix it?
A: Yes, but fast. Switch to Section 195, get the buyer a TAN, and deposit via Form 27Q. File Form 13 if there's time; otherwise the buyer deducts the full amount and you reclaim any excess through your return.
Q: Years after the sale, I got a notice about it. The buyer only deducted 1%. What do I do?
A: Read which notice it is: a show-cause before a year is reopened, a request to file a return you never filed, or an intimation on a return you did file. Reply by the date the notice states, with the sale deed, your cost and the TDS actually deducted, and file the return for the year of sale, either in answer to the notice or, if the time limit has not passed and no reassessment or assessment is under way for that year, as an updated return (ITR-U, Section 139(8A)). The tax is on your gain, not the sale value the notice quotes.
Q: The buyer got a notice for short deduction and wants me to pay it. Do I have to?
A: You owe the tax on your own gain, not the buyer's interest or penalty. Once your return for the year of sale includes the sale and the tax is paid, a CA's certificate confirming it (Form 26A, or Form 149 for a payment from 1 April 2026) means the buyer is not in default for that tax (first proviso to Section 201(1); Section 398(2) under the 2025 Act), and their interest runs only to the date you filed.
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The exceptions that change the answer
Where the general rule stops applying to you
Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.
TDS rate when buying property from an NRI
Right now: 12.5% plus surcharge and cess on LTCG
Where it works differently
- The gain is short-term
- TDS is at the applicable slab rate, effectively 30% plus surcharge and cess for most NRI sellers.
- s.195 requires deduction at 'rates in force' for the actual character of the income.
- No lower-deduction certificate is obtained
- TDS applies to the ENTIRE SALE CONSIDERATION, not to the gain.
- s.195 operates on the sum paid unless the AO determines otherwise. This is the whole commercial case for Form 13 / Form 128.
- There are joint NRI sellers
- TDS is deducted separately against each seller's PAN in their ownership proportion.
- Rule 37BA. Deducting entirely against one PAN strands the other's credit.
- The buyer deducts 1% under s.194-IA
- Wrong section. The buyer becomes an assessee-in-default under s.201 for the shortfall plus 1% per month interest and penalty under s.271C.
- s.194-IA applies only where the seller is a RESIDENT.
Commonly got wrong
- TDS on property purchase is 1% over Rs 50 lakh. That is s.194-IA, for RESIDENT sellers only. For a non-resident seller it is s.195 at the full capital-gains rate, with no threshold.1% applies only if the seller is a resident. NRI seller means s.195 at 12.5% plus surcharge and cess on the whole consideration unless a certificate is obtained.
- The buyer files Form 26QB. 26QB (Form 141 from 1 April 2026) was for s.194-IA resident sellers. Until 30 September 2026 an NRI-seller purchase needed a TAN and Form 27Q (Form 144 from 1 April 2026). From 1 October 2026 a resident individual or HUF buyer uses Form 141's new Schedule E against their PAN, but still deducts at the s.195 / s.393(2) rate, not 1%.Buying from an NRI, you deduct at the full capital-gains rate, not 1%. If you pay on or after 1 October 2026 and you are a resident individual or HUF, you report it on Form 141 Schedule E against your PAN and give the seller Form 132; no TAN is needed. Payments before that date needed a TAN and Form 27Q or Form 144.
How a resident individual buyer deposits TDS on an NRI's property
Right now: No TAN needed: a resident individual or HUF buyer deposits and reports the TDS on Form 141 Schedule E against their PAN and issues Form 132 to the seller
Where it works differently
- The buyer is a company, firm, trust or an NRI
- Still needs a TAN and files Form 144.
- s.397(1)(c) as amended by the Finance Act 2026 (and the Fifth Amendment Rules that follow it) covers only resident individual and HUF buyers.
- The payment is rent or interest to a non-resident
- Not covered. The payer still needs a TAN.
- The amendment is limited to consideration for transfer of immovable property.
- The seller has no PAN
- Schedule E asks for the seller's foreign contact details, Tax Residency Certificate details and foreign Tax Identification Number.
- Used to decide the applicable rate.
- Instalments straddle 1 October 2026
- The route follows the date of each payment: instalments paid on or before 30 September 2026 go through TAN and Form 27Q / Form 144, later ones through Form 141 Schedule E.
- Both the s.397(1)(c) amendment and the Fifth Amendment Rules take effect on 1 October 2026; neither source we read carves out agreements already signed, so treat the payment date as decisive and confirm on the portal.
Commonly got wrong
- The TAN rule is gone, so the buyer deducts 1% like a resident sale. Only the reporting route changed. The rate is still the s.195 / s.393(2) rate on the whole consideration unless there is a lower-deduction certificate.From 1 October 2026 you do not need a TAN, but you still deduct at the full capital-gains rate for a non-resident seller and report it on Form 141 Schedule E.
- Every buyer from an NRI can now skip the TAN. Only resident individuals and HUFs are covered.If the buyer is a company, firm, trust or itself a non-resident, it still needs a TAN and files Form 144.
Updated return (ITR-U) window and additional tax
Right now: 48 months from the end of the assessment year; additional tax 25% / 50% / 60% / 70% by 12-month band
Where it works differently
- The taxpayer wants a REFUND
- ITR-U cannot be used. It cannot claim or increase a refund, or report a loss.
- Statutory bar in s.139(8A). For NRIs, whose filings are usually refund claims, this is the decisive limitation, and it pushes them to s.119(2)(b) condonation instead.
- Additional tax is computed
- 25% (0-12 months), 50% (12-24), 60% (24-36), 70% (36-48), on tax plus interest.
- s.140B.
Commonly got wrong
- Use ITR-U to claim a missed TDS refund. Expressly not permitted. This sends NRIs down a dead end.ITR-U cannot claim a refund. Use a s.119(2)(b) condonation application within five years.
- The window is two years. Four years from 1 April 2025.An updated return can be filed up to 48 months from the end of the assessment year, with additional tax rising 25%, 50%, 60% and 70% across the four 12-month bands.
Time to respond to a s.143(1) intimation
Right now: 30 days from the intimation to respond before the adjustment is confirmed
Where it works differently
- The 30 days lapse with no reply
- The proposed adjustment is made and a demand follows. The remedy shifts to rectification under s.154 or a first appeal.
- First proviso to s.143(1)(a).
- The taxpayer is abroad
- Intimations arrive by email and on the portal only. A stale email on the PAN record is the single commonest reason an NRI misses this window.
- Electronic service under s.282.
Commonly got wrong
- An intimation is just information, nothing to do. It carries a 30-day window; ignoring it converts a proposal into a demand.A section 143(1) intimation gives you 30 days to respond. After that the adjustment stands and you are into rectification or appeal.