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Dealing with an NRI

The bank paid your home loan straight to the NRI seller and nobody deducted TDS: the fix

The bank sent the money, but the deduction was always yours to make.

Your lender disbursed the loan directly to the NRI seller, in full, and nothing was held back for tax. You may have deducted on your own contribution, but not on the loan tranches.
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Last reviewed: 27 September 20265 min readReviewed by Preetesh Maloo, CA

The short answer

When a bank disburses a home loan straight to an NRI seller, the buyer is still the one who must deduct TDS (Section 393(2) of the 2025 Act, formerly Section 195): the bank pays on your behalf and does not deduct for you. If nothing was held back, you are the defaulter for each tranche (Section 398, formerly Section 201). You fix it by depositing the missed tax from your own funds with interest at 1% a month from each disbursement date, filing the statement and giving the seller the certificate. If the seller has already filed a return including the sale and paid the tax, the tax claim falls away and only interest remains.

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Related situations

Home loan paid directly to the NRI seller without TDS: whose default is it

It is yours, and it is serious but fixable: a penalty equal to the tax not deducted is possible (Section 448 of the 2025 Act, formerly Section 271C) unless you show reasonable cause (Section 470, formerly Section 273B). The duty to deduct falls on the person responsible for paying the seller, and on a purchase that is you, the buyer. The bank is lending you the money and paying it on your instruction.

Every disbursement is a separate payment, with its own deduction due that day.

TrancheDeduction due
Your own down paymentOn the date you paid it
Each loan disbursementOn the date the bank paid the seller

What you owe, and whether you can recover it from the seller

You owe the deduction on every loan tranche, plus interest at 1% a month or part of a month from each disbursement date to the day you deposit. The interest is on the tax, not on the loan.

You pay it from your own money, because the seller already has the full price. Getting it back from the seller is a matter of agreement or a civil claim. If part of the price is still unpaid, your advocate can tell you whether the agreement lets you hold that back; the tax on that later payment is due on its own date either way.

Paying the seller's tax yourself does not by itself mean grossing up. That rule (Section 393(10) of the 2025 Act, formerly Section 195A) applies where an agreement puts the seller's tax on you, so the tax clause in your agreement matters.

How to fix TDS missed on home loan disbursements

Work tranche by tranche, from the bank's own record.

1. Get the bank's disbursement letter with each tranche's date and amount. 2. Ask the seller whether their return for the year of sale includes it and the tax is paid. If so, a chartered accountant's certificate (Form 26A, now Form 149) ends the tax claim, and interest runs only to the date they filed. 3. Otherwise, take a TAN if the tranches were paid before 1 October 2026 or you are not a resident individual or HUF (for an earlier tranche fixed after 1 October, the TAN route is the safe one), and deposit the tax and interest under Section 393(2), formerly Section 195. 4. File or correct the statement for each quarter a tranche fell in: Form 27Q up to 31 March 2026, Form 144 from 1 April 2026. 5. Send the seller Form 16A or Form 131.

A resident individual or HUF paying from 1 October 2026 uses Form 141, Schedule E, without a TAN, and gives the seller Form 132.

A worked example: Farhan in Bengaluru

Farhan bought a Bengaluru flat for Rs 95 lakh from Leela, an NRI in Singapore who had owned it since 2016. On 10 January 2026 he paid Rs 20 lakh himself and deducted 14.3% on it. On 5 February 2026 the bank paid Leela the Rs 75 lakh loan in full.

ItemAmount
Deduction missed on the loan tranche: 14.3% x Rs 75 lakhRs 10,72,500
Interest at 1% a month, February to October 2026 (9 months)Rs 96,525
Tax and interest if he deposits on 20 October 2026Rs 11,69,025

He corrects his Form 27Q for January to March 2026 to add the February tranche, pays any late fee, and sends Leela a revised Form 16A.

What's involved

What the CA actually does

  1. 1

    Map every tranche

    We line up the bank's disbursement letter against the deed and your challans, and work out the deduction and interest per tranche.

  2. 2

    Check the seller's return

    We contact the seller or their CA and, where they have paid, prepare the Form 149 certificate so only interest remains.

  3. 3

    Deposit, file and certify

    We obtain your TAN where needed, deposit the tax, file or correct each quarter's statement and issue the seller's certificate.

  4. 4

    Set up the remaining tranches

    Where disbursements are still due, we compute the deduction for each so the same gap does not reopen.

What to have ready

Documents you'll typically need

  • Sale deed and agreement, including the tax clause
  • Bank sanction and disbursement letters
  • Your own payment proofs and any challans
  • Seller's PAN and status evidence
  • Seller's return, if filed

References on this page

  • Section 195, 1961 / Section 393(2) of the Income-tax Act, 2025: deduction at the time of credit or payment, whichever is earlier
  • Section 204(iii) of the 1961 Act: the person responsible for paying is the payer himself
  • Section 201 and 201(1A), 1961 / Section 398, 2025 Act: assessee in default and interest
  • Section 195A, 1961 / Section 393(10), 2025 Act: grossing up where the payer bears the tax under an agreement
  • Sections 271C and 273B, 1961 / Sections 448 and 470, 2025 Act: penalty for failure to deduct, and reasonable cause
  • Form 27Q to Form 144; Form 16A to Form 131; Form 26A to Form 149 (Income-tax Rules 2026)

Frequently asked questions

Common questions

No. The missed deduction is a tax default, not a defect in your title, and the deed stands.

No. The deduction for home loan interest turns on your loan and your use of the property, not on the seller's tax.

Generally, each buyer is a deductor for their own share of each payment, including each loan tranche.

No. Which account the money went into does not change who deducts or the rate.

Ask the bank to pay the tax portion of each tranche to you, so you can deposit it, and the rest to the seller.

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.

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.

Interest for failure to deduct or deposit TDS

Right now: 1% per month for failure to deduct; 1.5% per month for deducted-but-not-paid

Where it works differently

Interest is computed
It runs from the date tax was deductible, not from the year end, and part months count as full months.
s.201(1A).

Commonly got wrong

  • Interest is 1% either way. 1.5% applies once tax has been deducted but not deposited.Interest runs at 1% a month if you failed to deduct, and 1.5% a month if you deducted but did not deposit.

Related

If this matched your situation, these go further

Bought property from an NRI and missed a step: how to fix each oneBuying property from an NRI seller: the buyer's due-diligence checklistBought property from an NRI and did not deduct TDS: what to do nowBuying property from an NRI: the buyer's TDS, step by stepDTAA TDS recoveryPre-purchase tax review for buyersProperty sale TDS calculator

My bank paid the NRI seller in full. Do I owe the TDS?

Send the deed, the bank's disbursement letters, your challans and the seller's documents for a fix-it review. We will work out the tax and interest per tranche. Free call, no obligation.

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