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Dealing with an NRI

Bought property from an NRI and did not deduct TDS: what to do now

You paid the full price, or deducted the 1% resident rate, and now know the seller was an NRI.

You paid an NRI seller without holding back the non-resident deduction, or you held back 1% as if they were resident. The tax law makes you, the buyer, answer for the missing deduction, and interest has been running since the tax should have been deducted.
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Last reviewed: 27 September 20267 min readReviewed by Preetesh Maloo, CA

The short answer

If you bought property from an NRI and did not deduct TDS, or deducted only 1%, you are treated as the defaulter for the shortfall (an assessee in default, Section 398 of the 2025 Act, formerly Section 201). You fix it by depositing the missing tax with interest at 1% a month from the date the tax was deductible, filing the statement and giving the seller the certificate. If the seller has already reported the sale in their return and paid the tax, an accountant's certificate relieves you of the tax, and interest stops at the date the seller filed.

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Related situations

Missed TDS on a property purchase from an NRI: what you owe

You owe the deduction you should have made. The safe base is the full price: for a long-term sale, held more than 24 months, 12.5% plus surcharge and 4% cess; for a short-term sale, 30% plus surcharge and cess.

Price paidSurchargeLong-term deduction on the full price
Up to Rs 50 lakhNone13%
Above Rs 50 lakh to Rs 1 crore10%14.3%
Above Rs 1 crore15%14.95%

On top comes interest at 1% a month or part of a month, from the date the tax was deductible until you deposit. A lower-deduction certificate (Form 128, formerly Form 13) is the safe way to deduct less; deducting on a gain you worked out yourself is disputed, and an officer can treat the rest as short.

First check: has the seller already paid the tax?

You are not in default for the tax if the seller has filed a return that includes the sale and paid the tax on the income declared (Section 398(2) of the 2025 Act, formerly the first proviso to Section 201(1)). This relief has applied to NRI sellers since 2019. You prove it with an accountant's certificate filed online: Form 26A under the old rules, Form 149 under the 2026 Rules.

Interest still runs, but only from the date you should have deducted to the date the seller filed that return. If the seller has not filed yet, their return for the year of sale is the cheapest fix for both of you.

If the seller has not paid: how a buyer fixes missed TDS

Deposit the tax with interest, file the statement, then send the seller the certificate.

1. Get a TAN if you do not have one (not needed on the Form 141 route in step 3). 2. Deposit the missing tax and the interest by challan, under Section 195, now Section 393(2): against your TAN, or your PAN on the Form 141 route. 3. File the quarterly statement for the quarter of your payment: Form 27Q for a payment up to 31 March 2026, Form 144 for one from 1 April 2026. A resident individual or HUF who paid from 1 October 2026 instead pays and reports on Form 141, Schedule E, and gives the seller Form 132. Pay the late fee first; the missed-step guide sets out the fee and the penalty. 4. Once processed, download the certificate and send it to the seller: Form 16A for a payment up to 31 March 2026, Form 131 for one from 1 April 2026. 5. If you had paid 1% on Form 26QB, claim a refund of that challan on the TRACES portal (Form 139, formerly Form 26B) before the seller claims that 1% in a return: once the credit is allowed to the seller, the refund is not available. The wrong-form fix covers it.

Penalties, and what you are not exposed to

The penalty for not deducting is a sum equal to the tax you failed to deduct (Section 271C of the 1961 Act). It is not automatic: it cannot be levied where you show reasonable cause (Section 273B), such as, arguably, a written declaration from the seller that they were resident.

Two things do not apply to a home buyer. The rule that disallows an expense on which TDS was missed applies to business expenses, and the price of your home is not one. And the Department cannot pass a default order after six years from the end of the tax year in which the tax was deductible, or two years from the end of the tax year in which a correction statement is filed, whichever is later (Section 398(5) of the 2025 Act, formerly Section 201(3)). Since 1 April 2025 that limit has covered NRI payees too.

A worked example: Kavita in Bengaluru

Kavita paid Rs 70 lakh on 1 June 2025 for a flat Sameer, an NRI in Toronto, had owned since 2014. She deducted nothing. In October 2026 her CA spots it.

ItemAmount
Deduction missed: 12.5% x 1.10 x 1.04 = 14.3%Rs 10,01,000
Interest at 1% a month, June 2025 to October 2026 (17 months)Rs 1,70,170
Tax and interest if she deposits on 25 October 2026Rs 11,71,170

A late fee on the Form 27Q she files for April to June 2025 can come on top. She then sends Sameer Form 16A.

If Sameer had filed his return on 20 July 2026 with the sale included and the tax paid, Kavita would owe no tax, only interest from June 2025 to July 2026: 14 months, Rs 1,40,140.

What's involved

What the CA actually does

  1. 1

    Confirm the shortfall and the interest to date

    We work out the deduction you missed per payment, including loan disbursements, and the interest to your deposit date.

  2. 2

    Check the seller's return

    We contact the seller or their CA, and where they have paid, prepare the accountant's certificate that relieves you of the tax.

  3. 3

    Deposit, file and certify

    We obtain your TAN, deposit the tax and interest, file the statement for the right quarter and issue the seller's certificate.

  4. 4

    Answer a notice or penalty

    If an order or penalty notice has arrived, we prepare the reply with the seller's declaration and your reasonable-cause evidence.

What to have ready

Documents you'll typically need

  • Sale deed and payment proofs with dates
  • Any Form 26QB challan paid
  • Seller's PAN, contact details and status evidence
  • The seller's return and tax payment, if filed
  • Any notice received

References on this page

  • Section 195 of the Income-tax Act, 1961 / Section 393(2) of the Income-tax Act, 2025
  • Section 201 and 201(1A), 1961 / Section 398(2), (3) and (5), 2025 Act
  • Form 26A (Rule 31ACB of the 1962 rules) / Form 149 under the Income-tax Rules 2026
  • Form 27Q to Form 144; Form 16A to Form 131; Form 26QB to Form 141 (Income-tax Rules 2026)
  • Section 234E and 271H of the 1961 Act; Section 427 of the 2025 Act
  • Sections 271C and 273B of the 1961 Act: penalty for failure to deduct, and reasonable cause

Frequently asked questions

Common questions

Ask the seller whether they have reported the sale and paid the tax. If they have, the tax claim falls away and interest runs only to the date they filed. If not, deposit the tax with interest, file the statement and send them the certificate.

Yes. The duty to deduct is yours, whatever the seller declared. A wrong declaration does not move the tax to the seller.

You can, but the interest is still owed, and a demand for it can follow.

Probably, if you paid before 1 October 2026: the payment date decides the route, not the date you fix it, and the PAN-based Form 141 route covers payments from that date. Whether an earlier payment can be moved to Form 141 is not settled.

No. Your deposit becomes the seller's tax credit. If it exceeds their actual tax, they claim the excess back in their return.

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.

Health and education cess

Right now: 4% health and education cess

Commonly got wrong

  • 3% cess. Stale since AY 2019-20.Health and education cess is 4% on tax plus surcharge, from AY 2019-20 onward.

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 oneThe buyer deducted just 1% and filed Form 26QB on your NRI sale: how to recover the creditBuying property from an NRI: the buyer's TDS, step by stepBuying property from an NRI seller: the buyer's due-diligence checklistBuying property from an NRI: no TAN from 1 October 2026, and who still needs oneDTAA TDS recoveryForm 13 lower-TDS certificate (property sale)Property sale TDS calculator

I paid an NRI seller without deducting TDS. How do I fix it?

Send the deed, your payment proofs and challans, and the seller's documents for a fix-it review. We will work out what you owe today and check whether the seller has paid. Free call, no obligation.

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