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Dealing with an NRI

You deducted TDS from the NRI seller on the wrong amount: what you owe and the fix

The route was right and the money went in on time. The base or the rate was short.

You deducted under the non-resident rules, but on too small a figure: on a gain you or the seller estimated, without a certificate, or at the bare 12.5% with no surcharge or cess. Whatever you under-deducted is a short deduction, and it is yours as the buyer.
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Last reviewed: 27 September 20265 min readReviewed by Preetesh Maloo, CA

The short answer

Without a lower-deduction certificate, the safe base for TDS on property bought from an NRI is the full amount you pay, at the capital gains rate plus surcharge and 4% cess: 14.3% on a long-term sale between Rs 50 lakh and Rs 1 crore, 14.95% above Rs 1 crore. If you deducted on a smaller base or at a lower rate, the gap is a short deduction under Section 398 of the 2025 Act, formerly Section 201. Deposit it with interest at 1% a month, correct the statement and reissue the certificate. If the seller has 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

TDS deducted on the wrong amount for an NRI seller: the three usual mistakes

Each mistake leaves a gap between what you deducted and what the full price at the full rate required.

MistakeWhat the safe route requiredYour shortfall
Deducted on an estimated gain, no certificateThe full price, unless a Form 128 certificate set a lower figureThe rate on the part of the price you left out
Left out surcharge, cess or both12.5%, plus a surcharge of 10% of the tax where the price is above Rs 50 lakh or 15% above Rs 1 crore, plus 4% cessThe missing points on the whole price
Price below stamp valueSee the FAQ belowNot settled

For a sale within 24 months of purchase, the rate is 30% plus surcharge and cess, and the same logic applies.

Why the full price and not the gain

The law asks you to deduct only on the part of the payment that is taxable, as the Supreme Court held in GE India Technology (2010). But a buyer cannot see the seller's cost, so without a certificate the only base an officer cannot call short is the whole price. Deducting on a gain you worked out yourself invites that dispute.

The certificate is the lower-deduction certificate: Form 128 under the 2026 Rules, formerly Form 13, issued under Section 395 of the 2025 Act, formerly Section 197 of the 1961 Act. It covers only payments made on or after the date it is issued, so it cannot rescue a payment already made.

How to fix a short TDS deduction on an NRI property purchase

Recompute first, then deposit the difference and correct the statement.

1. Recompute: full price at the capital gains rate with surcharge and cess, less what you deducted, per payment. 2. Ask whether the seller's return for the year of sale is filed with the tax paid. If it is, 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 deposit the shortfall under Section 393(2), formerly Section 195, with interest at 1% a month from each payment date. 4. File a correction to Form 27Q (payment up to 31 March 2026) or Form 144 (from 1 April 2026) showing the full deduction. 5. Download the revised certificate, Form 16A or Form 131, and send it to the seller.

A worked example: Ravi in Hyderabad

Ravi paid Rs 1.2 crore on 5 March 2026 for a Hyderabad flat Shalini, an NRI in New Jersey, had owned since 2010. He deducted a flat 12.5%, Rs 15,00,000, with no surcharge or cess.

ItemAmount
Correct deduction: 12.5% x 1.15 x 1.04 = 14.95%Rs 17,94,000
DeductedRs 15,00,000
ShortfallRs 2,94,000
Interest at 1% a month to a deposit on 20 October 2026 (8 months)Rs 23,520

He deposits Rs 3,17,520, corrects his January to March Form 27Q and sends Shalini a revised Form 16A.

What's involved

What the CA actually does

  1. 1

    Recompute every payment

    We work out the correct deduction per payment, with the right surcharge band and cess, and the shortfall and interest to date.

  2. 2

    Check the seller's return

    Where the seller has filed and paid, we prepare the Form 149 certificate so only interest remains.

  3. 3

    Deposit and correct

    We deposit the shortfall, file the correction statement and issue the revised certificate.

What to have ready

Documents you'll typically need

  • Sale deed, with the stamp-duty value
  • Payment dates and amounts
  • TDS challans and filed statements
  • Any certificate the seller gave
  • Seller's PAN and return, if filed

References on this page

  • Section 195, 1961 / Section 393(2), 2025 Act: deduction on the sum chargeable to tax
  • Section 197, 1961 / Section 395, 2025 Act: lower-deduction certificate, Form 13 to Form 128
  • Section 112 of the 1961 Act: 12.5% on long-term gains after 23 July 2024; Finance Act rates: surcharge on these gains capped at 15%, 4% cess
  • GE India Technology Centre v CIT (2010), Supreme Court: deduction under Section 195 only on the sum chargeable to tax
  • Section 194-IA, 1961 / Section 393(1), 2025 Act: 1% of the higher of price and stamp value, from 1 April 2022
  • Section 50C, 1961 / Section 78, 2025 Act: stamp value as the seller's sale price where it exceeds 110% of the price
  • Section 201 and 201(1A), 1961 / Section 398, 2025 Act: assessee in default and interest

Frequently asked questions

Common questions

No. The first deposit stands; you deposit only the difference under the same section and correct the statement so both challans sit against the seller's PAN.

For the deduction, it follows the payment: the amount paid or likely to be paid to the seller and subject to TDS (Part II of the First Schedule to the Finance Act). Only the seller's own return works surcharge out on their total income.

On the 1% resident route, yes: since 1 April 2022 it is 1% of the price or the stamp value, whichever is higher. The non-resident route has no such wording. Where the stamp value is more than 110% of the price, the seller's gain is worked out on the stamp value, and if it exceeds your price by more than the higher of Rs 50,000 and 10% of the price, the gap is your own income (Section 56(2)(x) of the 1961 Act, a rule carried into the 2025 Act).

Usually the seller claims the excess as a refund in their return. The buyer's own refund routes are narrow.

A penalty equal to the tax not deducted is possible (Section 448 of the 2025 Act, formerly Section 271C), but not where you show reasonable cause (Section 470, formerly Section 273B).

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.

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.

Surcharge bands for individuals

Right now: 10% above Rs 50 lakh, 15% above Rs 1 crore, 25% above Rs 2 crore, 37% above Rs 5 crore (old regime)

Where it works differently

The income is capital gains under s.111A, 112 or 112A
Surcharge on that component is capped at 15%, whatever the total income.
Proviso inserted by Finance Act 2022, which caps surcharge on capital gains at 15%.
Income crosses a band by a small amount
Marginal relief caps the extra tax at the extra income.
Standard marginal-relief computation, routinely omitted from NRI calculators.
The taxpayer is a non-resident
The same bands apply. There is no separate NRI surcharge schedule.
Surcharge is income-level based, not residence based.

Commonly got wrong

  • An NRI with a large property gain pays 37% surcharge. Capital-gains surcharge is capped at 15%, and the 37% band does not exist in the new regime at all.Surcharge on the capital-gains component is capped at 15%. Other income follows the normal bands, which top out at 25% in the new regime.

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 checklistThe buyer wants to deduct 25% surcharge on your property sale. It is capped at 15%.Bought property from an NRI and did not deduct TDS: what to do nowDTAA TDS recoveryForm 13 lower-TDS certificate (property sale)Property sale TDS calculator

Did I deduct TDS on the right amount from the NRI seller?

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