Why 1% and Form 26QB are the wrong form for an NRI seller
The 1% deduction under Section 194-IA, paid with Form 26QB, applies only when the seller is a resident. The section is written for a buyer paying a resident transferor, so it cannot cover an NRI at all. When the seller is an NRI, the buyer deducts under Section 195, has to obtain a TAN, and files a quarterly Form 27Q rather than a 26QB. From FY 2026-27 these become Section 393(1) with Form 141 for residents, and Section 393(2) with Form 144 for non-residents.
So a buyer who cut 1% and filed 26QB on your sale used the resident route by mistake. Two problems follow: far too little tax was deducted, and the little that was deducted sits under the wrong form, so it does not flow cleanly to your PAN.
Why the credit gets stuck, and the real fix
A 26QB statement only passes that 1% into your Form 26AS as a resident-seller deduction. You cannot claim credit for tax that was never correctly deducted, and the 26QB challan cannot be converted into a Section 195 or 27Q entry. An online 26QB correction can fix fields like a wrong PAN or amount, but it does not turn a resident-seller statement into a non-resident one.
The route that works has the buyer undo the wrong payment and redo it correctly:
- The buyer files a Form 26B refund request on the TDS portal to get the wrongly paid 26QB challan back. - The buyer re-deposits the correct Section 195 amount using Challan 281, then files Form 27Q for the quarter. - Your full TDS then shows against your PAN and you claim it in your return.
Because this depends on the buyer acting, agree it in writing before the balance sale money changes hands, while you still have leverage.
A worked example
Rohan, an NRI in London, sells a Delhi flat for one crore rupees. The buyer treats him as a resident seller, deducts 1%, one lakh rupees, and files Form 26QB. Under Section 195 the buyer should have deducted on the sale value at the long-term rate with surcharge and cess, roughly 13 to 15 lakh, and filed Form 27Q. So far too little was cut, and the one lakh sits in Rohan's 26AS as a resident-seller entry he cannot claim.
The buyer files a Form 26B refund to recover the wrong 26QB challan, re-deposits the correct Section 195 amount using Challan 281, and files Form 27Q. The tax now shows against Rohan's PAN. Rohan files his return, sets it against the actual tax on his gain, and recovers the excess with Section 244A interest. Because he had agreed the correction in writing before paying the last instalment, the buyer had every reason to follow through.
You are protected even if the buyer does not cooperate
If the buyer will not fix it, you are not left carrying tax that was already taken out of your price. Two rules protect you. Under Section 199 read with Rule 37BA (Section 390 and the continuing Rule from FY 2026-27), credit for TDS follows the income to the person it belongs to. And under Section 205 (Section 401 from FY 2026-27), once tax has been deducted at source you cannot be asked to pay it again yourself, whether or not the deductor deposited it.
The courts back this. In Yashpal Sahni the Bombay High Court held the bar applies the moment tax is deducted, regardless of whether it reached the government. In Sanjay Sudan the Delhi High Court held the department cannot even adjust undeposited TDS against your refund. So if a demand or a refund-hold lands on you for the shortfall, these are your grounds, and the department must recover from the buyer instead.
What it costs the buyer
The exposure sits with the buyer, which is why they usually agree to fix it. For under-deducting, the buyer can be treated as in default for the shortfall under Section 201, with interest under Section 201(1A) at 1% a month from when the tax should have been deducted and 1.5% a month until it is deposited. Late filing of Form 27Q adds ₹200 a day under Section 234E, and a penalty between ₹10,000 and ₹1,00,000 can apply under Section 271H. Pointing this out to a reluctant buyer is often enough to get the correction moving.