The buyer deducted just 1% and filed Form 26QB on your NRI sale: how to recover the credit

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, obtains 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. From 1 October 2026 a resident individual or HUF buying from a non-resident no longer needs a TAN: they deposit and report the Section 393(2) deduction against their PAN on Form 141, Schedule E, still at the non-resident rate, and give the seller Form 132.

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.

A 26QB statement only passes that 1% into your Form 26AS as a resident-seller deduction, which does not sit cleanly with a return filed as a non-resident, and the 26QB challan cannot be converted into a Section 195 or 27Q entry. The 1% that was actually deducted is still your tax, as the protection section below explains; what it does not do is cover the rest of the tax on the sale. 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 refund request on the TRACES portal (Form 26B under the old rules, Form 139 under the Income-tax Rules 2026) to get the wrongly paid 26QB challan back. Once the credit for that 1% has been allowed to you in a return, the buyer's refund is generally no longer available. So if you have not yet claimed the 1%, give the buyer the chance to reclaim it first. If you have already claimed it, or your filing deadline is close, do not wait: file and claim it, because the tax actually deducted is yours, and the buyer then deposits only the shortfall under Section 195 rather than reclaiming the 1%. - The buyer re-deposits the correct Section 195 amount by challan (or only the shortfall, if you have already claimed the 1%), then files the non-resident statement for the quarter (Form 27Q for a payment up to 31 March 2026, Form 144 after that), or, as a resident individual or HUF paying from 1 October 2026, uses Form 141, Schedule E. - 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.

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 the non-resident TDS statement. So far too little was cut, and the one lakh sits in Rohan's 26AS as a resident-seller entry that does not match his return as a non-resident.

The buyer reclaims the wrong 26QB challan on TRACES before Rohan claims that one lakh in a return, re-deposits the correct Section 195 amount by challan, and files the non-resident TDS statement. 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.

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 from FY 2026-27, which carries the same rule forward), 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.

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 until it is actually deducted, and 1.5% a month from deduction until it is deposited. Late filing of the non-resident TDS statement adds ₹200 a day under Section 234E (Section 427 of the 2025 Act), and a penalty between ₹10,000 and ₹1,00,000 can apply under Section 271H (Section 461 of the 2025 Act). Pointing this out to a reluctant buyer is often enough to get the correction moving.