What TDS rate applies when I buy property from an NRI seller under Section 195

Question

I am buying a flat from an NRI seller and someone told me the usual 1% TDS under Section 194-IA does not apply, so I want to know the correct rate. I would rather settle this without going to court if the law allows it, but I need to know my rights before I sign anything. Please tell me what to do first and what document to keep.

MyVakeel Legal Desk · Accepted Answer

Under Indian law, Income-tax Act, 1961, Section 195 is the starting point for this tax law question. What follows is the position in substance, together with the steps that usually make the difference in practice.

When the seller of immovable property is a non-resident, the buyer must deduct tax under Section 195 rather than Section 194-IA, and the deduction applies on the entire sale consideration at rates linked to whether the gain is long-term or short-term, plus applicable surcharge and cess, rather than a flat 1%.

Unlike Section 194-IA, there is no monetary threshold of Rs. 50 lakh under Section 195, so TDS must be deducted regardless of the transaction value, and the buyer must obtain a Tax Deduction Account Number and deduct tax before or at the time of payment.

The NRI seller can apply for a lower or nil deduction certificate under Section 197 from the jurisdictional assessing officer based on the actual capital gains computation, which significantly reduces the TDS burden compared to deduction on the full consideration.

The buyer must file Form 27Q quarterly and issue a TDS certificate in Form 16A, and failure to deduct or deposit correctly can render the buyer an assessee-in-default under Section 201, with liability for the tax, interest and penalty.

What to do next: 1) Confirm the seller's residential status and obtain PAN details; 2) Advise the seller to apply for a lower deduction certificate under Section 197 if eligible; 3) Deduct TDS under Section 195 on the correct amount and deposit it using a TAN; 4) File Form 27Q and issue Form 16A to the seller.

If you are unsure whether your facts fall inside Income-tax Act, 1961, Section 195, that is worth checking with an advocate before you commit to a route, because switching later costs time. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in tax law.