TDS when you buy a flat: 1% from a resident seller, and a very different regime when the seller is an NRI

Rules and rates as of 12 October 2026.

When you buy a flat, the tax law makes you, the buyer, collect part of the seller's tax and send it to the government. Most buyers have heard the short version: deduct 1% if the price is ₹50 lakh or more. That rule only applies when the seller is resident in India. If the seller is a non-resident Indian (NRI), a separate entry in the Act applies. It has no threshold and works out to a rate many times higher. If you apply the 1% rule to an NRI seller, the shortfall becomes your liability, not the seller's.

Everything below uses the Income-tax Act, 2025, which has applied since 1 April 2026 and renumbered the old provisions.

Case 1: the seller is resident in India

Section 393(1) of the 2025 Act has a table of payments that need tax deducted at source (TDS). Serial number 3(i) covers consideration for transferring any immovable property other than agricultural land. This entry was formerly s.194-IA of the 1961 Act. Its terms are:

• Rate: 1% of the consideration or the stamp duty value, whichever is higher.
• Threshold: ₹50 lakh. A note to the table says the entry applies where the consideration or the stamp duty value is ₹50 lakh or more. Where there are several buyers or several sellers, the amounts are added together to test the threshold.
• No TAN needed: Section 397(1)(c) excuses buyers in this situation from getting a tax deduction account number (TAN). You pay using your own PAN.
• Form: Form 141 under the Income-tax Rules, 2026. It is a single challan-cum-statement that replaced the old Forms 26QB, 26QC, 26QD and 26QE, and property purchases go in Schedule B. The department's FAQ says it must be filed within 30 days from the end of the month in which tax is deducted, and the tax is paid while filing it. The seller's TDS certificate is now Form 132, downloaded from TRACES (it used to be Form 16B).

Case 2: the seller is an NRI

Payments to non-residents fall under s.393(2). This is formerly the territory of s.195 of the 1961 Act. That table has no separate line for property. A sale by an NRI comes under serial number 17, which covers "any other sum chargeable" under the Act paid to a non-resident, and the rate is "rates in force". In practice, three things are different from Case 1.

• No ₹50 lakh threshold. Serial number 17 has none, so even a ₹30 lakh flat bought from an NRI attracts TDS.
• A much higher rate. Section 197 taxes long-term capital gains at 12.5%. The Finance Bill, 2026 adds a surcharge to TDS on non-residents: 10% where the amount is over ₹50 lakh, 15% over ₹1 crore and 25% over ₹2 crore. A 4% health and education cess is added on top of tax plus surcharge. For a payment between ₹1 crore and ₹2 crore, that comes to 12.5% × 1.15 × 1.04 = 14.95%. Section 197(3) lets residents compare against 20% with indexation for property bought before 23 July 2024, but non-residents cannot use it.
• Applied to the payment unless a certificate says otherwise. If there is no certificate, buyers usually deduct on the full amount they pay, because the buyer has no way of knowing the seller's gain.

The lower-deduction certificate

Section 395 gives two routes. Under s.395(1), the payee (here the NRI seller) can apply to the Assessing Officer for a certificate allowing deduction at a lower rate or no deduction. The application is Form 128, which used to be Form 13, filed on TRACES. Under s.395(2), the payer can apply to have the officer decide what proportion of the payment is chargeable to tax. Tax is then deducted only on that proportion. Either way, the officer sets the rate, and the certificate is not automatic. It needs to be in hand before the money is paid.

What changed on 1 October 2026

Until 30 September 2026, a buyer paying an NRI needed a TAN and had to use the regular TDS return system for non-resident payments. From 1 October 2026, s.397(1)(c) excuses a resident individual or HUF who buys property from a non-resident from getting a TAN. CBDT Notification 121/2026 (22 September 2026) added Schedule E to Form 141 so that such buyers can report and pay this TDS using their PAN. The same 30-days-from-month-end filing time applies. Companies and other buyers are not covered by this relief.

Worked example: a ₹1.1 crore flat

Assume a resale flat with an agreed price of ₹1,10,00,000 and a stamp duty value of ₹1,05,00,000. The seller bought it in 2016 for ₹70,00,000, so the gain is long-term. Transfer expenses are ignored.

Resident seller. TDS = 1% × higher of ₹1.10 crore and ₹1.05 crore = 1% × ₹1,10,00,000 = ₹1,10,000.

NRI seller, no certificate. TDS on the full ₹1,10,00,000 at 12.5%, plus a 15% surcharge (the amount is over ₹1 crore), plus 4% cess = 14.95% = ₹16,44,500.

NRI seller, with a certificate limiting TDS to the gain. Gain = ₹1,10,00,000 − ₹70,00,000 = ₹40,00,000. Tax at 12.5% = ₹5,00,000. There is no surcharge, because ₹40 lakh is under ₹50 lakh. Cess at 4% = ₹20,000. TDS = ₹5,20,000. This is illustrative only, because the officer's certificate fixes the actual figure.

Point	Resident seller	NRI seller
Provision (2025 Act)	s.393(1), Sl. 3(i)	s.393(2), Sl. 17
Threshold	₹50 lakh	None
Rate	1%	Rates in force: 12.5% + surcharge + 4% cess on long-term gains
Base	Higher of price and stamp duty value	Sum paid, or the proportion fixed under s.395
TDS on ₹1.1 crore example	₹1,10,000	₹16,44,500 (no certificate); ₹5,20,000 (certificate on gain)
TAN for individual buyer	Not needed	Not needed from 1 Oct 2026 (needed earlier)
Form	Form 141, Schedule B	Form 141, Schedule E (individual/HUF buyer)

What a mistake costs

Suppose the buyer in the example deducts 1% from the NRI seller. The shortfall is ₹16,44,500 − ₹1,10,000 = ₹15,34,500. Under s.398(1), a person who does not deduct is treated as an "assessee in default" for that tax. Section 398(3)(a) adds simple interest at 1% a month, or part of a month, on tax not deducted, and 1.5% a month on tax deducted but paid late. Six months of the 1% interest on ₹15,34,500 is ₹92,070. Section 448 lets the Assessing Officer impose a penalty equal to the tax not deducted, and s.427 charges a late fee if Form 141 is filed late. By then the NRI has usually been paid in full and may be abroad, so recovering the money from them is the buyer's problem.

How residency is decided

"NRI" here means non-resident under the Act's residence test for the year, not passport or citizenship. An Indian citizen working in Dubai can be non-resident, and a foreign citizen living in Pune can be resident. A buyer usually cannot test this alone, so it is common to ask for the seller's declaration of residential status and the PAN. If the seller has a lower-deduction certificate, the buyer verifies it on TRACES before paying. A chartered accountant can check the residency answer and the rate before the first cheque is given.