TDS on Property Purchase in India: The Complete Guide

Tax Deducted at Source (TDS) on a property purchase is one of the most overlooked legal obligations in Indian real estate — and the responsibility sits with the buyer, not the seller. If you buy a property above a certain value, the law requires you to deduct a percentage of the payment, deposit it with the tax department, and give the seller a certificate. Get it wrong and you, the buyer, face penalties and interest. The rules differ sharply depending on whether the seller is a resident or an NRI, and that distinction trips up many buyers.

This guide explains when TDS applies, the rate for resident and NRI sellers, how to deduct and deposit it, the forms involved, what happens with instalments and joint owners, and how a seller can reduce excess deduction. Because rates, thresholds and surcharges can change, treat the figures here as the prevailing rules and confirm the current position with a chartered accountant before you transact.

The quick answer

• Buying from a resident seller: if the property value is at or above the prescribed threshold (commonly cited as ₹50 lakh), the buyer must deduct TDS at a low flat rate (commonly cited as 1%) under Section 194-IA, and deposit it using Form 26QB.
• Buying from an NRI seller: the buyer must deduct TDS under Section 195 at the rates applicable to the seller's capital gains — typically much higher than 1%, plus surcharge and cess — regardless of the property value.

The buyer is legally the "deductor" in both cases. This is not the seller's job to handle — it is yours.

TDS when buying from a resident seller (Section 194-IA)

For a purchase from a resident seller at or above the threshold, the mechanics are relatively simple:

• Rate: a low flat percentage (commonly cited as 1%) of the consideration.
• On what: the total sale consideration (and TDS is generally computed with reference to the higher of consideration or stamp-duty value under current rules).
• No TAN needed: the buyer does not need a Tax Deduction Account Number for 194-IA; PAN of both parties suffices.
• Form 26QB: the challan-cum-statement used to deposit the TDS, filed within the prescribed time after the payment/deduction.
• Form 16B: after depositing, the buyer downloads and issues Form 16B to the seller as proof of the TDS.

If you pay in instalments (common for under-construction), TDS is deducted on each instalment proportionately, and a 26QB is filed for each, once the threshold applies to the transaction.

TDS when buying from an NRI seller (Section 195)

This is where buyers most often go wrong — and the stakes are higher. When the seller is an NRI, Section 194-IA does not apply; instead Section 195 governs, and the rules are stricter:

• Rate is based on capital gains, not a flat 1%. For a long-term capital gain, the TDS is at the applicable long-term capital-gains rate, and for short-term at slab rates, in each case plus surcharge and cess — resulting in a much higher effective deduction than for a resident seller.
• No minimum threshold: the ₹50 lakh threshold of 194-IA does not apply; TDS is deducted regardless of value.
• TAN required: the buyer generally needs a Tax Deduction Account Number (TAN) to deduct and deposit TDS under Section 195, and files TDS returns (Form 27Q), issuing Form 16A to the seller.

Because the default deduction is high (it is computed on the sale value unless the seller obtains a certificate — see below), NRI sellers often apply for a lower-deduction certificate. If you are buying from an NRI, get professional help to set the TDS up correctly; errors here create real liability for you as the buyer.

How an NRI seller can reduce excess TDS

Because Section 195 TDS is high by default, an NRI seller can apply to the tax department for a lower or nil deduction certificate under Section 197, which directs the buyer to deduct at a reduced rate matching the seller's actual expected tax on the gain. This benefits both parties — the seller is not over-deducted, and the buyer deducts the correct amount. If you are the NRI seller, apply for this certificate before the sale; if you are the buyer, ask whether the seller has obtained one, and deduct accordingly.

The forms and process at a glance

Situation	Section	TAN	Deposit form	Certificate to seller
Resident seller, value ≥ threshold	194-IA	Not needed	Form 26QB	Form 16B
NRI seller	195	Required	Challan + Form 27Q return	Form 16A

In both cases: deduct at the time of payment/credit, deposit within the prescribed period, file the statement/return, and issue the seller their certificate so they can claim credit for the TDS.

Joint buyers and joint sellers

Where there are multiple buyers or sellers, the TDS rules apply per the transaction and the parties' shares, and forms may need to be filed for each combination. The threshold and rate are assessed on the whole transaction, not artificially split to dodge the threshold. If your purchase involves joint owners on either side, get the filing structure right with professional guidance, as the compliance can be fiddly.

Penalties for getting it wrong

Because the buyer is the deductor, the buyer bears the consequences of non-compliance:

• Failure to deduct can make you liable for the tax, plus interest.
• Late deposit attracts interest.
• Late filing of the statement/return attracts fees and possible penalties.

These are avoidable costs. Deduct correctly, deposit on time, file the form, and issue the certificate — a straightforward sequence once you know the rules.

Common TDS mistakes to avoid

• Not deducting at all because "the seller will handle taxes" — the obligation is the buyer's.
• Applying the 1% resident rate to an NRI seller — a serious, common error; NRI sales fall under Section 195 at much higher rates.
• Missing TDS on instalments for under-construction purchases.
• Forgetting to issue Form 16B/16A to the seller.
• Not obtaining a TAN when required for an NRI-seller transaction.
• Ignoring the lower-deduction certificate route for NRI sellers, leading to unnecessary over-deduction.

Your TDS checklist

• Confirmed the seller's residential status (resident vs NRI) — this changes everything.
• Identified the correct section (194-IA vs 195) and rate.
• Obtained a TAN if buying from an NRI.
• Deducted TDS at payment (each instalment if applicable).
• Deposited via Form 26QB (resident) or challan + Form 27Q (NRI) on time.
• Issued Form 16B / 16A to the seller.
• For NRI sellers: checked for a lower-deduction certificate.
• Kept all records for your file.

The bottom line

TDS on a property purchase is the buyer's legal responsibility, and the rules hinge on one question: is the seller a resident or an NRI? For a resident seller above the threshold, deduct the low flat rate via Form 26QB — simple. For an NRI seller, the rate is far higher, based on capital gains, requires a TAN, and needs careful handling, ideally with a lower-deduction certificate to avoid over-deducting. Confirm the seller's status early, deduct and deposit correctly, and issue the certificate. Handle TDS properly and it is a routine step; ignore it and it becomes an expensive liability that lands on you, not the seller.

A simple worked approach

1. Establish the seller's status. Ask and confirm whether the seller is a resident or an NRI — request supporting documents rather than relying on assurance.
2. Pick the section and rate. Resident above threshold → 194-IA at the flat rate; NRI → 195 at the capital-gains rate plus surcharge and cess.
3. Deduct at payment. On each payment/instalment, withhold the TDS and pay the seller the net amount.
4. Deposit and file. Resident: Form 26QB within the prescribed period. NRI: deposit via challan and file Form 27Q.
5. Issue the certificate. Form 16B (resident) or Form 16A (NRI) so the seller can claim credit.

Refund of excess TDS

Because Section 195 TDS on an NRI seller is high by default, the seller may end up with more tax deducted than their actual liability on the gain. The remedy is either to obtain a lower-deduction certificate before the sale (best), or for the seller to claim a refund by filing their income-tax return after the year end. If you are an NRI seller, plan for this — a large sum can be tied up until the refund is processed. If you are the buyer, your job is simply to deduct correctly per the certificate or the default rate; the refund is the seller's to claim.

If the seller has no PAN

If the seller does not furnish a valid PAN, TDS can be required at a higher rate than the normal one. Always collect the seller's PAN (and, for an NRI, their overseas details) as part of the transaction — it is needed for the TDS filing and to avoid a higher deduction. A seller reluctant to provide a PAN is a red flag for the whole transaction.

TDS, repatriation and the NRI seller

For an NRI seller, TDS is tightly linked to repatriation. To remit sale proceeds abroad, the NRI's bank will require evidence that taxes have been dealt with — via Form 15CA and Form 15CB (a chartered accountant's certificate). Correct TDS at sale is part of the same compliance chain that later allows clean repatriation. This is one more reason NRI-seller transactions should be handled with a CA from the start, so the TDS, the tax return, and the repatriation paperwork all line up.

TDS and your home loan

When part of your purchase is funded by a home loan, the TDS obligation is still yours as the buyer — the lender disburses the loan, but you must ensure TDS is deducted from the payment to the seller and deposited. Coordinate with your lender and, if needed, your CA so that the disbursement, the TDS deduction, and the payment to the seller are sequenced correctly. Getting this right avoids a mismatch where the full amount reaches the seller without TDS being withheld.