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A buyer purchasing residential or commercial property in India from an NRI seller must withhold under Section 195 (not Section 194IA), which requires the buyer to hold a TAN, deduct at the rate applicable to the seller's capital gain (LTCG at 20% plus surcharge 10-37% plus 4% cess, or STCG at the seller's slab rate), deposit via ITNS 281 and file quarterly Form 27Q. The seller must furnish Form 15CA and Form 15CB before the authorised dealer bank will remit the net sale consideration to the seller's foreign account. Misclassification as Section 194IA at 1% leaves the buyer with a Section 201(1) shortfall of ~90% of the correct withholding plus Section 201(1A) interest and Section 234E fee — for a ₹1.8 crore sale with ₹90 lakh LTCG the shortfall is around ₹19.7 lakh crystallising as buyer liability, before interest and fees.
Determine seller residency under Section 6 of the Income Tax Act at the date of transfer — Section 195 applies to any seller who is non-resident on that date, regardless of citizenship. Compute the seller's capital gain: for a holding period above 24 months apply indexation using the Cost Inflation Index of the acquisition year and the transfer year, arriving at long-term capital gain taxed under Section 112 at 20%; for a holding period at or below 24 months treat as short-term capital gain taxed at the seller's applicable slab rate. Layer surcharge on the tax based on the gain size (10% above ₹50 lakh, 15% above ₹1 crore, 25% above ₹2 crore, 37% above ₹5 crore) and 4% health and education cess on the tax plus surcharge. Deduct the resulting amount from the gross consideration payable to the seller. Where the seller has obtained a Section 197 lower-deduction certificate, apply the certified rate instead. File Form 27Q for the quarter of deduction, issue Form 16A to the seller, and reconcile against seller's Form 26AS and the CA-issued Form 15CB used by the bank for remittance.
Transaction master with buyer PAN, seller PAN, seller residential status at date of transfer (based on Section 6 test — physical presence in India in the previous year); acquisition date and acquisition cost for the seller (for indexation and holding period); Cost Inflation Index table by year for the LTCG computation; Section 112 rate table (20% LTCG on immovable property) and STCG slab rate mapping; surcharge slab table keyed to gain amount; buyer's TAN registration status (Form 49B if pending); banking channel used for consideration payment; Form 27Q filing calendar keyed to buyer's TAN; Form 15CA / 15CB tracker keyed to the outward remittance to the seller's foreign account; Section 197 lower-deduction certificate registry.
A per-transaction withholding computation showing gross consideration, holding period, indexed cost, capital gain, applicable rate (Section 112 LTCG or slab STCG), surcharge percentage, cess, net withholding amount, and net remittance to seller; a Form 27Q quarterly filing pack tying deductions to the buyer's TAN with challan references (ITNS 281); a Form 16A issued to the seller with the CA-issued Form 15CB attached to the bank remittance file; an audit-ready evidence trail proving seller's residential status at transfer date, the indexation basis, and the surcharge bracketing so a subsequent scrutiny can be closed on the buyer's side without a Section 201(1) exposure.
A Bengaluru buyer completes a ₹1.8 crore apartment purchase from an NRI seller who acquired the flat seven years ago. The registration is signed, the sale deed executed, and the buyer’s chartered accountant flags a problem at the last minute — the buyer’s finance team had queued up Form 26QB at 1% of consideration (₹1.8 lakh) on the mistaken belief that all property TDS uses the same route. The correct withholding under Section 195 is closer to ₹21.5 lakh — nearly twelve times the amount already remitted. The shortfall does not sit with the seller. Under Section 201(1) it crystallises as the buyer’s own tax liability, with Section 201(1A) interest stacking from the deemed date of deduction and Section 234E fees on the Form 27Q filing delay. NRI property seller TDS Section 195 is the single highest-cost misclassification in an Indian residential real estate transaction, and it is a reconciliation problem before it is a tax problem.
Quick reference
| Item | Value |
|---|---|
| Governing provision (seller = resident) | Section 194IA — 1% on consideration above ₹50 lakh |
| Governing provision (seller = non-resident) | Section 195 — rate applicable to seller’s capital gain |
| Long-term rate (holding above 24 months) | 20% under Section 112 with indexation |
| Short-term rate (holding at or below 24 months) | Seller’s slab rate (up to 30%) |
| Surcharge on tax | 10% (LTCG above ₹50 lakh), 15% (above ₹1 cr), 25% (above ₹2 cr), 37% (above ₹5 cr) |
| Health and education cess | 4% on tax plus surcharge |
| Buyer identifier required | TAN (Form 49B if fresh) — not PAN |
| Deposit challan | ITNS 281 |
| TDS return | Form 27Q — quarterly, for non-resident payees |
| Seller’s certificate | Form 16A from buyer |
| Bank remittance certificates | Form 15CA (self-declaration) + Form 15CB (CA certificate) |
| Lower-deduction certificate | Section 197 |
| Buyer default consequence | Section 201(1) — assessee-in-default for shortfall |
| Interest on shortfall | Section 201(1A) — 1%/month till deduction + 1.5%/month till payment |
| Late-filing fee | Section 234E — ₹200/day capped at TDS amount |
What the NRI resale looks like in India
The typical trigger is a family flat or investment apartment sold by an NRI who now lives abroad — often held for a decade or longer through the value appreciation cycle in Tier 1 metro markets. Sellers of DLF units in NCR, Godrej Properties flats in Mumbai / Pune / Bengaluru, Oberoi Realty apartments in Mumbai, Prestige Estates units in Bengaluru, Brigade Enterprises properties across South India, Sobha apartments in Bengaluru / Kochi, Puravankara developments, Macrotech (Lodha) inventory, Sunteck Realty in the Mumbai belt, and Kolte-Patil homes in Pune all pattern into this transaction shape whenever the original allottee has relocated abroad and become non-resident under Section 6.
The transaction structure is straightforward — direct buyer-seller sale deed with market-value consideration, buyer holds Indian residency, seller holds NRO / NRE account for the receipt of net consideration. What changes everything is a single flag on the transaction master: the seller’s residential status at the date of transfer. That flag drives the entire TDS treatment, the buyer’s compliance obligation, and the seller’s ability to repatriate the sale proceeds.
The Section 6 residency test that drives everything
Section 6 of the Income Tax Act determines residential status for a financial year. For an individual, residency is established where the person is in India for 182 days or more in the relevant previous year, or 60 days in the relevant previous year plus 365 days across the four preceding years (relaxed to 182 days in specific cases such as an Indian citizen leaving for employment abroad or a person of Indian origin visiting India). A person who does not meet these tests is a non-resident. Citizenship is not the test — a seller can be an Indian citizen but non-resident on the transfer date, and the buyer’s TDS obligation still moves to Section 195.
The buyer’s operational task is to obtain a self-attested residential status declaration from the seller before the sale deed is executed, backed by passport pages showing the days-in-India count for the relevant previous year and, where relevant, the four preceding years. This declaration goes into the transaction file as the primary evidence for the Section 195 versus Section 194IA classification, and is the first document a subsequent scrutiny will ask for if the buyer’s deduction is questioned.
The regulatory overlay — Sections 195, 112, 201, 234E, 197
Section 195(1) is the residual withholding provision. Any person responsible for paying to a non-resident any sum chargeable under the Act must deduct income-tax at the rates in force. For sale of immovable property by an NRI, the sum chargeable is the capital gain — computed as sale consideration minus indexed cost of acquisition minus indexed cost of improvement minus transfer expenses.
Section 112 sets the tax rate for long-term capital gains on immovable property held for more than 24 months at 20% with the benefit of indexation. Short-term gains (holding at or below 24 months) are taxed at the seller’s slab rate up to 30%.
Section 195(6) read with Rule 37BB requires Form 15CA (self-declaration) and Form 15CB (CA certificate) before the authorised dealer bank remits the sale consideration to the NRI’s foreign account.
Section 201(1) deems the buyer an assessee-in-default for any TDS not deducted or short-deducted. The consequence is not a soft demand — the shortfall is recoverable from the buyer as if it were the buyer’s own tax. Section 201(1A) adds interest at 1% per month for the period between the date the tax was deductible and the date it is actually deducted, and 1.5% per month between deduction and payment.
Section 234E adds a fee of ₹200 per day for delay in furnishing the quarterly Form 27Q statement, capped at the TDS amount for the quarter.
Section 197 provides an escape valve. Where the seller can establish that the actual tax on the capital gain is lower than the amount that would attract the standard Section 195 rate — for example, where indexation reduces the LTCG substantially or where the sale results in a capital loss — the seller can apply to the Assessing Officer for a lower or nil deduction certificate. The buyer applies the certified rate instead of the default rate, subject to the certificate being valid on the payment date.
A worked example — ₹1.8 crore sale, 7-year hold
Illustrative numbers. An NRI seller (Indian citizen, resident abroad since 2019, non-resident under Section 6 in the year of sale) sells a Bengaluru apartment for ₹1.8 crore. Acquisition was in FY 2018-19 at ₹75 lakh, plus ₹5 lakh in registration costs and ₹4 lakh in interior improvements (documented). The holding period is around 7 years — comfortably above the 24-month long-term threshold.
Indexation using the Cost Inflation Index brings the indexed acquisition and improvement cost to approximately ₹90 lakh. Long-term capital gain: ₹1.8 crore minus ₹90 lakh = ₹90 lakh.
Applicable Section 112 tax at 20%: ₹18 lakh. Surcharge at 15% (LTCG is above ₹50 lakh but below ₹1 crore threshold puts it in the 10% bracket at first read — but the surcharge is on total income, not gain alone; assume the seller’s other Indian-source income tips the total into the 15% bracket, hence 15% on ₹18 lakh): ₹2.7 lakh. Health and education cess at 4% on ₹20.7 lakh: ₹82,800. Total withholding: approximately ₹21.53 lakh, or an effective rate of 11.96% on the gross ₹1.8 crore consideration.
Now the wrong-application scenario. If the buyer defaults to Section 194IA at 1% of consideration, the deposit is ₹1.8 lakh. The shortfall — around ₹19.7 lakh — crystallises under Section 201(1) as the buyer’s own liability. Section 201(1A) interest stacks from the date the tax was deductible; assuming a 90-day discovery lag, the interest is approximately 4.5% on ₹19.7 lakh = ₹88,650. Section 234E on the delayed Form 27Q filing (approximately 90 days late) is ₹200 × 90 = ₹18,000, capped at the TDS amount but well within the cap. Total buyer exposure from a single misclassification: approximately ₹20.75 lakh, versus a correct withholding of ₹21.53 lakh from the seller’s account — but now the buyer, not the seller, is out of pocket.
The seller’s problem stacks on top. Without a valid Form 15CA and Form 15CB reflecting Section 195 withholding, the authorised dealer bank will not remit the balance sale consideration to the seller’s foreign account. The seller’s money sits stuck in the NRO account until the buyer refiles Form 27Q correctly, the seller obtains a corrected Form 16A, and the CA reissues Form 15CB. The commercial pressure to fix a misclassified deduction often surfaces from the seller’s remittance failure rather than a scrutiny notice.
TDS Mismatch Estimator
Quantify the buyer-side liability where a Section 195 deduction was misclassified as Section 194IA — Section 201(1) shortfall, Section 201(1A) interest stacking, and Section 234E fee across a documented delay window.
Open the TDS Mismatch Estimator →Common reconciliation breakages
Residency treated as citizenship. The buyer’s finance team assumes the seller is resident because the seller holds an Indian passport. Section 6 does not care about citizenship — it tests days in India. The reconciliation control is the passport-page evidence file supporting the seller’s residency declaration, filed against the transaction master before the sale deed is signed.
Form 26QB filed on autopilot. The buyer’s finance team files Form 26QB at 1% because that is the standard property-TDS pathway for their prior transactions. The 26QB filing routes the deposit under Section 194IA and creates a positive record on the buyer’s PAN — with no corresponding Section 195 deposit on the buyer’s TAN. Reconciliation must gate the 26QB workflow on the residency flag: if the seller is non-resident, the 26QB path is blocked and the Form 49B (TAN application) plus ITNS 281 (Section 195 challan) workflow is opened instead.
TAN not obtained in time. Fresh Form 49B typically takes 5-10 business days for TAN allotment. Buyers who discover the Section 195 obligation only at the sale-deed signing date find themselves paying the seller and then unable to deposit the TDS under the correct pathway. The reconciliation control is the residency assessment at the deal-structuring stage — the moment the seller is identified as non-resident, the TAN application is filed in parallel with the sale documentation.
Surcharge miscalculated. The 10% / 15% / 25% / 37% surcharge brackets look simple on paper but hinge on the seller’s total taxable income for the year, not just the capital gain. Buyers typically apply the surcharge based on the LTCG amount alone, which understates or overstates the actual bracket. The safer operating rule for buyers is to apply the 20% + 15% surcharge + 4% cess default (effective 23.92%) unless the seller supplies a Section 197 lower-deduction certificate — the excess is refundable to the seller after ITR filing.
Indexation basis not documented. The 20% Section 112 rate applies on indexed LTCG — which requires the original acquisition cost, the acquisition year (for CII lookup), improvement costs with documentation, and the seller’s willingness to share these. If the seller cannot furnish the indexation basis, the buyer must default to withholding on the gross consideration at 23.92% and let the seller claim the excess back via ITR. Reconciliation must not attempt to compute LTCG on undocumented indexation.
Form 15CA / 15CB filed for the wrong amount. The Form 15CB certifies the taxability and the TDS rate. If the CA issues Form 15CB for the 1% Section 194IA rate on the assumption that Section 194IA applies, the entire transaction chain — bank remittance, seller’s Form 26AS, buyer’s Form 27Q — is misaligned. Reconciliation must tie the Form 15CB rate to the buyer’s Form 27Q rate to the seller’s Form 26AS credit; a three-way mismatch is a scrutiny inevitability.
Form 27Q filed late or under the wrong TAN. Form 27Q is the non-resident quarterly TDS return. Buyers who file the Section 195 deduction under a group entity’s TAN (rather than the specific buyer entity’s TAN) create a TAN-to-transaction mismatch that surfaces in a subsequent 234E notice. Reconciliation must gate the return-filing workflow to the exact buyer legal entity whose PAN is on the sale deed.
Section 197 certificate not tracked. Where the seller has obtained a Section 197 lower-deduction certificate, the certificate is valid for a specific period and up to a specific amount. Buyers who apply the certified rate beyond the certificate’s validity or amount cap are back on the default rate — with the shortfall crystallising as Section 201(1) liability. Reconciliation must maintain a certificate registry keyed to certificate number, validity period, cap amount, and consumed amount to date.
How a reconciliation platform handles this
A residential real estate buyer or a corporate property acquirer completing a Section 195 transaction has to bring together, in one clean audit trail, the seller’s residency evidence, the acquisition-cost documentation for indexation, the Section 197 certificate registry, the Form 49B TAN application, the ITNS 281 challan, the Form 27Q filing, the Form 16A to seller, the Form 15CB from the CA, and the Form 15CA on the e-filing portal. Any single missing link in that chain can crystallise buyer liability under Section 201(1) or block the seller’s remittance under Rule 37BB.
Purpose-built reconciliation software India treats the transaction as a workflow with hard gates: the residency flag on the transaction master drives which challan pathway opens; the indexation calculation is documented before the withholding is computed; the Form 27Q return ties to the specific buyer TAN and quarter; the Form 15CB from the CA is reconciled to the Form 27Q rate and the seller’s Form 26AS credit as a three-way tie; and the Section 197 certificate registry blocks any deduction below the default rate unless a valid certificate is on file. Real estate reconciliation software India also carries the Cost Inflation Index table and the surcharge slab logic so the withholding computation is deterministic and reproducible for any subsequent scrutiny.
For buyers with multiple NRI-seller transactions per quarter — typically corporate acquirers, HNI portfolios, and developers buying land parcels — TransactIG carries presets for the Section 195 workflow including the TAN registry, Form 27Q filing calendar, and the seller Form 26AS reconciliation. Customer outcomes on comparable TDS reconciliation workflows include match-rate improvement from 51% to 88%, with build in two-to-four weeks on AWS Mumbai (ISO 27001:2022). For the broader buyer-side TDS reconciliation across all property transactions, see TDS reconciliation software.
Continue reading — Real estate cluster
- TDS on property purchase — Section 194IA ₹50 lakh threshold — the resident-seller counterpart, with the 1% rate, Form 26QB pathway, and the ₹50 lakh consideration threshold
- Joint buyer property TDS — Section 194IA aggregation — multi-buyer aggregation, per-buyer deduction under 194IA, joint-owner mechanics
- RERA escrow account reconciliation — the Section 4(2)(l)(D) 70% escrow, engineer-architect-CA certification, state variations
- Real estate developer revenue recognition under Ind AS 115 — POC computation, contract liability rollforward, Section 43CB deferred tax
- Real estate brokerage commission reconciliation — TDS Section 393(1) Sl. 1(ii) — brokerage TDS, RERA broker registration, GST 18%
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
- ▸ Income Tax Act, 1961 — Section 195 (Other sums — withholding on payments to non-residents) — Section 195(1) — any person responsible for paying to a non-resident any sum chargeable under the Act shall deduct income-tax thereon at the rates in force
- ▸ Income Tax Act, 1961 — Section 201(1) (Consequences of failure to deduct or pay) — Section 201(1) — deductor deemed assessee-in-default for any TDS not deducted or short-deducted; recovery from the deductor of the shortfall plus interest under Section 201(1A)
- ▸ Income Tax Act, 1961 — Section 234E (Fee for default in furnishing statements) — Section 234E — fee of ₹200 per day of delay in furnishing quarterly TDS statement (Form 27Q for non-resident payments), capped at the TDS amount
- ▸ Rule 37BB — Form 15CA / 15CB for outward remittance — Rule 37BB read with Section 195(6) — Form 15CA (self-declaration) and Form 15CB (CA certificate) required before authorised dealer bank processes outward remittance of sale consideration to NRI's foreign account
- ▸ Income Tax Act, 1961 — Section 197 (Lower or nil TDS certificate) — Section 197 — Assessing Officer may issue a certificate for lower or nil deduction where the seller establishes that the actual capital gain is lower than the amount that would attract the standard Section 195 rate