Buying property from an NRI seller: Section 195 TDS, the TAN trap, and the Section 197 certificate

Assuming you are an Indian resident negotiating to buy a flat or a piece of land, and the seller turns out to be an NRI or OCI living abroad, the tax-deduction obligation that lands on you as the buyer is materially heavier than the 1 percent stamp-out-the-cheque-and-be-done flow that applies between two residents. The provision that governs your TDS is Section 195 of the Income-tax Act, 1961, not Section 194-IA. The two are different provisions of the same statute, with different rates, different forms, and different procedural requirements.

This piece walks through what changes when the seller is non-resident, where the primary sources are, and which decisions are actually the seller's (the Section 197 certificate) versus the buyer's (the TAN, the deduction, the return, and the remittance documentation). It is not a calculator and it does not produce a number for your transaction; the number depends on facts that only the seller's CA and your CA together can lock down.

1. Why Section 194-IA does not apply when the seller is non-resident

Section 194-IA, introduced by the Finance Act 2013, applies when "any person, being a transferee, responsible for paying ... to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land)" makes the payment. The two relevant words are "to a resident transferor". Section 194-IA does not engage at all when the transferor is a non-resident.

The framework that does engage is Section 195 of the Income-tax Act, which requires "any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest ... or any other sum chargeable under the provisions of this Act ... [to] deduct income-tax thereon at the rates in force." Capital gains on sale of immovable property is a sum chargeable under the Act. The buyer is the person responsible for paying. Section 195 therefore applies.

The Rs 50 lakh threshold under Section 194-IA is a feature of that section, not a general rule. There is no equivalent threshold under Section 195 for property purchase from a non-resident seller: TDS applies from the first rupee of consideration.

2. The TAN requirement (Section 203A) and the Form 27Q return

To deduct under Section 195, the buyer must obtain a Tax Deduction Account Number (TAN) under Section 203A. The TAN is distinct from the PAN. A resident individual buyer who has only ever filed personal income-tax returns under a PAN will not have a TAN, and the bank will not accept a Section 195 TDS challan keyed to a PAN.

The relevant forms differ from the resident case as well:

Resident seller (Section 194-IA)         Non-resident seller (Section 195)
PAN-based challan-cum-statement          TAN-based separate challan + return
Form 26QB                                 Form 27Q (quarterly TDS return for NR payments)
Form 16B (TDS certificate to seller)      Form 16A (TDS certificate to seller)

The Form 27Q quarterly return is filed by the buyer-deductor with the Income-tax Department's TDS reconciliation system (TRACES). The certificate issued to the seller is Form 16A, not Form 16B. These are operational details, but missing them is the most common source of compliance friction in NRI-property purchases.

3. The rate question, and why the certificate matters

Section 195 itself charges tax on "any other sum chargeable under the provisions of this Act" at the rates in force. Where the payer (the buyer) considers that the whole sum payable to the non-resident is not chargeable to tax, Section 195(2) provides an application route to the Assessing Officer for a determination of the appropriate proportion chargeable. Separately, the non-resident recipient (the seller) can apply under Section 197 for a lower or nil-deduction certificate. In practice, in the absence of either an AO determination under Section 195(2) or a Section 197 certificate, many buyers deduct conservatively on the gross sale consideration at the rate applicable to the seller's gains category. The relevant capital-gains rate under Section 112 of the Income-tax Act for long-term capital gains on transfer of immovable property, for transfers on or after 23 July 2024, is 12.5 percent without indexation, per the Finance (No. 2) Act, 2024. Surcharge and 4 percent cess are added on top.

For transfers before 23 July 2024, the long-term capital-gains rate was 20 percent with indexation benefit. The 23 July 2024 cutover removed the indexation route as the default. The Finance (No. 2) Act, 2024 introduced a transitional grandfather option allowing computation of tax under either the new 12.5 percent without indexation or the old 20 percent with indexation, whichever is lower, but that option is confined to a resident individual or resident HUF transferring land or building acquired before 23 July 2024 and does not extend to non-resident sellers.

Short-term capital gains on immovable property (held for 24 months or less, per the holding-period rule for immovable property under Section 2(42A)) are taxed at the seller's applicable slab rate, not the LTCG rate.

The crucial point: where the buyer has neither obtained a Section 195(2) AO determination nor received an operative Section 197 certificate from the seller, the conservative practice is to compute TDS on the gross sale consideration, not on the seller's actual capital gain. For a property purchased decades ago and sold today, the actual gain may be a fraction of the consideration, but the conservative default lands on the full sale amount. This is what makes the Section 197 certificate route (or the Section 195(2) determination route) financially material.

4. The Section 197 lower-deduction certificate route

The non-resident seller (or their authorised representative) can apply to the jurisdictional Assessing Officer under Section 197, using Form 13 filed on the income-tax e-portal, for a lower or nil-deduction certificate. The certificate, once issued, specifies the amount on which TDS is to be deducted (typically the computed capital gain rather than the gross consideration), and the rate.

Who files                The non-resident seller (or authorised representative)
Form                     Form 13 (online, on the e-filing portal)
Authority                Jurisdictional Assessing Officer of the seller
What it specifies        The lower amount on which TDS is deducted, and the rate
Effect                   Buyer deducts as per the certificate, not the Section 195 default
Validity                 As stated in the certificate

The buyer does not apply on the seller's behalf. Section 197 is the standard recipient-side route; Section 195(2) is the parallel payer-side route for the buyer to seek an AO determination of the chargeable proportion. The Section 197 certificate must be furnished to the buyer before the deduction is made; a certificate produced after the fact does not retrospectively cure under-deduction.

5. The remittance documentation: Form 15CA and Form 15CB

Section 195(6) is framed as an information-furnishing obligation for payments to a non-resident or foreign company. Rule 37BB of the Income-tax Rules operationalises this through Form 15CA (information furnished by the remitter / payer) and, in the prescribed cases, Form 15CB (certificate from a Chartered Accountant). The Income-tax Department's live forms page describes Form 15CA as "Information to be furnished for payments to a non-resident not being a company, or to a foreign company" and Form 15CB as "Certificate of an accountant".

This is broader than an "abroad remittance vs NRO credit" distinction. Form 15CA / 15CB are the information-furnishing mechanism for payments to a non-resident or foreign company in the prescribed cases, irrespective of whether the bank routes the money abroad or credits an NRO account. The buyer's bank will confirm what paperwork it needs based on the specific facts.

Form 15CA and Form 15CB are the remittance-reporting mechanism. They are not a substitute for the Section 197 lower-deduction certificate and they do not modify the TDS rate. The certificate route is Section 197 plus Form 13. The information-furnishing route is Section 195(6) plus Forms 15CA and 15CB. The two run on separate tracks and serve different statutory purposes.

If the consideration is credited to the seller's NRO account in India, the seller can later use the USD 1 million per financial year repatriation facility from the NRO account, subject to the RBI Foreign Exchange Management (Remittance of Assets) Regulations framework. The mechanics of that repatriation, the documentation the AD bank will require, and the interaction with capital gains tax payment are operational details that depend on the bank and the seller's specific situation.

6. Documentary discipline on the FEMA side

The transaction is a FEMA event as well as an income-tax event. Acquisition and transfer of immovable property in India by persons resident outside India is currently governed, for this topic, by the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. The RBI Master Direction No. 12/2015-16 on Acquisition or Transfer of Immovable Property in India (id=10196) reflects that framework and notes that the 2018 regulations were superseded.

For an NRI or OCI seller transferring property to a person resident in India, the RBI text expressly permits transfer of any immovable property in India to a resident. In other words, the broad RBI position on this fact pattern (NRI seller, resident buyer) is permissive on the seller side. The buyer's stake in confirming the FEMA position is still real: if the transaction breaches FEMA, the buyer is also exposed to Section 13 (penalties) and potentially Section 15 (compounding) of FEMA, 1999. Asset categories with their own restrictions in the broader FEMA / NDI framework are best confirmed against the current RBI Master Direction text and a qualified FEMA adviser for the specific asset and counterparties involved.

7. The shortlist of questions to lock down before the sale agreement is signed

Working through the buyer's side of an NRI property purchase usefully reduces to:

1. Is the seller a non-resident under FEMA on the date of the transfer?
2. Do I have a TAN, or do I need to apply for one (Form 49B)?
3. Has the seller obtained a Section 197 lower-deduction certificate?
4. If yes, what rate and what base amount does the certificate specify?
5. If no, what is the seller's gains category (LTCG or STCG), and what is the default Section 195 rate?
6. Will the consideration be remitted abroad (Form 15CA / 15CB) or credited to NRO?
7. Is the asset within the FEMA-permissive category for the seller's status, and does the AD bank confirm the documentation it will require?

The answers to those seven questions determine the TDS rate, the form to be filed, the timing of remittance, and the FEMA documentary trail. The headline number you see in a property listing is the gross consideration; the after-tax cost flow for both you and the seller is a function of how each of those seven items is actually answered for your specific transaction.

A note on what this is. This article is one returnee's working notes, not personalised advice. Numbers age. Rules change. The only person who can sign off on your specific case is a qualified cross-border chartered accountant looking at your full facts. Use this as a checklist of questions to take to that conversation, not as the answer.

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Sources:

• Income-tax Act, 1961: Section 194-IA (resident TDS on property sale), Section 195 (TDS on payments to non-residents), Section 195(2) (payer application to AO for determination of chargeable proportion), Section 195(6) (information-furnishing for payments to non-residents), Section 197 (lower or nil-deduction certificate), Section 203A (TAN requirement), Section 48 (computation of capital gains, including the second proviso on indexation for non-residents), Section 112 (LTCG rate on transfer of capital assets), Section 2(42A) (short-term vs long-term holding period). Full text: https://www.indiacode.nic.in/bitstream/123456789/2435/1/a1961-43.pdf
• Foreign Exchange Management Act, 1999: Section 13 (penalties), Section 15 (compounding), Section 6 (capital account transactions). Full text: https://www.indiacode.nic.in/bitstream/123456789/1988/1/a199942.pdf
• Foreign Exchange Management (Non-debt Instruments) Rules, 2019: framework for acquisition and transfer of immovable property by persons resident outside India, available on the Ministry of Finance and RBI portals.
• RBI Master Direction No. 12/2015-16 on Acquisition or Transfer of Immovable Property in India by NRI / OCI (reflects the current Non-debt Instruments Rules, 2019 framework, in supersession of the 2018 regulations): https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10196
• FEMA Notification 21(R)/2018-RB (Acquisition and Transfer of Immovable Property in India): https://www.rbi.org.in/scripts/FS_Notification.aspx?Id=11248
• Finance (No. 2) Act, 2024 (amending Section 112 of the Income-tax Act and setting the LTCG rate on transfer of long-term capital assets at 12.5 percent without indexation for transfers on or after 23 July 2024). Hosted on the IndiaCode portal: https://www.indiacode.nic.in/
• Income-tax Rules: Rule 37BB (Form 15CA and Form 15CB for payments to non-residents), Rule 28AA (Section 197 certificate mechanics), Rule 31A (Form 27Q quarterly TDS return for non-resident payments). Hosted on the Income-tax Department portal: https://www.incometax.gov.in/iec/foportal/
• Income-tax Department forms and downloads page (live utilities, schemas, and form descriptions, including Form 13, Form 15CA, Form 15CB; PAN/TAN issuance and update queries are routed through NSDL / Protean): https://www.incometax.gov.in/iec/foportal/downloads/income-tax-forms
• Income-tax e-filing portal (Form 13 online filing, Form 15CA submission, Form 27Q upload): https://eportal.incometax.gov.in/