Many first homes in Bengaluru are resale flats, and a surprising number of those sellers live abroad. Maybe they bought years ago, moved to the Gulf or the US, and are now selling. For you as a buyer, that one fact changes the tax paperwork more than almost anything else in the deal.
This guide walks you through it in order. It does not quote a tax rate, because rates are set each year by the Finance Act and change. Your chartered accountant will confirm the rate on the day you pay.
First, the rule most buyers have heard of
Most home-buying checklists mention section 194-IA of the Income-tax Act, 1961. It asks a buyer to hold back a small part of the price as tax and deposit it with the government, using a simple online form (Form 26QB). No special registration is needed.
The catch: section 194-IA only covers payments to a resident seller. If your seller is a non-resident, it simply does not apply.
What applies instead: section 195
When you pay a non-resident, section 195 of the same Act takes over. In plain terms, here is what is different for you:
- You need a TAN. Section 203A requires you to hold a tax deduction account number. Apply early; it is not instant.
- There is no minimum amount. Section 195 has no value threshold, so even a smaller flat is covered.
- A different return. You deposit the tax by challan and file a quarterly statement in Form 27Q, then give the seller Form 16A.
- The amount may be bigger. Unless the seller produces a certificate, the deduction is applied on the whole price, not just his profit.
Why the burden sits with you, the buyer
Once money leaves India, chasing tax from someone overseas is hard. So the law puts the duty on the person paying, before the money moves. If the deduction is missed, section 201 treats the buyer as being in default, with interest running. A clause saying "seller will pay his own taxes" does not change that.
Step 1: confirm the seller's residence in writing
Tax residence depends on days spent in India, under section 6 of the Act. A passport, an OCI card or an Indian address does not decide it. Ask the seller for a written declaration of his status at the very start, before you agree a payment plan. It decides which section applies, whether you need a TAN, and how long the deal will take.
Step 2: ask about the lower-deduction certificate
Holding back tax on the full price can lock up a large part of the seller's money until he files a return and gets a refund. Most sellers will want to avoid that. There are two routes:
- Section 197: the seller applies for a certificate allowing a lower deduction (or none), and gives it to you.
- Section 195(2): you, the payer, apply to the tax officer to fix the portion that is taxable.
Usually the seller applies, because he has the purchase papers and cost details. Put it in the sale agreement: the certificate must reach you before the payment it covers, and if it does not, you deduct on the full amount.
Step 3: deduct on every payment, not just the last one
Tax is deducted when you credit or pay the money, whichever happens first. If you pay a token advance, then a part payment, then the balance at registration, each payment carries its own deduction.
Step 4: deposit, file and hand over the certificate
Deposit the tax within the time the Income-tax Rules, 1962 allow (rule 30; ask your accountant for the current deadline). File Form 27Q for that quarter, and issue Form 16A to the seller. Keep every challan and form with your registered sale deed. When you sell one day, your buyer's lawyer may ask for them.
A note if you are taking a home loan
Your bank releases the loan amount directly to the seller at registration. Tell your loan officer early that the seller is a non-resident, so the deduction can be handled from your own contribution or arranged with the bank. Plan your down payment with this in mind; our EMI calculator helps you see how much you will put in yourself.
A worked example with round numbers
This is illustrative only. The tax rate here is an assumption chosen to make the arithmetic easy. Your chartered accountant (CA) confirms the real rate for your case.
Meera is buying her first flat, a resale, for ₹90 lakh. The seller lives abroad and is a non-resident for tax. He bought the flat years ago for ₹60 lakh.
- Without a lower-deduction certificate: Meera must deduct tax on the amount she pays. Assume, for illustration, a combined rate of 13%. On ₹90 lakh, 13% is ₹11.7 lakh. She pays the seller ₹78.3 lakh and deposits ₹11.7 lakh with the government.
- With a certificate under section 197: the tax officer may fix a lower rate based on the seller's actual gain. Suppose the certificate says 4%. On ₹90 lakh, that is ₹3.6 lakh. She pays the seller ₹86.4 lakh.
The gap between those two outcomes is ₹8.1 lakh of the seller's money held back. That is why sellers push for the certificate, and why you must see it before using a lower rate. If you deduct less than the law requires, the shortfall can be recovered from you.
Timeline: when each step happens
- Before the agreement: apply for your TAN using Form 49B. It usually takes some days, so do it early.
- Before each payment: check the certificate, if any, and work out the tax on that instalment.
- By the 7th of the next month: deposit the tax you deducted, using challan ITNS 281.
- After the quarter ends: file the TDS return in Form 27Q.
- After the return is processed: download Form 16A and give it to the seller.
Common mistakes first-time buyers make here
- Using the 1% rule from section 194-IA. That is for resident sellers. It does not apply to a non-resident seller.
- Using your PAN instead of a TAN. Section 195 needs a TAN. Form 26QB, which works with a PAN, is for resident sellers only.
- Deducting only on the final payment. Tax applies to every payment, including the token amount.
- Accepting a "certificate" by email without checking. Ask for the full document and have your CA check it names you and this property.
- Leaving it to the bank. Your lender disburses money, but you are the deductor in law.
Your quick checklist before releasing the balance
- Seller's written declaration of residence status
- Section 197 certificate, if a lower deduction is being used, naming you as the deductor
- PAN of every seller (a wrong PAN creates trouble for both sides)
- A clear split if there are two sellers, one resident and one not; each follows a different section
- Your own TAN, obtained in time
Buying a resale home from an NRI is completely normal. It just needs a few extra weeks and one good chartered accountant. If you would rather avoid resale paperwork altogether, a new RERA-registered home is another route; our first home guide compares the two.