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TDS Section 195 When Buying Land from an NRI (2026)
What a buyer must do when the seller is a non-resident: the rule, the Income-tax Act, 2025 equivalent, the lower deduction route, and why the usual 1% property TDS does not fit.
If your seller is an NRI, the TDS rule that applies is not the one for resident sellers. Section 195 of the old Act, now section 393(2) serial 17 of the Income-tax Act, 2025, requires the payer to deduct tax at "rates in force" on any sum chargeable to tax in a non-resident's hands. This guide explains what we confirmed, what we did not, and the steps to take before you pay.
The rule in plain words
Section 195 of the Income-tax Act, 1961 says that any person paying a non-resident, other than a company, or a foreign company, any interest or other sum chargeable under the Act, other than salary, must deduct tax at the rates in force. The Income Tax Department page we opened states that deduction is made at the earlier of crediting the amount or paying it, and that the rate is "the rates in force"; the page does not itself state the rate.
Explanation 2 on the same page says the obligation applies to all persons, resident or non-resident, whether or not the non-resident has a residence, business or other presence in India. A resident buyer paying an NRI for land is therefore a payer within the rule, if the sum is chargeable to tax.
The Income-tax Act, 2025 equivalent
The Income-tax Act, 2025 replaced the 1961 Act for tax years starting 1 April 2026. Section 393, titled "Tax to be deducted at source", has a table for non-residents. Serial 17 covers any interest not covered by the earlier serials, or any other sum chargeable under the Act, other than salary income, paid to a non-resident (not a company) or a foreign company, by any person, at rates in force. We read this on the Income Tax Department page for section 393.
So for a land purchase from an NRI after 1 April 2026, the working reference is section 393(2), serial 17. For a deal in an earlier year, the 1961 section 195 text applies. We could not confirm the full transition rules for a deal that straddles the two years, so ask a chartered accountant.
| Topic | Under the 1961 Act | Under the 2025 Act (as read) |
|---|---|---|
| Main deduction rule for non-residents | Section 195(1), rates in force | Section 393(2), serial 17, rates in force |
| Payer applies to fix the taxable proportion | Section 195(2) | Section 395(2) |
| Payee applies for lower or nil deduction | Section 195(3) | Section 395(1) |
| Reporting of payment details | Section 195(6), prescribed form | We could not confirm the equivalent |
| Trigger | Earlier of credit or payment | Earlier of credit or payment, subject to sub-sections (4), (8) and (9) |
Why the usual 1% property TDS does not fit
Buyers of land from resident sellers meet a separate rule, covered in TDS on property purchase (194-IA). We did not re-open that provision for this page, and we are not stating its rate or threshold here. The point for you is the seller: if the seller is a non-resident, the payer should look to section 195 (now 393(2) serial 17) and not rely on the resident-seller rule. Ask your chartered accountant to confirm this on your facts.
Residential status is decided on tax law tests, not on a visa or a card. An NRI under FEMA can differ from a non-resident under the Income-tax Act. Ask the seller for a written declaration of residential status and the evidence, such as passport stamps or a tax residency certificate, and give the matter to your accountant.
What sum is "chargeable to tax"?
Section 195 bites on a sum chargeable to tax. If the whole price is not income in the seller's hands, only part of it is chargeable: typically the capital gain. The Income Tax Department's FAQ says rural agricultural land is specifically excluded from the definition of a capital asset, so gains from its transfer are not chargeable under capital gains, while gains on urban agricultural land are. The FAQ does not define rural or urban. We could not confirm the distance and population tests from that page.
This is why the right amount to deduct is often unclear. Deducting on the full price can be far more than the seller's tax. Deducting too little exposes the buyer. The law gives routes to settle this, set out next. See capital gains and DTAA for NRI sellers.
Lower deduction and the taxable proportion
Section 195(2) of the 1961 Act allows the payer, if it considers that only part of the sum is chargeable, to apply to the Assessing Officer to determine the appropriate proportion; tax is then deducted only on that part. Section 195(3) allows the recipient to apply for a certificate permitting receipt without deduction while the certificate is valid.
Section 395 of the 2025 Act has the same structure. Sub-section (2) lets the person paying a non-resident under section 393(2) serial 17 apply to the Assessing Officer, if they consider the whole sum would not be chargeable, and the officer determines the appropriate proportion. Sub-section (1) lets a payee apply for a lower or nil rate. The officer can cancel a certificate after a reasonable opportunity.
We could not confirm the forms, the time the officer takes, or the fees. Plan the closing date around the certificate, not the other way round.
Steps for a buyer
- Get the seller's PAN, passport copy, overseas address and a written statement of residential status.
- Ask the seller for the cost of acquisition, date of acquisition and the proof, so that the gain can be worked out. See capital gains on land.
- Decide with a chartered accountant whether the sum is chargeable at all (for example rural agricultural land) and which route applies.
- If the seller or you will apply for a certificate, do so before the sale deed. Do not sign the registered sale deed first and fix the tax later.
- Pay the seller only after the tax position is documented, and keep the challan and any certificate with the deed. See the sale deed guide.
- Check that the seller's bank account is a valid NRE or NRO account if money is to be remitted abroad later. See NRE, NRO and FCNR accounts.
Tax rules change; check the current year
The Income-tax Act, 2025 replaced the 1961 Act for tax years starting 1 April 2026, and rates, thresholds and section numbers are revised by Finance Acts. Read the current text on incometaxindia.gov.in before relying on this page. This is general information and not tax or legal advice.
Reporting and forms
Section 195(6) of the 1961 Act says payers of sums to non-residents, whether taxable or not, must furnish information in the prescribed form and manner. The page does not name a form. Many practitioners refer to Forms 15CA and 15CB, but we did not open an official source that describes them for a land sale, and we cannot confirm which form applies or who files it. Ask the seller's bank and your accountant.
We also did not confirm whether the buyer needs a tax deduction account number (TAN) for a one-off purchase. Ask your accountant.
Risks of getting it wrong
We could not confirm from our sources the penalty or interest for short deduction. Ask the accountant to explain the consequence in your case. The practical risk is that the tax department may treat the buyer as a payer who defaulted, and that the seller's bank may not release funds abroad without the proper documents.
A separate risk is fraud. Fake NRI sellers and forged powers of attorney appear in land fraud cases. Read NRI land fraud and POA for NRI land transactions before you pay.
What is unconfirmed
We could not confirm the rate to be deducted (the pages say "rates in force"), the forms and procedure for a certificate under section 395, the equivalent of the 1961 section 195(6) in the 2025 Act, the TAN requirement for a buyer, penalty and interest for short deduction, or how a deal that straddles 1 April 2026 is handled. We did not re-open the resident-seller TDS section. We also did not read any CBDT circular on land sales by non-residents.
Frequently Asked Questions
Does TDS apply when I buy land from an NRI?
Is it the same 1% TDS as for resident sellers?
What is the 2025 Act section for 195?
What rate must I deduct?
Is tax deducted on the whole price or only on the gain?
Can the NRI seller get a lower or nil deduction certificate?
What if the land is rural agricultural land?
When must I deduct the tax?
Do I need Form 15CA or 15CB?
Can I pay the NRI seller in cash?
Sources
- Income Tax Department: Section 195, Income-tax Act, 1961
- Income Tax Department: Section 393, Income-tax Act, 2025 (tax to be deducted at source)
- Income Tax Department: Section 395, Income-tax Act, 2025 (certificates)
- Income Tax Department FAQ: taxability of capital gain on sale of agricultural land
- Income Tax Department: Tax on long-term capital gains
