Published 19 October 2026
A buyer who deducts 1 per cent on Form 26QB from a seller who turns out to live in Dubai or Singapore has used the wrong provision. The 1 per cent rule applies only to resident sellers. When the seller is a non-resident, the buyer must deduct tax at the full rate on the capital gain, and needs a TAN, a quarterly statement and, in most cases, an accountant’s certificate before the money leaves the country. There is no Rs 50 lakh threshold. The 2025 Act and the Finance Act, 2026 have changed parts of this, and one part of the new procedure is not yet complete in the Rules. This guide sets out the steps under each Act.
Which Act applies
- Amounts paid or credited up to 31 March 2026. Section 195 of the Income-tax Act, 1961 applies, with rules 30, 31A, 37BB and 37BC of the Income-tax Rules, 1962.
- Amounts paid or credited from 1 April 2026. Section 393(2) [Table: Sl. No. 17] of the Income-tax Act, 2025 applies, with rules 214, 217, 218, 219 and 220 of the Income-tax Rules, 2026. Sl. No. 17 covers “any other sum chargeable under the provisions of this Act, not being income chargeable under the head ‘Salaries’”, paid by “any person” to a non-resident (not being a company) or a foreign company.
Residence is decided under section 6 of each Act for the seller’s own year, not by citizenship. An Indian citizen working abroad may be a non-resident, and a foreign national may be a resident. Residential Status: Resident, RNOR and Non-Resident explains the tests.
Why Form 26QB and Form No. 141 do not apply
Section 194-IA reaches only payments “to a resident transferor”. Section 393(1), which contains the 1 per cent entry at Sl. No. 3(i), applies only to sums paid “to a resident”. The e-filing portal’s e-Pay Tax FAQ says the PAN-based forms “are only available to Resident Deductees” and that for a non-resident seller “applicable form is Form 27Q”.
How much to deduct
Rate. Section 195(1) and Sl. No. 17 both require deduction at the rates in force. These are the rates in Part II of the First Schedule to the Finance Act for the year. For tax year 2026-27, Part II of the Finance Act, 2026 sets the following rates for a non-resident Indian:
- 12.5 per cent on long-term capital gains (item 1(b)(i)(D));
- 30 per cent on “the whole of the other income” (item 1(b)(i)(O)), which covers a short-term gain on property.
Surcharge and health and education cess are added under the same Part. For payments up to 31 March 2026, the Finance Act, 2025 schedule applies.
On what amount. The deduction is on the “sum chargeable”, which is the capital gain and not the whole price. A buyer cannot compute the seller’s cost, so in practice one of two certificates fixes the figure:
| Route | 1961 Act | 2025 Act |
|---|---|---|
| Seller applies for a lower or nil rate | Section 197, Form 13 | Section 395(1), Form No. 128 (rule 213) |
| Buyer applies to fix the chargeable proportion | Section 195(2) | Section 395(2), Form No. 129 (rule 214) |
Without a certificate, the buyer takes the risk of under-deducting. A buyer who deducts too little is in default for the shortfall (section 398(1)). Lower or Nil Deduction Certificates explains the application.
No indexation relief for the seller. For land or buildings acquired before 23 July 2024, the option to compare the 12.5 per cent rate with 20 per cent after indexation is available only to a resident individual or HUF (section 112(1)(a), second proviso; section 197(3)). A non-resident seller is taxed at 12.5 per cent on the unindexed gain (section 112(1)©; section 197(1)).
No PAN. Without a valid PAN, tax is deducted at the highest of the section rate, the rate in force, or 20 per cent (section 206AA; section 397(2)). Rule 37BC of the 1962 Rules and rule 217 of the 2026 Rules give relief for “payments on transfer of any capital asset”. This applies if the non-resident gives the buyer his name, e-mail and phone number, his overseas address, a tax residency certificate where his country issues one, and his foreign tax identification number.
TAN: needed, then not needed, with a gap in the Rules
Under the 1961 Act the buyer needs a TAN. Section 194-IA(3) relaxed section 203A only for deductions “in accordance with the provisions of this section”, and that does not extend to section 195.
Under the 2025 Act, up to 30 September 2026, section 397(1)(a) required a TAN, and the exemption in clause © did not cover Sl. No. 17.
From 1 October 2026, section 397(1)©, as substituted by the Finance Act, 2026, provides that clause (a) does not apply to:
“(iii) a resident individual or Hindu undivided family in respect of a transaction where he is required to deduct tax on any consideration for the transfer of any immovable property under section 393(2) [Table: Sl. No. 17]”
The Rules have not caught up. The Income-tax Rules, 2026, as notified on 20 March 2026, provide the PAN-based challan-cum-statement, Form No. 141, only for section 393(1) [Table: Sl. Nos. 2(i), 3(i), 6(ii) and 8(vi)] (rule 218(3); rule 219(5)). Sl. No. 17 deductions are reported in the quarterly statement, Form No. 144, which is built around a TAN. This guide has not traced an amendment that extends Form No. 141 to Sl. No. 17 or prescribes another PAN-based route. As things stand, the Act removes the TAN requirement for a resident individual or HUF buying from a non-resident, but the Rules do not yet say how such a buyer pays and reports the tax without one. TAN, and Who Must Deduct records the same gap. The exemption does not cover a company, a firm or a non-resident buyer.
What to have ready
- Evidence of the seller’s residential status. This comes from the seller, through a declaration, passport stays and an overseas address.
- The seller’s PAN, or the rule 37BC / rule 217 details and tax residency certificate.
- A certificate under section 197 or 195(2), or section 395(1) or 395(2), if the gain is to be fixed below the full consideration. The seller’s purchase deed and improvement costs support the application.
- The buyer’s TAN, applied for in Form 49B before 1 April 2026 or Form No. 135 since then (see TAN, and Who Must Deduct).
- The agreement and payment schedule. Note whether each instalment is paid in India or remitted abroad.
- An accountant, where a certificate in Form 15CB or Form No. 146 is needed.
The forms and due dates
| Step | 1961 Act | 2025 Act |
|---|---|---|
| Deposit the tax | By the 7th of the next month; by 30 April for March (rule 30(2)) | Same (rule 218(2)) |
| Challan | ITNS 281, through a TAN login | ITNS 281N, by tax year |
| Quarterly statement | Form 27Q (rule 31A) | Form No. 144 (rule 219) |
| Statement due | 31 July, 31 October, 31 January and 31 May | Same (rule 219(4)) |
| Certificate to seller | Form 16A, within 15 days of the statement due date | Form No. 131, within 15 days of the statement due date (rule 215) |
| Before remitting | Form 15CA, with Form 15CB where required (rule 37BB) | Form No. 145, with Form No. 146 where required (rule 220) |
Forms 15CA and 15CB and their successors. Rule 220 requires the person paying a non-resident “any sum chargeable under the Act” to furnish information in Form No. 145, in one of three parts:
- Part A, where payments in the tax year do not exceed Rs 5,00,000;
- Part B, where a certificate or order of the Assessing Officer under section 395(1) or (2) has been obtained;
- Part C, supported by an accountant’s certificate in Form No. 146, in other cases.
The form is furnished electronically and submitted to the authorised dealer “prior to remitting the payment” (rule 220(4)). Rule 37BB of the 1962 Rules had the same structure with Forms 15CA and 15CB. The procedure is in Paying a Non-Resident: Forms 15CA and 15CB.
Portal steps and signing. The challan is created through the TAN login under e-File, then e-Pay Tax (see Deducting and Depositing TDS). The quarterly statement is prepared and filed as described in Quarterly TDS and TCS Statements. That guide also covers verification by digital signature or electronic verification.
If the deduction is missed or short
- Assessee in default and interest. Interest is charged at 1 per cent a month for late deduction and 1.5 per cent a month for late payment (section 201; section 398).
- Late statement. A fee of Rs 200 a day is charged, capped at the tax (section 234E; section 427).
- Disallowance. For a buyer who carries on business and claims the payment as an expense, the whole sum is disallowed (section 40(a)(i); section 35(b)(ii)). A buyer of a capital asset claims no such expense, so this rarely arises on a purchase.
- Buyers who are themselves non-resident. The obligation extends “to all persons, resident or non-resident”, whether or not the payer has any residence, place of business or presence in India (Explanation 2 to section 195; Note 3(b) to the section 393(2) Table). A non-resident buying from another non-resident must still deduct.
What can be changed after filing
A Form 27Q or Form No. 144 is corrected by a correction statement, and a challan through the challan correction facility. Both are covered in Correction Statements and TRACES Defaults. If too much was deducted, the seller recovers the excess by filing a return in India (see NRI Returns, Refunds and Lower TDS). The buyer cannot recover it once the statement is filed and the certificate issued.
The seller’s side, briefly
A non-resident seller computes the gain under the ordinary rules (see Capital Gains on Selling Property). The seller may claim the exemptions in sections 54, 54F and 54EC, or sections 82, 86 and 85 of the 2025 Act, which turn on the asset and the reinvestment, not on residence. The new house under sections 54 and 82 must be “in India”. If the seller obtains a lower-deduction certificate before the sale, the buyer can deduct on the real gain rather than on the full price.
Summary
- Establish the seller’s residential status before the first payment. A non-resident seller takes the deduction out of section 194-IA and Sl. No. 3(i).
- Fix the Act by the date of each payment: section 195 up to 31 March 2026, and section 393(2) [Table: Sl. No. 17] from 1 April 2026.
- Obtain a certificate under section 197 or 195(2), or section 395(1) or 395(2), if tax is to be deducted on the gain rather than on the full price.
- Deduct at the rates in force (12.5 per cent on a long-term gain for tax year 2026-27, plus surcharge and cess), or at 20 per cent or more without a valid PAN unless rule 37BC or rule 217 applies.
- Hold a TAN. A resident individual or HUF is exempted from 1 October 2026 by section 397(1)©(iii), but the Rules do not yet provide a PAN-based form for Sl. No. 17.
- Deposit by the 7th of the next month, file Form 27Q or Form No. 144 quarterly, issue Form 16A or Form No. 131, and file Form 15CA/15CB or Form No. 145/146 before remitting.
The next guide, Capital Gains on Selling Property, turns to the seller’s own tax.