On the capital gains, the NRIs who are selling the house property located in India need to pay tax. It just relied on the short-term or the long-term capital gains on which tax is to be paid.
The tax on the long-term capital gain is when the house property is sold post to the duration of 2 years (Reduced from 3 years to 2 years in Budget 2017) from the owned date. If it is held for two years or below, then it is said to be a short-term capital gain. The tax consequences for the NRIs are indeed liable to apply in the case of inheritance.
When the case is about the property that has been inherited, then you must acknowledge the buying date of the real owner to compute whether the same is long-term or short-term capital gains. Towards the case that the property price would be the cost of the former owner.
The form and the amount of deduction of TDS if the seller is an NRI are elaborated in the information below in the given article. The post will mention the major points and details on the sale of the property and the applicable TDS within the compliance of the seller.
Are you planning to purchase property from a Non-Resident Indian (NRI)? Then you absolutely need to understand your Tax Deducted at Source (TDS) obligations! Many property buyers in India make the critical mistake of overlooking TDS requirements when dealing with NRI sellers, leading to hefty penalties and being labeled as tax defaulters by the Income Tax Department
I’ve worked with numerous clients who faced unnecessary legal complications simply because they weren’t aware of the specific TDS rules that apply when buying property from NRIs Let me break down everything you need to know in simple terms,
Understanding TDS Requirements for NRI Property Purchases
When you buy property from an NRI seller the TDS requirements differ significantly from those that apply when purchasing from a resident Indian. Here’s what you need to know
TDS Under Section 195 vs. Section 194-IA
For property purchases from NRIs, TDS is deducted under Section 195 of the Income Tax Act, not Section 194-IA (which applies to resident sellers).
| Parameter | Resident Seller (Sec 194-IA) | NRI Seller (Sec 195) |
|---|---|---|
| Threshold | Applicable if price > ₹50 lakh | Applicable on ANY amount |
| TDS Rate | 1% | 12.5% to 23.92% (varies) |
| TAN Requirement | Not required | Mandatory |
| Form for Filing | Form 26QB | Form 27Q |
| Certificate Issued | Form 16B | Form 16A |
TDS Rates Applicable When Buying Property From NRIs
The TDS rate depends on how long the NRI has held the property:
For Long-Term Capital Gains (Property held for more than 2 years)
- Before July 23, 2024: 20% TDS (after indexation) plus applicable surcharge and cess
- After July 23, 2024: 12.5% TDS (without indexation) plus applicable surcharge and cess
For Short-Term Capital Gains (Property held for less than 2 years)
- As per the income tax slab rates applicable to the NRI seller plus surcharge and cess
The effective TDS rates (including surcharge and cess) for long-term capital gains vary based on the sale price:
| Property Sale Price | Effective TDS Rate (Before July 23, 2024) | Effective TDS Rate (After July 23, 2024) |
|---|---|---|
| Less than 50 Lakhs | 20.8% | 13.0% |
| 50 Lakhs to 1 Crore | 22.88% | 14.30% |
| Above 1 Crore | 23.92% | 14.95% |
Step-by-Step Process for Buyers to Deduct TDS
1. Verify the Seller’s Residential Status
First things first, confirm if your seller is actually an NRI. Don’t just take their word for it – their residential status depends on the number of days they’ve spent in India, not their citizenship or whether they have an Aadhaar card or PAN.
You can use the residential status calculator provided by the Income Tax Department: https://www.incometaxindia.gov.in/Pages/tools/residential-status-calculator.aspx
Important Note: Some sellers might falsely claim they’re residents to avoid higher TDS deduction. Don’t fall for this trap – if you fail to deduct proper TDS, YOU will be liable to pay penalties, not the seller!
2. Obtain a Tax Deduction Account Number (TAN)
Unlike purchases from resident Indians, buying property from an NRI requires you to have a TAN before deducting TDS. This is MANDATORY – don’t skip this step!
To apply for TAN:
- Visit TIN-NSDL website
- Fill Form 49B
- Pay the required fee
- Submit the application
3. Deduct TDS on EVERY Payment
You must deduct TDS on EACH payment made to the NRI seller, including advance payments – not just at the time of registration.
The TDS should be deducted on the full sale consideration, not just on the seller’s capital gains (unless the seller provides a certificate for lower deduction from the Income Tax Department).
4. Deposit TDS with the Income Tax Department
After deducting TDS, you need to deposit it with the Income Tax Department within 7 days from the end of the month in which the TDS was deducted.
For example, if you deducted TDS in June, you must deposit it by July 7th.
You can deposit TDS:
- Online through https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp
- Using Challan No./ITNS 281
5. File TDS Return
After depositing the TDS, you must file a TDS return in Form 27Q for each quarter in which TDS was deducted. This return must be filed within 31 days from the end of the quarter.
6. Issue Form 16A to the Seller
Once you’ve filed the TDS return, generate Form 16A and provide it to the NRI seller as proof of TDS deduction.
How NRI Sellers Can Reduce TDS Burden
As a buyer, you should know that NRI sellers can apply for a Lower TDS Certificate (under Section 197) to reduce the TDS burden. This allows TDS to be deducted only on their actual capital gains rather than the entire sale amount.
The NRI seller needs to:
- Submit Form 13 to the Income Tax Department
- Provide sale agreement details
- Submit cost of acquisition documents
- Provide capital gains computation
- Submit proof of reinvestment (if claiming exemptions under Sections 54, 54EC, etc.)
If the seller provides you with this certificate, you should deduct TDS as per the rate specified in the certificate.
Penalties for Non-Compliance
If you fail to deduct TDS or deposit it correctly, you could face:
- Interest Charges: 1% per month for non-deduction and 1.5% per month for non-deposit
- Late Filing Fees: ₹200 per day for delayed Form 27Q filing (up to the TDS amount)
- Penalty under Section 271C: Equivalent to the TDS amount not deducted
- Income Tax Scrutiny: Non-compliance often triggers IT department scrutiny and legal complications
Best Practices for Buyers
- Verify the Seller’s Status: Confirm the residential status of the seller before proceeding
- Obtain TAN Early: Apply for TAN well before making any payments
- Document Everything: Clearly mention TDS details in the sale agreement
- Deduct TDS on Full Amount: Unless the seller provides a lower TDS certificate
- Comply with Deadlines: Ensure timely deposit of TDS and filing of returns
- Keep Records: Maintain all documents related to TDS deduction and deposit
Special Case: Joint Owners
If the property has joint owners (one NRI and one resident Indian), and all consideration is handled by the resident Indian, you should clarify the ownership structure legally. In most cases, you’ll need to deduct appropriate TDS based on each owner’s share.
Buying property from an NRI comes with specific TDS obligations under Section 195. Failure to comply can result in severe penalties, so it’s crucial to understand and follow the correct procedures.
We recommend consulting with a tax professional or chartered accountant before proceeding with such transactions to ensure full compliance with tax regulations.
Have you purchased property from an NRI before? What challenges did you face with TDS compliance? Share your experiences in the comments below!
Compliance to Know by the Buyer
When the buyer buys the property, he has various responsibilities if he buys it from an NRI. The buyer must have:
- Deduct the TDS at the time of every payment and not during the Registration of the Property.
- TDS that gets deducted would get deposited with the income tax department under the schedule towards depositing the TDS.
- TDS return would indeed be filed with the income tax department under the schedule towards furnishing the TDS return.
- The purchaser would indeed provide Form 16A to the seller to furnish the TDS return. Form 16A undergoes a TDS certificate that mentions that the buyer has deposited TDS with the seller.
- The concern is that if the late TDS payment is furnished, then the interest levied will be 1%/1.5% per month.
- Towards the case when the late filing of a TDS return is furnished, a Rs 200 penalty would be imposed. The income tax officer imposes a penalty of up to Rs 1 lakh.
- Towards the concern of a Home loan, the TDS is to be deducted when the payment is furnished to the seller, excluding when EMI is furnished to the bank.
- TDS gets deducted under the above-mentioned schedule on the advance payment. TDS under the mentioned schedule is subject to being applied on all the payments furnished before providing the lesser TDS certificate.
What if the Seller Mentions that He is a Resident in India?
The major advantage of becoming a non-resident is that the NRI who earns income from foreign does not need to pay tax in India. But if the foreign income obtained by the resident from outside India is taxed in India.
The same is the major reason why people living outside India attempt to maintain their NRI status. If they become residents in India, they need to pay the tax in India on the earned income from outside India.
NRI Property Sale in 2025: A Complete Step-by-Step Guide
FAQ
How to deduct TDS on NRI property?
TDS Rate: A resident buyer purchasing a property from an NRI must withhold taxes at 12.5% plus applicable surcharge and cess. Requirement of TAN: Buyers must obtain a Tax Deduction Account Number (TAN) before deducting TDS. Form 26QB cannot be used; instead, Form 27Q must be filed.
What happens if NRI sells property in India?
During the sale of property by an NRI, the buyer is responsible for deducting Tax Deducted at Source (TDS). The standard NRI TDS on property sale is 20%. However, if the property is sold before two years (as calculated from the date of purchase), a higher TDS for NRI property sale (30%) will be applicable.
Can TDS on property sale be avoided?
The waiver by agreement exemption.
The TDS emphatically cannot be waived. This is stated in the very first section of the TDS law. Even if the buyers tells the seller that they agree to waive the TDS, it makes no difference because such a waiver is not enforceable.
Do NRIs have to pay TDS?
Taxpayers are required to withhold Tax Deducted at Source (TDS) from payments made to Non-Resident Indians (NRIs).