Sale of Property in India by an NRI – TDS Provisions for Buyers and Sellers

When a person purchases immovable property in India from a Non-Resident Indian (NRI), the buyer must deduct tax at source (TDS) on the entire sale consideration as per Section 195 of the Income-tax Act, 1961—on each payment, regardless of property value.

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Who Qualifies as an NRI for Tax Purposes

A person is treated as an NRI if:

• They stay in India less than 182 days during a financial year, or
  
• They stay less than 60 days during that year and less than 365 days in the preceding 4 years.
  Further cases:
  
• Indian citizens leaving India for employment or as crew on an Indian ship who meet the above limits.
  
• Citizens of India or Persons of Indian Origin (PIOs) visiting India:
  
  • If Indian income ≤ ₹15 lakh (excluding foreign income): stay < 182 days and < 365 days in 4 preceding years.
    
  • If Indian income > ₹15 lakh: stay < 120 days and < 365 days in 4 preceding years.
    

Buyers must always verify the seller’s residency status, as TDS rules differ for residents and NRIs.

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Difference Between Resident and NRI Sellers

• For resident sellers, TDS applies at 1% on sale consideration above ₹50 lakh (Section 194-IA).
  
• For NRI sellers, the ₹50 lakh threshold does not apply—TDS applies on the entire amount, regardless of value, under Section 195.
  

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TDS Rates Before 23 July 2024 (Long-Term Property Held > 2 Years)

Sale Consideration	Base TDS Rate	Surcharge	Effective Rate (incl. 4% Cess)
Below ₹50 lakh	20%	Nil	20.8%
₹50 lakh – ₹1 crore	20%	10%	22.88%
₹1 crore – ₹2 crore	20%	15%	23.92%
₹2 crore – ₹5 crore	20%	15%	23.92%
Above ₹5 crore	20%	15%	23.92%

Example:
If an NRI sold property for ₹1.5 crore (held > 2 years) before 23 July 2024:
TDS = ₹30 lakh + ₹4.5 lakh surcharge + ₹1.38 lakh cess = ₹35.88 lakh.
Seller receives ₹1.14 crore.

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TDS Rates On or After 23 July 2024 (Long-Term Property Held > 2 Years)

Sale Consideration	Base TDS Rate	Surcharge	Effective Rate (incl. 4% Cess)
Below ₹50 lakh	12.5%	Nil	13%
₹50 lakh – ₹1 crore	12.5%	10%	14.3%
Above ₹1 crore	12.5%	15%	14.95%

Example:
For sale consideration ₹1.5 crore on or after 23 July 2024:
TDS = ₹18.75 lakh + ₹2.81 lakh surcharge + ₹0.86 lakh cess = ₹22.42 lakh.
Seller receives ₹1.27 crore.

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Buyer’s Responsibilities

• Deduct TDS on each payment to the NRI seller.
  
• Obtain TAN (Tax Deduction Account Number).
  
• Deposit TDS by the 7th of the following month using e-challan ITNS 281.
  
• File quarterly TDS returns (Form 27Q) and issue Form 16A to the seller.
  
• Failure to deduct/deposit TDS may lead to interest and penalty under Sections 201 and 271C.
  

NRI Seller’s Considerations

• If TDS is not properly deducted, repatriation of funds abroad may be delayed.
  
• False declaration of residency can lead to prosecution.
  
• Sellers can apply for a Lower/Nil Deduction Certificate (Form 13) to reduce TDS deduction, but this process is complex and should be handled by a tax professional.
  

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Key Takeaways

• Always confirm NRI status before property purchase.
  
• Buyer must deduct TDS on total consideration for NRI sellers.
  
• TDS rate changed from 20% to 12.5% (base rate) after 23 July 2024.
  
• Buyers must comply with TAN, TDS deposit, and filing requirements.
  
• NRIs should obtain lower/nil TDS certificate for smoother transactions.

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