Simple Guide on TDS for Property Sale by NRI

When an NRI sells a residential property situated in India, tax is applicable on the capital gains earned. The type of tax depends on whether the gain is short-term or long-term.

Long-term capital gain tax applies when the property is sold after holding it for more than two years (the holding period was reduced from three years to two years as per Budget 2017). If the property is owned for two years or less, the profit is treated as short-term capital gain. The same tax implications also apply if the property is received through inheritance.

In the case of an inherited property, the purchase date of the original owner is considered to determine whether the gain is short-term or long-term. Likewise, the cost of acquisition will be the cost paid by the previous owner.

The process and rate of TDS deduction when the seller is an NRI are explained in detail below. This article outlines the key provisions, rules, and compliance requirements related to TDS on the sale of property by an NRI.

How Much Tax Needs to Be Paid?

For long-term capital gains, tax is charged at 20% TDS (after indexation) for transfers made before July 23, 2024, and 12.5% TDS (without indexation) for transfers made on or after July 23, 2024. In the case of short-term capital gains, the tax is calculated as per the applicable income tax slab rates for the NRI, based on their total taxable income in India.

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TDS Deduction on Sale of Property by NRI

When an NRI sells property, TDS is deducted at 20% (after indexation) for transfers before July 23, 2024, and 12.5% (without indexation) for transfers made after that date. These rates apply when the property is sold after holding it for more than two years. However, if the property is sold within two years of purchase, it is treated as a short-term asset, and TDS at 30% is applicable.

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Applicability and Deduction of TDS on NRI Property Sale

Whenever a property transaction takes place, TDS must be deducted at the time of payment. The buyer is responsible for deducting the tax amount before paying the balance to the seller and must deposit the deducted amount with the Income Tax Department.

The rate of TDS depends on the residential status of the seller:

• If the seller is a resident Indian, TDS is deducted at 1% of the total sale consideration.
• If the seller is an NRI, TDS is deducted based on the amount of consideration received and the applicable rate as per the nature of the gain.

While calculating the TDS, only the seller’s residential status is considered; the buyer’s status has no relevance.

In summary:

• Resident Seller: TDS @ 1% on the sale value.
• NRI Seller: TDS at 20% (before July 23, 2024) or 12.5% (after July 23, 2024) for long-term sales; 30% for short-term sales.

The following section explains the forms and procedures applicable when the seller is an NRI.

Applicable TDS Rate on Sale of Property by NRI

TDS on the sale of property by an NRI must be deducted according to the following rates:

Nature of Capital Gains	Description	TDS Rate on Sale of Property by NRI
Long-Term Capital Gains	Property held for more than 2 years	20% TDS (after indexation) for transfers before July 23, 2024; 12.5% TDS (without indexation) for transfers on or after July 23, 2024
Short-Term Capital Gains	Property held for less than 2 years	Taxed as per the NRI’s applicable income tax slab rates

Surcharge and health & education cess are applicable over and above these base rates.

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Effective TDS Rate for Long-Term Capital Gains

Particulars	Property Sale Price (₹)	Below 50 Lakhs	50 Lakhs – 1 Crore	Above 1 Crore
Long-Term Capital Gains Tax		20% or 12.5%	20% or 12.5%	20% or 12.5%
Add: Surcharge		Nil	10% of above	15% of above
Total (Incl. Surcharge)		20%	22% or 13.75%	23% or 14.375%
Add: Health & Education Cess		4% of above	4% of above	4% of above
Applicable TDS Rate (Incl. Surcharge & Cess)		20.8%	22.88% or 14.30%	23.92% or 14.95%

Earlier, a higher surcharge applied when the property value exceeded ₹2 crores and an even higher one when it exceeded ₹5 crores. However, the Budget 2022 capped the maximum surcharge at 15%. Therefore, regardless of whether the property value is ₹1 crore, ₹5 crores, or ₹10 crores, the TDS rate remains fixed at 23.92% or 14.95% (effective from April 1, 2022).

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Short-Term Capital Gains

If the property is sold within two years of ownership, it is treated as short-term capital gains. In such cases, the applicable surcharge and cess are added to the tax rates based on the seller’s income tax slab, similar to how it applies for long-term capital gains.

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TDS Deduction and Deposit

TDS must be deducted each time a payment is made to the NRI seller during the property purchase. Even if an advance payment is made, TDS is required to be deducted at that stage.

The buyer must then deposit the deducted TDS with the Income Tax Department and report the same.

Importantly, TDS must be deducted on all property transactions involving an NRI, irrespective of the transaction value. Even if the property price is below ₹50 lakhs, the TDS deduction remains mandatory.

Amount on Which TDS is Deducted Under Section 195

As per Section 195 of the Income Tax Act, the Tax Deducted at Source (TDS) on the sale of property by a Non-Resident Indian (NRI) must be deducted based on the capital gains arising from the transaction. However, the calculation of these capital gains is not performed by the seller directly—it must be determined by the Income Tax Department.

To initiate this process, the NRI seller needs to submit Form 13 to the Income Tax Department, requesting them to compute the exact amount of capital gains. Since this process is relatively complex, most sellers prefer to hire a Chartered Accountant (CA) to handle the preparation and filing of this application.

Once the capital gains are assessed, the Income Tax Department issues a certificate for nil or lower deduction of TDS, depending on the amount of gain determined from the property sale. The seller must then provide this certificate to the buyer. The buyer, in turn, deducts TDS at the rate specified in the certificate issued by the tax authorities.

If this certificate is not obtained, the buyer is legally required to deduct TDS on the entire sale consideration rather than just the capital gains. Therefore, it is strongly advised that the seller obtains the certificate from the Income Tax Officer before finalizing the transaction.

It is also recommended that the details of TDS deduction are explicitly mentioned in the property sale agreement. It is important to note that the property registrar is not responsible for ensuring that TDS has been deducted. The registrar will register the sale deed even if the TDS is not deducted or has been deducted incorrectly.

In case of incorrect or non-deduction of TDS, the Income Tax Department holds the buyer accountable, not the seller. If the buyer fails to deduct or deducts less TDS than required, the department can recover the pending TDS amount directly from the buyer.

TDS Payment, Return, and TAN Number for NRI

When purchasing property from an NRI, the buyer must comply with specific tax requirements. One of the first steps is obtaining a TAN (Tax Deduction and Collection Account Number) for deducting TDS. This is not required when buying property from a resident Indian but is mandatory when the seller is a non-resident Indian (NRI).

A TAN is different from a PAN (Permanent Account Number) and is used solely for tax deduction and collection purposes. Only the buyer needs to obtain a TAN—the seller does not. If there are two buyers, both must apply for separate TAN numbers before making any TDS deductions.

Once the TAN is obtained, the buyer must deposit the deducted TDS with the Income Tax Department within seven days from the end of the month in which the deduction was made.
For example, if TDS is deducted in June, it must be deposited on or before July 7.

The payment should be made using Challan No./ITNS 281, which can be submitted online or through authorized bank branches. Online payment can be made at:
👉 https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

After depositing the TDS, the buyer must file a TDS return using Form 27Q. This return must be filed for each quarter in which TDS is deducted and within 31 days from the end of that quarter.

Following the filing of the TDS return, the buyer must also issue Form 16A to the property seller as proof of tax deduction.

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How to Determine if the Seller is a Resident or Non-Resident

Identifying the seller’s residential status is crucial because the TDS rate depends on whether the seller is a resident or an NRI for income tax purposes.

This determination is based on the number of days the individual has spent in India during the financial year. The Income Tax Department’s Residential Status Calculator can help verify this:
👉 https://www.incometaxindia.gov.in/Pages/tools/residential-status-calculator.aspx

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Key Points to Remember

• Citizenship is irrelevant in determining residential status. Even if an Indian citizen resides abroad, they are treated as a non-resident for tax purposes.
• Holding an Aadhaar card or PAN card does not automatically make the seller a resident.
• Residential status is determined solely by the number of days spent in India, not by the presence of identification documents.
• The type of bank account—resident or NRI—also does not affect the residential status. Even if the seller has not converted their resident account to an NRI account, they can still be considered a non-resident for tax purposes.

What If the Seller Claims to Be a Resident of India?

The main benefit of holding non-resident (NRI) status is that income earned outside India is not taxable in India. However, if an individual is treated as a resident, then foreign income becomes taxable in India as well.

This is one of the key reasons many Indians living abroad prefer to maintain their NRI status. Once they are classified as residents, their global income becomes taxable in India.

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Important Considerations for the Seller

The seller must be cautious and follow specific steps regarding TDS deduction when selling property as an NRI:

1. Obtain a Certificate from the Income Tax Department
   
   • The seller should apply for a certificate determining the actual capital gains. This helps reduce the TDS amount to be deducted.
2. Submit Necessary Documents
   
   • Documents such as purchase price, purchase date, expenses on renovation or construction, and Form 13 must be submitted to the Income Tax Officer.
   • After reviewing these documents, if approved, the officer will issue a certificate for lower TDS deduction.
3. When the Certificate Is Not Obtained
   
   • If the seller fails to secure this certificate, TDS will be deducted on the total sale value, possibly leading to excess deduction.
4. Collect Form 16A
   
   • For property registration purposes, the seller must obtain Form 16A from the buyer as proof of TDS deduction.
5. Reinvestment of Capital Gains
   
   • If the seller plans to reinvest the capital gains in India, it can help reduce both TDS and overall tax liability.
6. Refund of Excess TDS
   
   • If no certificate is obtained, the seller can still claim a refund for the extra TDS deducted at the end of the financial year.
7. For Joint Owners
   
   • If there are two sellers (co-owners), each must separately file Form 13 to reduce their individual TDS liability.
8. Applicability to NRI and OCI Cardholders
   
   • The benefit of the lower TDS certificate (Form 16) applies to both NRI and OCI cardholders, allowing both to take advantage of reduced tax deduction.

Compliance Requirements for the Buyer

When purchasing property from an NRI, the buyer has several important compliance obligations to fulfill:

1. TDS Deduction Timing
   
   • The buyer must deduct TDS at the time of each payment made to the NRI seller, not just during property registration.
2. Deposit of TDS
   
   • The deducted TDS must be deposited with the Income Tax Department within the prescribed schedule for TDS payments.
3. Filing of TDS Return
   
   • The buyer must file the TDS return with the Income Tax Department according to the applicable schedule.
4. Issuance of Form 16A
   
   • The buyer must provide Form 16A to the seller as proof that TDS has been deducted and deposited. This form serves as a TDS certificate.
5. Interest on Late Payment
   
   • If TDS payment is made after the due date, interest of 1% or 1.5% per month will be charged, depending on the delay.
6. Penalty for Late Filing of TDS Return
   
   • If the TDS return is filed late, a penalty of ₹200 per day may apply. In some cases, the Income Tax Officer may also impose a fine of up to ₹1,00,000.
7. Home Loan Transactions
   
   • In property purchases involving a home loan, TDS must be deducted when payment is made to the seller, not when EMI payments are made to the bank.
8. Advance Payments
   
   • TDS must also be deducted on advance payments made before obtaining the lower TDS certificate. All payments made to the seller before this certificate’s issuance are subject to TDS deduction.

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How to Avoid Double Taxation on Property Sale by an NRI in Two Countries

Many countries tax their residents on global income, including income from property sales abroad. For example, if an NRI living in the United States sells property in India, both India and the US may impose tax on the same transaction — India because the property is located there, and the US because the seller is a resident there.

To prevent this double taxation, India has entered into Double Taxation Avoidance Agreements (DTAA) with several countries. Under these agreements, if an NRI pays tax in India on the property sale, they can claim a tax credit for the taxes paid in India while filing returns in their country of residence. This helps reduce overall tax liability.

Proper disclosure is required in the country where the tax credit is claimed.
For instance, an NRI residing in the US must report property sale gains or losses in Section D of Form 1040 in their US tax return. Since India and the US have a DTAA, the taxes paid in India can be offset against US tax liability, ensuring the seller does not pay tax twice on the same income.

Money Repatriation by NRI Outside India

When an NRI sells property in India and wishes to repatriate the sale proceeds abroad, certain formalities must be completed. The NRI needs to submit Form 15CA and Form 15CB to the bank. These forms are generated through the Income Tax Department’s website and must be submitted to the concerned bank handling the transfer.

• Form 15CA can be prepared either by the NRI or through a Chartered Accountant (CA).
• Form 15CB, however, must be issued and signed by a CA, complete with a signature and official stamp.

Form 15CB includes details about the nature of the remittance, source of funds, and a declaration confirming that applicable taxes have been paid in India on the amount to be repatriated.

As per RBI guidelines, NRIs are allowed to repatriate up to USD 1 million per calendar year from India. (Refer: RBI Circular)

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Reducing TDS Liability by Applying Through Form 13

To lower the TDS liability on property sales, an NRI can submit Form 13 to the Income Tax Department to obtain a certificate for nil or lower deduction of TDS. This certificate allows the NRI to reduce the amount of tax deducted at the time of sale.

Since filing this form involves multiple documentation and verification steps, many NRIs prefer to engage a Chartered Accountant to handle the process and ensure accuracy in the application.

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