Simple Guide to TDS on Property Sale by an NRI (Updated Overview)

When an NRI sells residential property situated in India, tax must be paid on the resulting capital gains. The applicable tax depends on whether the gain is classified as short-term or long-term.

A property sold after being owned for more than two years is treated as a long-term capital asset (the holding period requirement was reduced from three years to two years in Budget 2017). If the property is sold within two years of purchase, the gain is considered short-term. These rules also apply when an NRI inherits a property.

For inherited properties, the original owner’s date of purchase must be taken into account to determine whether the gain is long-term or short-term. The cost of acquisition will also be the cost at which the previous owner had purchased the property.

The following guide explains the applicable TDS rules, relevant forms, and the amount of tax that must be deducted when an NRI is the seller. It highlights the key provisions related to property sales and the TDS obligations that must be followed for compliance.

 

How Much Tax Needs to Be Paid?

Long-term capital gains on property sold by an NRI are subject to 20% TDS (after indexation) for transfers made before 23 July 2024, and 12.5% TDS (without indexation) for transfers completed on or after 23 July 2024. Short-term capital gains are taxed as per the applicable income tax slab rates for NRIs, based on their taxable income in India.

TDS Deduction on Property Sold by an NRI

A TDS of 20% (after indexation) applies to transfers before 23 July 2024, and 12.5% (without indexation) applies to transfers after this date when the property is sold after two years of ownership. If the property is sold within two years of purchase, a TDS of 30% is applicable.

TDS Rules and Deduction Process for NRI Property Sale

Whenever a property is purchased or sold, TDS must be deducted. The buyer deducts TDS from the payment made to the seller and pays only the remaining amount to the seller. The deducted amount must then be deposited with the Income Tax Department by the buyer.

The TDS rate depends on the seller’s residential status. When the seller is a resident Indian, TDS of 1% is deducted from the sale value. When the seller is an NRI, the TDS rate varies based on the amount received by the seller.

Only the seller’s residential status is considered for calculating TDS; the buyer’s status has no impact.

The method and rate of TDS in cases where the seller is a resident Indian involve a 1% deduction on the property sale. The form and TDS amount applicable when the seller is an NRI are outlined in the information provided above.

Applicable TDS Rate on Property Sale by an 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 23 July 2024; 12.5% TDS (without indexation) for transfers after 23 July 2024
Short-Term Capital Gains	Property held for less than 2 years	Taxed as per the seller’s income tax slab rates

Surcharge and cess are levied in addition to the above rates.

Effective TDS Rate on Long-Term Capital Gains for NRI Property Sale

Particular	Less than ₹50 Lakhs	₹50 Lakhs to ₹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%	15%
Total Tax (incl. Surcharge)	20%	22% or 13.75%	23% or 14.375%
(Add) Health & Education Cess	4%	4%	4%
Final TDS Rate (incl. Surcharge & Cess)	20.8%	22.88% or 14.30%	23.92% or 14.95%

Previously, a higher surcharge applied when the property value exceeded ₹2 crores, and an even higher rate applied beyond ₹5 crores. Budget 2022 capped the maximum surcharge at 15%, so from 1 April 2022, the TDS rate remains the same whether the property value is ₹1 crore, ₹5 crores, or ₹10 crores—i.e., 23.92% or 14.95%.

For short-term capital gains (property held for less than two years), surcharge and cess will also apply on the slab-based tax rates, similar to long-term gains.

Amount on Which TDS Is Deducted Under Section 195

Under Section 195, TDS on the sale of property by an NRI has to be deducted, and in principle, it should be based on the capital gains. However, the seller cannot compute capital gains independently; this calculation must be done by an income tax officer.

To get this done, the seller must submit Form 13 to the Income Tax Department and request a calculation of capital gains. Since filing this form can be complicated, many sellers take the assistance of a chartered accountant to submit the application.

After assessing the seller’s capital gains, the Income Tax Department issues a certificate specifying a nil or lower TDS deduction, depending on the gains arising from the property sale.

The seller must provide this certificate to the buyer, and the buyer will deduct TDS according to the rate mentioned in that certificate.

If the seller does not obtain this certificate, the buyer must deduct TDS on the entire sale value, not on the capital gains. This makes it essential for the seller to secure the certificate from the income tax officer.

It is advisable to clearly mention the TDS deduction details in the property sale agreement. It is also important to understand that the property registrar has no responsibility to ensure TDS deduction. The registrar will register the sale document even if TDS has been incorrectly deducted or not deducted at all.

If TDS is not deducted or deducted incorrectly, the Income Tax Department does not take action against the seller. Instead, it holds the buyer responsible for depositing the correct TDS amount. If the buyer fails to deduct or deducts less TDS, the department will recover the amount directly from the buyer.

TDS Payment, Return, and TAN Requirement for NRI Transactions

When purchasing a property from an NRI, several compliance steps must be followed. First, the buyer must obtain a TAN number for deducting TDS. A TAN is not required when buying a property from a resident Indian, but it is mandatory when the seller is a non-resident.

A TAN (Tax Deduction and Collection Account Number) is different from a PAN and is required only for the buyer, not the seller. If the buyer does not already have a TAN, they must apply for one before deducting TDS. In situations where two buyers are involved, each buyer must apply for a separate TAN.

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

TDS is deposited along with Challan/ITNS 281 and can be paid online or through authorised bank branches. Online payment can be made using the designated portal.

After depositing the TDS, the buyer must file a TDS return. This is done using Form 27Q, which must be filed separately for each quarter in which TDS has been deducted. The return must be submitted within 31 days from the end of the relevant quarter.

Once TDS is deposited and the TDS return is filed, the buyer must provide Form 16A to the seller of the property.

How to Easily Determine Whether the Seller Is a Resident or Non-Resident?

Identifying the seller’s residential status is a crucial part of any property transaction involving an NRI, as the applicable TDS rate depends on whether the seller qualifies as a resident or a non-resident under Indian income tax rules.

Residential status is based solely on the number of days the individual has stayed in India. This determines whether the seller is treated as a resident or a non-resident for tax purposes.

The Income Tax Department provides an online residential status calculator that helps determine this status. It can be accessed through their official portal.

---

Important Points to Remember When Checking Residential Status

• Citizenship has no role in deciding whether a seller is a resident or non-resident. A person may be an Indian citizen but living abroad and still be classified as a non-resident for tax purposes. The Income Tax Act focuses only on the number of days spent in India.
• Even if the seller holds an Indian Aadhaar card or PAN card, they may still be considered a non-resident.
• The days spent in India determine the residential status, not the Aadhaar, PAN, or the type of bank account held. If someone continues to use a resident savings account instead of converting it to an NRI account, they may still be treated as a non-resident for tax purposes.

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

A key benefit of being classified as a non-resident is that income earned abroad is not taxed in India. However, if an individual is treated as a resident, their foreign income also becomes taxable in India.

This is why many individuals living overseas prefer to maintain their NRI status. If their status changes to “resident,” they become liable to pay tax in India on income earned outside the country.

---

Important Points the Seller Must Keep in Mind

Here are the essential considerations for an NRI seller regarding TDS deduction on property sales:

• The seller should apply for a certificate from the Income Tax Department to determine capital gains, which helps reduce the TDS amount.
• Documents such as the purchase price, purchase date, renovation or construction expenses, and other relevant records must be submitted along with Form 13. The income tax officer will assess these details and, if satisfied, issue a certificate for lower TDS.
• If the seller does not obtain this certificate, TDS will be deducted on the full sale value, resulting in excess deduction.
• For property registration requirements, the seller must collect Form 16A from the buyer.
• If the seller plans to reinvest the capital gains in India, this helps reduce taxable capital gains, which also lowers TDS and tax liability.
• Without the certificate, the seller will need to apply for a refund of excess TDS deducted at the end of the financial year.
• If the property has two co-owners, each seller must separately submit Form 13 to reduce their respective TDS amounts.
• The lower TDS certificate (Form 16) applies to both NRIs and OCI cardholders, and OCI holders also receive the same benefit.

Compliance Requirements for the Buyer

When purchasing a property from an NRI, the buyer must follow several mandatory compliance steps. The buyer is responsible for:

• Deducting TDS at the time of each payment, not at the time of property registration.
• Depositing the deducted TDS with the Income Tax Department within the prescribed timelines.
• Filing the TDS return with the Income Tax Department within the applicable due dates.
• Issuing Form 16A to the seller after filing the TDS return. This TDS certificate confirms that the buyer has deposited the TDS deducted from the seller’s payment.
• Paying interest at 1% or 1.5% per month if TDS is deposited late.
• Paying a penalty of ₹200 per day for delayed TDS return filing. The Income Tax Officer may also impose an additional penalty of up to ₹1 lakh.
• Deducting TDS only when the payment is made to the seller in case of a home loan—not on EMI payments made to the bank.
• Ensuring that TDS is deducted on any advance payment as well. All payments made before receiving a lower TDS certificate are subject to TDS deduction as per the applicable rates.

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

Many countries tax their residents on property sales regardless of where the property is located. For example, if an NRI residing in the US sells a property in India, both India and the US may tax the same sale. India taxes the transaction because the property is situated in India, while the US taxes it because the seller is a US resident—resulting in double taxation.

To prevent this, India has entered into Double Taxation Avoidance Agreements (DTAAs) with several countries. Under these agreements, if tax has been paid in India on the property sale, the seller can claim a tax credit in the other country, reducing the overall tax burden.

Proper disclosure must be made in the country where the tax credit is claimed. For instance, an NRI in the US must report the capital gains or losses from an Indian property sale in the US tax return under Schedule D of Form 1040. Since India and the US have a DTAA, the taxes paid in India can be deducted while calculating the US tax liability.

Repatriation of Sale Proceeds by an NRI

To transfer money earned from property sales in India to a foreign country, an NRI must submit Form 15CA and Form 15CB to the bank. These forms are generated on the Income Tax Department portal and then provided to the bank.

An NRI may prepare Form 15CA personally or through a chartered accountant, but Form 15CB must be issued only by a CA, along with their signature and seal.

These forms include details of the funds being repatriated, their source, and a declaration confirming that all applicable taxes have been paid in India.

NRIs are allowed to repatriate up to USD 1 million outside India in a calendar year, as per the RBI guidelines.

Reduce TDS Liability by Applying Through Form 13

NRIs can significantly reduce their TDS burden on property sale transactions by submitting an application in Form 13 to the Income Tax Department. This form enables them to obtain a Nil or Lower TDS Deduction Certificate, allowing the TDS to be deducted at a reduced rate—or in some cases, not at all. As a result, many NRIs prefer applying for this certificate to avoid higher TDS deductions at the time of sale.

However, filing Form 13 can be complicated and requires accurate documentation and technical understanding of tax laws. Due to this complexity, most NRIs rely on a chartered accountant to prepare and submit the application on their behalf, ensuring a smooth and error-free process.