TDS on Property Sale by NRI: Tax Rates, Exemptions & Saving Tips
Whenever a property is bought or sold in India, TDS is required to be deducted. The buyer is responsible for deducting this amount at the time of payment to the seller and depositing it with the Income Tax Department.
The same provision applies to Non-Resident Indians (NRIs) who sell property in India.
This article explains the tax implications for NRIs selling property in India and highlights the key aspects of TDS applicable on such transactions.
How is NRI Property Sale Taxed? Short-Term vs. Long-Term Gains
NRIs selling property located in India are liable to pay tax on the capital gains earned. These capital gains are classified as either short-term or long-term, depending on the duration of property ownership.
- LTCG (Long-Term Capital Gain): If the property is held for more than two years before sale, the profit earned is treated as a long-term capital gain.
- STCG (Short-Term Capital Gain): If the property is sold within two years of acquisition, the profit is categorized as a short-term capital gain.
For inherited property, the date of purchase by the original owner is used to determine whether the gain is long-term or short-term. The cost of acquisition is also based on the amount spent by the previous owner, ensuring an accurate calculation of capital gains in such cases.
How Much Tax Will Be Payable?
According to the Budget 2024 updates, there have been major revisions to the taxation of property sale gains for Non-Resident Indians (NRIs). The key changes are as follows:
- Long-Term Capital Gains (LTCG): The tax rate on long-term capital gains from the sale of immovable property has been reduced from 20% to 12.5%.
- Short-Term Capital Gains (STCG): Short-term gains are taxed as per the applicable income tax slab rates based on the total taxable income of the NRI in India.
- No Indexation Benefit: From FY 2024–25, the indexation benefit—previously used to adjust the purchase price for inflation—has been withdrawn for all capital assets. This means the entire gain realized on sale will now be taxable without inflation adjustment.
Who Has to Pay TDS While Selling Property?
The obligation to deduct and deposit Tax Deducted at Source (TDS) lies with the buyer of the property. The buyer must deduct the TDS from the payment made to the NRI seller and report the deduction through Form 27Q.
To carry out this deduction, the buyer must first obtain a Tax Deduction Account Number (TAN) in their name. If multiple individuals jointly purchase the property, and each contributes funds or takes a joint loan, each buyer must obtain a separate TAN.
Once the TAN is acquired, the buyer must deduct the TDS each time a payment is made to the NRI seller. The deducted amount should be deposited with the Income Tax Department using an e-challan by the 7th day of the month following the payment.
After depositing the TDS, the buyer must file the TDS return in the next quarter. Once the return is filed successfully, Form 16A (the TDS certificate) is issued to the NRI seller.
Following these steps ensures that both the buyer and the NRI seller remain fully compliant with Indian tax laws, enabling a smooth and transparent property transaction.
Documents Required for NRI Property Sale & Tax Compliance
- Title Deed: Serves as proof of property ownership.
- PAN Card: Mandatory for tax identification and compliance.
- Passport and Visa: Verifies the seller’s NRI status.
- Power of Attorney (PoA): Needed when an NRI sells property through a representative in India. The PoA must be notarized and apostilled in the seller’s country of residence.
- Sale Agreement: Specifies the terms of sale, payment details, and applicable tax responsibilities.
- Utility Bill Receipts: Used as evidence of ownership and maintenance of the property.
- No Objection Certificate (NOC): Must be obtained from the housing society or relevant authority.
Repatriation of Sale Proceeds by NRI Outside India
An NRI selling property in India must submit Form 15CA and Form 15CB to the authorized dealer bank before transferring the sale proceeds abroad.
- Form 15CB requires certification from a Chartered Accountant confirming that all taxes have been duly paid.
- The NRI can repatriate up to USD 1 million per financial year outside India.
TDS on Sale of Property by NRI in India
When an NRI sells property in India, capital gains tax applies. To ensure tax collection at the time of sale, the Indian tax authorities require Tax Deducted at Source (TDS) to be withheld by the buyer. The buyer must deduct TDS from the total sale consideration and deposit it with the Income Tax Department within the specified time limit. After payment, the buyer must file the details of deduction in Form 27Q.
The applicable TDS rate depends on whether the gains are long-term or short-term, based on how long the property was held:
| Nature of Capital Gains | Description | TDS Rate on Sale of Property by NRI |
| Long-Term Capital Gains (LTCG) | Property held for more than 2 years | 20% |
| Short-Term Capital Gains (STCG) | Property held for less than 2 years | As per the seller’s income tax slab rates |
In summary, for properties held beyond two years, TDS at 20% is deducted on long-term capital gains, while for properties sold within two years, TDS is applied at the applicable income tax slab rate of the NRI seller.
TDS Rates on NRI Property Sales: LTCG & STCG Explained
As per Section 194IA of the Income Tax Act, when an immovable property is sold, TDS at 1% of the total transaction value must be deducted by the buyer, provided the seller furnishes their Permanent Account Number (PAN). The responsibility of deducting and depositing TDS lies entirely with the buyer, not the seller.
If the seller does not provide a valid PAN, the TDS rate increases significantly to 20%, highlighting the importance of quoting the PAN during the sale. Furthermore, when a property is sold within 24 months of purchase, a 30% TDS is deducted (as it is treated as a short-term capital gain). If the property is sold after 24 months, a 20% TDS applies (for long-term capital gains). These rates exclude surcharge and cess and must be deducted at the time of payment to the seller.
| Particulars | LTCG | STCG |
| Total income less than ₹50 lakh | Capital gain tax: 20% | As per applicable IT slab rate |
| Total income between ₹50 lakh – ₹1 crore | Capital gain tax: 20%Add: Surcharge – 10% | As per applicable IT slab rate |
| Total income more than ₹1 crore | Capital gain tax: 20%Add: Surcharge – 15% | As per applicable IT slab rate |
| Health & Education Cess | 4% of total tax rate | 4% of total tax rate |
| Effective TDS Rate | 20.80% (up to ₹50 lakh)22.88% (₹50 lakh–₹1 crore)23.92% (above ₹1 crore) | To be determined as per IT slab |
In short, the TDS rate for NRIs depends on the holding period of the property and the seller’s total income, with higher income attracting additional surcharge and cess.
Calculation of TDS on Property Sale by NRI
When an NRI sells property in India, the buyer is required to deduct Tax Deducted at Source (TDS) before making payment. The TDS rates and calculation process differ from those applicable to resident sellers.
TDS on Sale of Property by NRI – Key Points
| Particulars | Resident Seller | NRI Seller |
| TDS Rate | 1% of sale value (if property value > ₹50 lakh) | 20% + surcharge + cess on capital gains |
| Applicable On | Full sale consideration | Capital gains amount (with valid certificate) |
| Relevant Section | Section 194-IA | Section 195 |
Applicable TDS Rates for NRIs (U/S 195)
| Type of Capital Gain | Holding Period | Base TDS Rate | Effective TDS Rate (Including Surcharge & Cess) |
| Short-Term Capital Gain (STCG) | Less than 2 years | As per income slab | Up to 30% + surcharge + 4% cess |
| Long-Term Capital Gain (LTCG) | 2 years or more | 20% | Around 23.92% (including surcharge and cess) |
Note: Long-term capital gains (LTCG) qualify for indexation benefits.
Example Calculation
Example:
- Sale Price: ₹1.5 crore
- Indexed Purchase Price: ₹70 lakh
- Capital Gain: ₹1.5 crore – ₹70 lakh = ₹80 lakh
Step-by-Step Calculation:
- Capital Gain: ₹80,00,000
- Applicable TDS Rate (LTCG): 20% + 15% surcharge (for income above ₹50 lakh) + 4% cess = 23.92%
- TDS Amount: ₹80,00,000 × 23.92% = ₹19,13,600
Hence, the buyer must deduct ₹19,13,600 as TDS and deposit it with the Income Tax Department under Section 195.
How Can an NRI Save Taxes on Capital Gains While Selling a Property?
An NRI can claim tax exemptions on capital gains under Section 54, Section 54EC, and Section 54F of the Income Tax Act. These provisions allow NRIs to reduce or eliminate tax liability on long-term capital gains by reinvesting in specific assets.
Exemption Under Section 54
This section provides an exemption from long-term capital gains tax when the sale proceeds from a residential property are reinvested in another residential property.
Key Points:
- Eligibility: Available to both residents and NRIs.
- Applicability: Applies to long-term capital gains from the sale of a residential property held for at least 24 months.
- Reinvestment: The proceeds must be reinvested in purchasing another residential property within the prescribed time limits.
- Conditions:
- Exemption applies to one residential property only.
- The new property must be purchased within one year before or two years after the date of sale, or constructed within three years from the date of sale.
- The new property must be located in India.
- If the new property is sold within three years, the exemption is revoked.
- Exemption Amount: The lower of the actual long-term capital gain or the cost of the new property.
Exemption Under Section 54EC
Section 54EC provides an exemption if long-term capital gains are invested in specified bonds.
Key Points:
- Eligibility: Applicable to both residents and NRIs.
- Applicability: Covers long-term capital gains from the sale of any property, residential or otherwise.
- Investment: The gains must be invested within six months in bonds issued by NHAI or REC.
- Exemption Limit: Maximum investment of ₹50 lakh per financial year.
- Lock-in Period: The bonds must be held for five years.
- Exemption Amount: Equal to the amount invested in the specified bonds, up to the ₹50 lakh limit.
Exemption Under Section 54F
This section offers exemption on long-term capital gains from the sale of any asset other than a residential property, if the proceeds are reinvested in a residential property.
Key Points:
- Eligibility: Available to individuals and HUFs, including NRIs.
- Applicability: Applies to long-term gains from assets such as land, buildings, or other capital assets (excluding residential property).
- Reinvestment: The proceeds must be invested in purchasing or constructing a residential property in India.
- Investment Timeframe:
- Purchase: Within one year before or two years after the sale.
- Construction: Within three years from the sale date.
- Conditions:
- The taxpayer should not own more than one residential house (excluding the new one) at the time of sale.
- The new property must be held for at least three years. Selling it earlier will revoke the exemption.
- Exemption Amount:
- Full exemption if the entire sale proceeds are invested.
- Partial exemption if only a portion is reinvested, calculated in proportion to the invested amount.
Note: To repatriate the sale proceeds outside India, the NRI seller must submit Form 15CA and Form 15CB, certified and signed by a Chartered Accountant.
If you are an NRI planning to sell your property in India, consult our experts to explore all legal tax-saving options and ensure full compliance with Indian tax laws.
Impact of Double Taxation Avoidance Agreements (DTAA)
Signing a Double Taxation Avoidance Agreement (DTAA) offers multiple benefits to both the country and the taxpayer. It ensures fair taxation, promotes international trade, and prevents the same income from being taxed twice.
Key Benefits of DTAA:
- The primary purpose of DTAA is to make a country an attractive hub for business and investment by preventing double taxation.
- It provides tax relief either by exempting foreign income from tax in the resident country or by allowing a tax credit for the amount already paid abroad.
- DTAA helps reduce tax evasion by ensuring transparency and consistency in taxation between countries.
- It offers concessions on tax rates, making cross-border transactions more tax-efficient.
- It enables lower withholding tax rates, allowing taxpayers to pay reduced TDS on income such as interest, dividends, or royalties.
Consequences of Not Deducting TDS
If a buyer fails to deduct TDS at the prescribed rates while purchasing property from an NRI, or neglects to comply with the TDS provisions, it can lead to serious legal and financial repercussions.
Key Consequences:
- The buyer becomes liable for the TDS amount that was not deducted, along with applicable penalties and interest on the defaulted sum.
- Failure to deduct TDS can delay or block the repatriation of sale proceeds by the NRI to their foreign bank or NRE account.
- If the Income Tax Department scrutinizes the transaction and finds non-compliance, both parties may face additional tax demands and penalties.
- The seller may face prosecution if it is discovered that their tax residency status was misrepresented during the transaction.
Important Compliance Tip:
Before proceeding with the purchase, the buyer must verify the seller’s tax residency status. If the seller is identified as a non-resident, TDS must be deducted at the prescribed rate on every payment made. However, if the seller provides a Nil or Lower Deduction Certificate issued by the Income Tax Department, TDS should be deducted at the rate mentioned in that certificate.
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