TDS on Sale of Property by NRIs in India

What is TDS on Sale of Property by NRIs and When Does It Apply

When an NRI sells a property in India, the profit earned is categorized under “Capital Gains.” Depending on how long the property was held, it is classified as either short-term or long-term capital gains. A TDS of 12.5% applies to long-term gains, while 30% is deducted on short-term gains.

When a non-resident Indian sells property in India, understanding TDS on Sale of Property by NRIs is critical for compliance.

How Are Property Sale Gains Taxed for NRIs?

Calculation of TDS on Sale of Property by NRIs

Whenever an NRI disposes of a property in India, the income is taxed as capital gains. The classification of these gains is determined by the period of ownership:

 

• • Long-Term Capital Gain (LTCG): If the property is sold after holding it for more than two years from the date of purchase, the profit is treated as long-term capital gain.

• • Short-Term Capital Gain (STCG): If the property is sold within two years of purchase, the resulting profit is considered short-term capital gain.

Tax Rates on NRI Property Sale

The following tax rates apply to NRIs earning capital gains from property transactions in India:

 

• • STCG (Short-Term Capital Gains): Taxed according to the applicable income tax slab rates when the sale occurs within two years of purchase.

• • LTCG (Long-Term Capital Gains): When a property is sold after two years, the profit is taxed as follows:
    
    

     

    • • Property purchased before 23rd July 2024: Taxed at 20% with indexation benefits.
    • • Property purchased on or after 23rd July 2024: Taxed at 12.5% without indexation benefits.

 

TDS on Sale of Property by NRI

When an NRI sells property in India, the buyer has the responsibility to deduct TDS before making any payment to the seller.

 

• • If the property is sold within 2 years (Short-Term Capital Gain): TDS is deducted at 30% on the total sale consideration.

• • If the property is sold after 2 years (Long-Term Capital Gain): TDS is deducted at 20% (plus applicable surcharge and cess).

Unlike resident sellers—where TDS is deducted at only 1% under Section 194-IA—the TDS rate for NRIs is much higher since it is calculated on the entire capital gains liability and not merely the sale value.

This guide simplifies TDS on Sale of Property by NRIs in India for both buyers and sellers

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How to Deduct TDS on Property Purchase from an NRI

The buyer must deduct the TDS amount from the payment made to the NRI seller and deposit it with the Income Tax Department. To do so, the buyer needs to obtain a TAN (Tax Deduction Account Number) in their name.The buyer’s compliance obligations form a crucial part of TDS on Sale of Property by NRIs under Indian tax law.

If the property is purchased jointly and multiple buyers contribute funds or take a joint loan, each buyer must obtain a separate TAN. TDS should be deducted every time a payment is made to the NRI seller once the TAN is obtained.

The buyer must then:

 

1. 1. Deposit the deducted TDS amount using an e-challan by the 7th day of the following month after payment to the seller.

1. 1. File the TDS return in the next quarter after depositing the tax.

1. 1. Once the TDS return is filed, download Form 16A and provide it to the NRI seller as proof of tax deduction.

Lower or NIL TDS Certificate for NRI

How to Save Tax and Reduce TDS on Sale of Property by NRIs

When an NRI sells property in India, the buyer is required to deduct TDS at the applicable rate before transferring the sale proceeds. However, the NRI seller can apply to the Income Tax Department for a Lower or NIL TDS Certificate if the actual tax liability is less than the standard TDS rate.

If such a certificate is issued by the department, the buyer will deduct TDS at the reduced rate specified in the certificate, instead of the usual rate.

An NRI seller can submit an application for a Lower/NIL deduction certificate when the TDS amount exceeds their actual tax payable. It is important that this certificate is obtained before finalizing the property sale agreement. The assessing officer will calculate the capital gains and determine the appropriate TDS rate accordingly.

If the seller does not obtain this certificate in advance, they can still claim a refund of the excess TDS deducted, provided the deducted amount is higher than their actual tax liability.

Consequences of Incorrect TDS Deduction|Common Mistakes in TDS on Sale of Property by NRIs

At times, the buyer may deduct TDS at the rate applicable to residents instead of an NRI or may fail to deduct TDS altogether. In such situations, the buyer becomes liable for the consequences. It is the buyer’s legal obligation to deduct and deposit TDS at the rate applicable to the NRI seller or the rate mentioned in the NIL/lower deduction certificate issued by the Income Tax Department.

If the buyer fails to deduct TDS at the prescribed rate, they are subject to a penalty equal to the amount of TDS not deducted. Additionally, the buyer must pay interest on the defaulted amount. Furthermore, if TDS is not deducted properly, the seller will not be able to repatriate the sale consideration or proceeds to their foreign bank account/NRE account.

Repatriation of Sale Proceeds by NRI

 To repatriate property sale proceeds, the NRI seller must submit Form 15CA and Form 15CB to the authorised dealer bank. Form 15CB should be certified and signed by a chartered accountant. An NRI seller is permitted to repatriate up to USD 1 million per financial year outside India.

How to Save Tax on Capital Gains
NRIs can claim exemptions under Section 54 and Section 54EC for long-term capital gains earned from the sale of residential property in India.

Exemption under Section 54

This exemption applies when an NRI earns long-term capital gains from selling a house property. To claim this benefit, the NRI must reinvest the capital gains in another residential property located in India. It’s important to note that the entire sale proceeds need not be invested—only the amount equivalent to the capital gains is required to claim full exemption. Even if the new property’s purchase price exceeds the capital gains, the exemption will still be restricted to the actual capital gain amount.

The new property must be purchased within one year before or two years after the sale of the original property. If the NRI chooses to construct a new house, the construction must be completed within three years from the date of sale. The property should be located in India, as exemption under Section 54 is not available for properties acquired or constructed outside India. However, if the newly purchased property is sold within three years, the exemption claimed earlier will be revoked. The maximum exemption limit under this section is ₹10 crores.

If the NRI is unable to reinvest the capital gains before the return filing deadline (usually 31st July of the following financial year), they may deposit the amount in a Capital Gains Account Scheme (CGAS) with a PSU or other eligible bank. The deposited amount will still qualify for exemption, provided it is later used for the purchase or construction of the new property.

Exemption under Section 54EC

NRIs can reduce their long-term capital gains (LTCG) tax by investing the gains in specific bonds issued by the National Highway Authority of India (NHAI) or the Rural Electrification Corporation (REC). These bonds are redeemable after five years and cannot be transferred or sold before the completion of five years from the date of sale of the property.

This investment cannot be claimed under any other deduction. To qualify for the exemption, the investment must be made within six months from the date of sale, but before the due date for filing the income tax return. As per the Budget 2014, the maximum amount that can be invested in these bonds in a financial year is ₹50 lakhs.

Exemption under Section 54F

This exemption applies when an NRI earns long-term capital gains from the sale of any asset other than residential property. To claim the benefit, the NRI must purchase one residential property within one year before or two years after the date of transfer, or construct one within three years from the date of transfer. The new property must be located in India and should not be sold within three years of purchase or construction.

Additionally, the NRI should not own more than one residential property (apart from the new one) and must not buy or construct another house within two or three years. To claim full exemption, the entire sale proceeds must be invested; otherwise, the exemption will be granted proportionately. The option to deposit the unutilised amount under the Capital Gains Account Scheme (CGAS) is also available under this section.

These updates directly influence how TDS on Sale of Property by NRIs is calculated and deposited.

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