When a Non-Resident Indian (NRI) decides to sell property in India, taxation becomes a
critical aspect of the transaction. One of the key points to understand is the concept of Tax
Deducted at Source (TDS), which significantly affects the net amount the NRI will
receive from the sale.
This study aims to demystify TDS on the sale of property by NRIs, covering essential
details, responsibilities of both buyers and sellers, and how to reduce or avoid excessive tax
deduction.
TDS Rates (Effective from 23rd July 2024)
The applicable TDS rate depends on the duration of ownership of the immovable property:
1. If Property Held for ≤ 24 Months – Short-Term Capital Gains (STCG)
- STCG is taxed at applicable slab rates, based on the total taxable income of the NRI.
- Since the buyer typically doesn’t know the seller’s income level, TDS is deducted at the highest rate:
- 30% + Surcharge + 4% Health & Education Cess
- Effective TDS could exceed 31.2% depending on the applicable surcharge slab.
2. If Property Held for > 24 Months – Long-Term Capital Gains (LTCG)
| Sale Consideration | Base TDS Rate | Surcharge | Health & Education Cess | Effective TDS Rate |
| Less than ₹50 Lakhs | 12.5% | NIL | 4% of 12.5% = 0.5% | 13.00% |
| ₹50 Lakhs – ₹1 Crore | 12.5% | 10% of 12.5% = 1.25% | 4% of (12.5% + 1.25%) =0.55% | 14.30% |
| Above ₹1 Crore | 12.5% | 15% of 12.5% = 1.875% | 4% of (12.5% + 1.875%) =0.575% | 14.95% |
Important: TDS is typically calculated on the total sale value, not just on the capital gain portion. This can result in TDS being significantly higher than the actual tax liability.
Tip for NRIs: Apply for Lower/Nil TDS Certificate (Form 13)
To avoid excess deduction, NRIs can apply for a Lower or Nil TDS Certificate under
Section 197 of the Income Tax Act.
- Application must be filed with the Income Tax Department.
- If approved, the buyer will deduct TDS at the reduced rate specified in the certificate.
Buyer’s Obligations When Purchasing from an NRI
1. Obtain a TAN (Tax Deduction and Collection Account Number)
- Mandatory for any buyer purchasing property from an NRI.
- In case of joint buyers, each buyer must obtain a TAN, especially if funds are being paid individually.
2. Deduct and Deposit TDS
- TDS must be deducted at the time of making each payment to the NRI seller.
- The deducted amount should be deposited via e-challan (Form 281) by the 7th day of the following month.
- TDS must be deposited even if payment is made in installments.
3. File TDS Return and Provide Form 16A
- The buyer must file TDS return (Form 27Q) on a quarterly basis.
- After filing, Form 16A (TDS certificate) must be downloaded and given to the NRI seller as proof of tax deduction.
4. Deduct TDS at Correct Rate
- The buyer must deduct TDS at:
- The applicable slab rate (as shown above), or
- The rate mentioned in the Lower/Nil TDS Certificate (if provided by the seller).
Conclusion
Selling property in India as an NRI involves important tax steps, especially related to TDS (Tax Deducted at Source). Since TDS is deducted on the full sale amount—not just the profit—it can lead to a higher tax deduction than actually required. To avoid this, NRIs can apply for a Lower or Nil TDS Certificate from the Income Tax Department. On the other hand, the buyer has the responsibility to deduct the correct TDS, deposit it on time, and file the necessary forms. By understanding these rules and following the correct process, both the NRI seller and the resident buyer can complete the property deal smoothly and stay compliant with the law.
