TDS on Sale of Property: Everything NRIs Need to Know

For NRIs, selling property in India is rarely just a straightforward deal. The paperwork might seem manageable, but the tax rules seem far more tangled. One of the most misunderstood pieces of the puzzle is TDS, or Tax Deducted at Source. Unlike resident sellers, who face a light 1% deduction, NRIs are hit with steeper rates that can eat into sale proceeds quickly. 

If you’re an NRI planning to sell property in India, understanding how NRI property sale TDS works is crucial to avoid unexpected tax hits and penalties. And if you’re an Indian resident buying property from an NRI, knowing the rules around TDS on property purchase from NRI is equally important to avoid tax mishaps. 

Let us break down what TDS means for you, how to lower your tax hit, and what happens if things slip through the cracks.

Can NRIs Buy Property in India?

NRIs are legally permitted to purchase residential and commercial properties in India under the Foreign Exchange Management Act (FEMA). Whether it’s an apartment in Mumbai or a shop in Bengaluru, you have full ownership rights, just like a resident Indian. 

Can an NRI purchase agricultural land in India? NRIs cannot buy agricultural land, plantation property, or farmhouses. No matter how tempting the idea may seem, that’s where RBI draws the line – unless the land comes to you through inheritance or as a gift from someone eligible to hold such property.

How is NRI Property Taxed?

Taxation for NRIs operates differently during property acquisition and sale.

On Purchase

When you buy property in India, the tax scene is familiar: stamp duty, registration charges, and GST (if applicable). However, when the buyer is purchasing from an NRI, the TDS rate on purchase of property from NRI Section 195 comes into play and must be handled carefully. 

Owning property as an NRI also means that any rental income you earn is taxable in India, even if you live overseas.  

On Sale

Capital gains tax applies when selling property. The tax liability depends on your holding period of the property:

1. Short-Term Capital Gains (STCG): Properties held for less than 24 months are taxed at the NRI’s applicable income tax slab.

2. Long-Term Capital Gains (LTCG): Assets held for 24 months or longer incur a 12.5% tax without indexation benefits to adjust for inflation. 

To make things trickier, the buyer must deduct TDS on the purchase of property from an NRI on the entire consideration amount, which often means a large sum is locked up with the tax department until you file your return.

Rate of TDS on Sale of Property by NRI

The rate hinges on how long you’ve held the property:

1. Short-term capital gains (held for under 24 months): TDS at 30% along with the relevant surcharge and cess.

2. Long-term capital gains (property held for 2 years or more): 20% TDS plus surcharge and cess.

To make things trickier, the buyer must deduct this TDS on the entire consideration amount, which often means a large sum is locked up with the tax department until you file your return.

How NRIs Can Lower Their TDS Burden?

Proactive measures can help NRIs reduce their tax liability. Apply for a Lower Deduction Certificate (LDC) under Section 197. If the actual tax liability is lower than the prescribed TDS rate (e.g., due to exemptions or capital losses), NRIs can apply for an LDC to reduce the TDS rate. 

Submitting Form 13 to the Income Tax Department, along with supporting documents such as sale agreements, PAN, and income proofs, may result in a reduced TDS rate. It is better to speak to a Chartered Accountant to streamline this process for yourself.

Ensuring TDS Compliance as a Seller

While TDS compliance primarily falls on the buyer, NRIs must remain vigilant to avoid legal complications: 

1. Form 26QB: Ensure the buyer files this form within 30 days of deducting TDS.

2. Form 16A: Obtain this certificate as proof of TDS deduction.

3. PAN Verification: Confirm the buyer’s PAN details are accurate to prevent mismatches.

Consequences of Non-Deducting TDS

If the buyer fails to handle TDS correctly, penalties can follow. Under Section 201(1A), a monthly interest of 1% is levied on the unpaid TDS amount until it is deposited. For instance, a ₹1 crore transaction could incur ₹1 lakh in interest per month. 

Delays in filing TDS returns (due by July 31 each year) attract a penalty of ₹10,000 under Section 271H. Persistent non-compliance may also delay the repatriation of funds.

Can NRIs Repatriate the Sale Proceeds?

Yes – subject to RBI limits and documentation under the Liberalised Remittance Scheme (LRS). NRIs can remit up to $1 million per financial year. 

When remitting funds abroad, the NRI must furnish forms prescribed by the Income Tax Department. This includes Form 15CA (an online declaration that taxes have been paid) and Form 15CB (a Chartered Accountant’s certificate confirming tax compliance). 

Conclusion

Selling property in India as an NRI is far more than a simple sale – it’s a tax and compliance marathon. The good news is that with the right preparation – whether it’s applying for a Lower Deduction Certificate or staying informed on TDS compliance, you can keep the process smooth and avoid any unwelcome surprises. 

Get your paperwork in place, loop in professionals early, and maybe you’ll be able to hold onto more of your money. 

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