TDS on Property Purchase — A Complete NRI Guide

Tax Deducted at Source on property transactions is one of the most misunderstood aspects of NRI real estate in India. Get it wrong as a buyer and you face penalties. Get it wrong as a seller and you face double taxation, refund delays and legal complications. This guide covers what every NRI needs to know — whether you are buying or selling.

Two Separate TDS Scenarios

There are two situations where TDS applies to NRI property transactions, and they work differently:

• NRI buying from a Resident Indian seller — lower TDS applies
• NRI selling property (buyer deducts TDS from payment to NRI seller) — significantly higher TDS applies

Scenario 1: NRI Buying from a Resident Indian

When an NRI purchases property from a resident Indian seller, the rules are relatively straightforward. Under Section 194-IA of the Income Tax Act, if the property value exceeds ₹50 lakhs, the buyer must deduct TDS at 1% of the sale consideration before making payment to the seller.

Key points for NRI buyers in this scenario:

• TDS rate: 1% of the total sale consideration
• Applicable when property value exceeds ₹50 lakhs
• You must obtain a TAN (Tax Deduction Account Number) or use Form 26QB to deposit the TDS
• TDS must be deposited within 30 days of the end of the month in which deduction was made
• Issue Form 16B to the seller as TDS certificate

Scenario 2: NRI Selling Property (Most Complex)

When an NRI sells property in India, the buyer — whether resident or NRI — is required to deduct TDS at significantly higher rates under Section 195 of the Income Tax Act. This is where most NRI sellers face unpleasant surprises.

With surcharge and cess, the effective TDS rate for NRI sellers on short-term gains can reach 34–42% depending on the total income. On long-term gains, it typically works out to 22–23% with indexation.

Lower TDS Certificate — A Critical Tool for NRI Sellers

The TDS rates under Section 195 apply to the gross sale consideration, not just the capital gain portion. This means TDS may be deducted on amounts far exceeding the actual profit — creating a cash flow problem where a large portion of your sale proceeds is withheld pending a tax refund.

The solution is a Lower Deduction Certificate (LDC) under Section 197. You apply to your Income Tax Assessing Officer with details of the transaction and your actual capital gains computation. If approved, the certificate specifies a lower TDS rate based on your actual tax liability — not the gross sale value.

• Apply early — the process can take 4–8 weeks
• The certificate must be obtained before the sale transaction is completed
• It significantly improves your net cash flow from the sale
• An NRI-experienced CA is essential for this process

Filing Requirements After TDS Deduction

Regardless of whether you are buyer or seller, certain filings are mandatory:

• Buyer must file Form 27Q quarterly, reporting TDS deducted from payments to non-residents
• Buyer must issue Form 16A to the NRI seller as TDS certificate
• NRI seller should file an Indian Income Tax Return to claim any excess TDS as refund
• Form 15CA and 15CB (CA certificate) are required before remitting sale proceeds abroad

Double Taxation Considerations

India has Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. NRIs can typically claim credit in their country of residence for taxes paid in India on property income. The specific mechanism depends on the DTAA with your country — your tax advisor in both countries should review this.

Practical Checklist for NRI Sellers

1. Engage an NRI-experienced CA at least 3 months before the expected sale
2. Compute your capital gains (with indexation) to understand actual tax liability
3. Apply for Lower Deduction Certificate under Section 197 if warranted
4. Ensure buyer has TAN for deducting and depositing TDS correctly
5. Obtain Form 16A from buyer after TDS deposit
6. File Indian income tax return in the year of sale
7. Get Form 15CB from CA before repatriating proceeds
8. File Form 15CA before the bank remittance