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When a property is purchased from a Non-Resident Indian (NRI), the buyer must deduct TDS under Section 195 before making payment.
TDS is deducted on the capital gains, not the total sale value, if a lower deduction certificate is obtained. Otherwise, it may be deducted on the full sale amount.
You can refer to the complete section mapping of Income Tax Act 1961 vs Income Tax Act 2025 here.
NRIs who are selling property that is situated in India have to pay tax on the capital gains. The capital gain tax is divided in two based on the gains, if they are short term capital gain or long term capital gain.
When dealing with inherited property, it is essential to take into account the original owner's purchase date to determine whether the capital gain is classified as long-term or short-term. In this scenario, the cost of the property should be assessed based on the expenses incurred by the previous owner. This consideration ensures a more accurate calculation of capital gains and aligns with the specific circumstances associated with inherited properties.
The tax rates applicable to NRI capital gains on the sale of property are as follows:
The buyer of the property is responsible for deducting TDS and depositing it with the government.
The responsibility of deducting the Tax Deducted at Source (TDS) amount from the sale proceeds and transferring it to the Non-Resident Indian (NRI) seller lies with the property buyer. After deducting the TDS, the buyer is required to file deduction and payment details in Form 27Q.
To facilitate this process, the buyer is required to apply for and obtain a Tax Deduction Account Number (TAN) in their name. In cases where two or more individuals jointly purchase the property, investing funds from their personal sources or through joint loans, each person involved must acquire a TAN.
Once the TAN is secured, the buyer is obligated to deduct the TDS amount during each transaction of transferring payment to the NRI seller. The deducted TDS amount must then be deposited with the Income Tax Department through an e-challan by the 7th day of the subsequent month in which the payment was made to the seller.
To fulfill their regulatory obligations, the buyer must file the TDS return in the following quarter after depositing the TDS amount. Upon successful filing of the TDS return, the buyer can obtain Form 16A, which is then provided to the NRI seller.
By adhering to these procedures, both the buyer and the NRI seller ensure compliance with tax regulations, fostering a transparent and legal property transaction process.
Budget 2026 Update: For NRIs selling property in India, TDS will now be deposited using the buyer’s PAN instead of TAN, simplifying compliance.
An NRI selling property in India must submit Form 15CA and Form 15CB to the authorized dealer bank for repatriating the sale proceeds. While Form 15CB requires certification from a Chartered Accountant, the seller can repatriate up to USD 1 million per financial year outside India.
NRI who sells a house in India is required to pay capital gain tax. TDS (Tax Deducted at Source) on the sale of property by NRI in India is a mechanism implemented by the Indian tax authorities to collect taxes at the time of property transfer. The buyer of the property is responsible for deducting TDS from the sale proceeds and depositing it with the income tax department within the time prescribed. After deducting the TDS, the buyer is required to file deduction and payment details in Form 27Q. The amount of TDS to be deducted depends on the residential status of the seller.
As an NRI, if you sell a property in India, the buyer deducts 20% as Tax Deducted at Source (TDS) as Long Term Capital Gains Tax for properties sold after two years. For properties sold before 2 years, the TDS rate is 30%, deducted as Short Term Capital Gains Tax.
| Nature of Capital Gains | Description | TDS Rate on Sale of Property by NRI |
|---|---|---|
| Long Term Capital Gains | Property held for more than 2 years | 12.5% (without indexation), 20% (with indexation) |
| Short Term Capital Gains | Property held for less than 2 years | Income Tax Slab Rates of Seller |
Under Section 194IA of the Income Tax Act, the TDS rate on the sale of immovable property is 1% of the total transaction value, provided the seller furnishes their Permanent Account Number (PAN). It is the buyer's responsibility to deduct this TDS, not the seller's.
If the seller fails to provide their PAN, the TDS rate increases sharply to 20%, emphasizing the importance of quoting the PAN during the transaction. Also, if the property is sold within 24 months, a 30% TDS is deducted, and if it is sold after 24 months, a 20% TDS is deducted. This rate applies without including additional charges such as surcharge or cess, making it a straightforward deduction from the transaction value. The TDS must be deducted at the time of payment to the seller.
| Particulars | LTCG | ||
|---|---|---|---|
| Total income is less than ₹50 lakh | Total income is between ₹50 lakh and ₹1 crore | Total income is more than ₹1 crore | |
| Capital gain tax | 12.5% | 12.5% | 12.5% |
| Add: Surcharge | Nil | 10% of the above tax | 15% of the above tax |
| Total tax rate | 12.5% | 13.75% | 14.375% |
| Add: Health and Education cess | 4% of the total tax rate | 4% of the total tax rate | 4% of the total tax rate |
| Effective TDS rate | 13% | 14.3% | 14.95% |
| Particulars | STCG | ||
|---|---|---|---|
| Total income is less than ₹50 lakh | Total income is between ₹50 lakh and ₹1 crore | Total income is more than ₹1 crore | |
| Capital gain tax | 30% | 30% | 30% |
| Add: Surcharge | Nil | 10% of the above tax | 15% of the above tax |
| Total tax rate | 30% | 33% | 34.5% |
| Add: Health and Education cess | 4% of the total tax rate | 4% of the total tax rate | 4% of the total tax rate |
| Effective TDS rate | 31.2% | 34.32% | 35.88% |
TDS on Sale of Property by NRI – Key Points
| Particulars | Resident Seller | NRI Seller |
|---|---|---|
| TDS Rate | 1% of Sale Value (if > ₹50L) | 12.5%+ Surcharge + Cess on Capital Gains |
| On what amount? | Full Sale Consideration | Capital Gains, not total sale value (with valid certificate) |
| Section | 194-IA | 195 |
| Type of Capital Gain | Holding Period | Base TDS Rate | Effective TDS Rate (with surcharge & cess) |
|---|---|---|---|
| Short-Term Capital Gain | < 2 years | As per income slab | Up to 30% + surcharge + 4% cess |
| Long-Term Capital Gain | ≥ 2 years | 12.5% | ~Upto 14.95% (with surcharge + cess) |
Note: LTCG is eligible for the indexation benefit.
Example:
Buyer must deduct ₹11,96,000 as TDS and deposit with the Income Tax Department under Section 195.
NRI can save taxes as per income tax rules for NRI while selling a property under Section 54 , Section 54EC, and Section 54F.
This section provides an exemption from long-term capital gains tax on the sale of a residential property of the NRI if the proceeds are reinvested in another residential property. The key points to note are:
This section allows an exemption from long-term capital gains tax if the gains are invested in specified bonds. The key points to note here are
Section 54F provides an exemption from long-term capital gains tax on the sale of any asset other than a residential property if the proceeds are invested in a residential property. Here are the key points to note:
Note:- The NRI seller must submit Form 15CA and 15CB to repatriate the sale proceeds of a property. The form should be signed and submitted by a chartered accountant.
Signing a DTAA agreement has many benefits both for the country and the taxpayer. Here are a few advantages of signing a DTAA -
In situations where the buyer fails to adhere to the prescribed TDS (Tax Deducted at Source) rates applicable to Non-Resident Indians (NRIs) or neglects to deduct TDS for any reason, they expose themselves to significant legal consequences. It is crucial for buyers to recognize their legal responsibility in deducting and depositing TDS according to the specified rates for NRI sellers or as per the rates mentioned in the NIL/lower deduction certificate issued by the Income Tax Department.
When a buyer neglects to deduct TDS at the designated rates, they become liable for penalties equal to the TDS amount not deducted. Moreover, interest accrues on the defaulted sum. Non-deduction of TDS also impedes the seller's ability to repatriate the sale proceeds to their foreign bank account or NRE (Non-Resident External) account. Additionally, if the transaction comes under the scrutiny of the Income Tax Department and it is revealed that TDS was not deducted appropriately, the seller may face prosecution for misrepresenting their tax residency status.
Therefore, Buyers must ensure the seller's tax residency status before proceeding with a property transaction. If the seller is a non-resident, TDS must be deducted at the prescribed rates on each payment made to the seller. However, if the seller provides a Nil/Lower Deduction Certificate, the TDS should be deducted at the rate specified in the certificate.
The property buyer must deduct TDS from the sale proceeds before transferring the payment to the NRI seller. To do this, the buyer must obtain a TAN (Tax Deduction Account Number) in their own name. If two or more buyers purchase the property jointly and contribute funds individually or through a joint loan, each buyer must obtain a TAN. Once the TAN is issued, the buyer must deduct TDS every time a payment is made to the NRI seller.
The buyer must deposit the deducted TDS with the Income Tax Department using an e-challan on or before the 7th day of the following month in which the payment was made. After depositing TDS, the buyer must file the TDS return in the next quarter. Once the TDS return is filed, the buyer can download Form 16A and provide it to the NRI seller as proof of deduction.
Yes. Obtaining a PAN (Permanent Account Number) is mandatory for NRIs who sell property in India for the purpose of TDS (Tax Deducted at Source) on the sale of the property.
When NRI sells the property, the buyer is liable to deduct TDS @12.5%. TDS must be deducted when making a payment to NRI.
The NRI can reduce TDS by filing an application for a Lower Deduction if there is no Capital gain or if capital gain is lower than TDS to be deducted with the Income Tax Officer. Various documents are required to be filed along with the application in Form 13.
No NRI does not need Aadhaar to sell the property.
The rate for the sale of the property is LTCG, which is 12.5%, and STCG is 30% plus surcharge (if applicable) & cess.
The buyer of the property from an NRI seller is responsible for deducting TDS (Tax Deducted at Source).
Filing an ITR is necessary for NRIs for the year in which the property was sold if the total income (including the capital gains from the property sale) exceeds the basic exemption limit as per the applicable income tax slab rates. Also, to claim any eligible deductions or exemptions and to comply with the tax laws of India.
A tax expert can provide accurate guidance on the tax implications, ensuring compliance with Indian tax laws, and maximizing tax benefits such as exemptions or deductions. Connect with our Tax Experts
