TDS Provisions on Sale of Property by Non-Resident (NRI) in India
Applicability of TDS
When an NRI sells immovable property (land, building, flat, etc.) in India, the buyer is required to deduct Tax Deducted at Source (TDS) under Section 195 of the Income Tax Act, 1961. TDS must be deducted on the entire sale consideration, not just on the capital gains. There is no minimum threshold for TDS deduction in such transactions - TDS applies regardless of the sale value.
TDS Rates (as of 2024-2025)
Base Tax Rate: 20% (for sales before July 23, 2024, with indexation) or 12.5% (for sales on or after July 23, 2024, without indexation)
| Sale Value | Base LTCG Tax | Surcharge | Total Tax (Tax + Surcharge) | Health & Education Cess (4%) | Effective TDS Rate |
|---|---|---|---|---|---|
| Up to ₹50 lakh | 20% / 12.5% | Nil | 20% / 12.5% | 0.8% / 0.5% | 20.8% / 13.0% |
| ₹50 lakh – ₹1 crore | 20% / 12.5% | 10% | 22% / 13.75% | 0.88% / 0.55% | 22.88% / 14.3% |
| Above ₹1 crore | 20% / 12.5% | 15% | 23% / 14.375% | 0.92% / 0.575% | 23.92% / 14.95% |
For LTCG, the holding period is more than 2 years. For STCG, it is 2 years or less. Surcharge and health & education cess are applicable over and above the base TDS rate.
Key Compliance Points
Buyer's Responsibility: The buyer must deduct TDS at the time of making each payment to the NRI seller and deposit it with the Income Tax Department. TDS on Sale Value: Unless a lower/nil TDS certificate is obtained, TDS is deducted on the entire sale value, not just on the capital gain portion. Form 27Q: The buyer must file TDS details in Form 27Q after deduction. Form 16A: The seller should collect Form 16A (TDS certificate) from the buyer as proof of TDS deduction.
Lower/Nil TDS Certificate
The NRI seller can apply for a lower or nil TDS deduction certificate from the Income Tax Department by submitting Form 13, supported by documents showing actual capital gains (purchase price, improvement costs, etc.) If granted, the buyer will deduct TDS at the rate specified in the certificate, potentially reducing the amount blocked as TDS.
Repatriation of Sale Proceeds
To repatriate sale proceeds outside India, the NRI must submit Form 15CA and Form 15CB (CA certificate) to the authorized dealer bank. The maximum repatriation allowed is USD 1 million per financial year.
Other Important Points
Section 194-IA (TDS @ 1%) applies only to sales by resident Indians, not NRIs. The residential status of the seller is crucial for determining TDS applicability; citizenship or type of bank account is irrelevant. If TDS is not deducted as per rules, the NRI may face difficulties in repatriating funds and potential prosecution for misrepresentation.
Summary Table
| Scenario | TDS Rate (after 23 July 2024) | TDS Rate (before 23 July 2024) | Deducted On |
|---|---|---|---|
| LTCG (held > 2 years) | 12.5% (without indexation) | 20% (with indexation) | Sale Consideration |
| STCG (held ≤ 2 years) | 30% (plus surcharge & cess) | 30% (plus surcharge & cess) | Sale Consideration |
| Sale by Resident Indian | 1% (Section 194-IA) | 1% (Section 194-IA) | Sale Consideration |
Practical Steps for Buyers and Sellers
Buyer: Verify seller's NRI status, deduct TDS at applicable rate, deposit with IT Department, and issue Form 16A. Seller (NRI): Consider applying for lower/nil TDS certificate if capital gains are lower than sale value, ensure all documents are in order for repatriation, and collect TDS certificate from buyer.
These provisions ensure tax compliance and facilitate smooth property transactions involving NRIs in India.
Tax laws and thresholds change frequently. This article reflects the rules in force when it was written - please confirm current provisions before relying on it, or get in touch for up-to-date advice.