Selling a property in India as a Non-Resident Indian (NRI) can be a rewarding financial move, but it often brings a wave of confusion regarding tax laws. Many NRIs and Indian buyers assume the process is the same as it is for resident Indians. However, the Indian Income Tax Act, specifically Section 195, sets very different rules for NRI sellers.
At My Startup Solutions, our expertise lies in making complex tax systems more understandable to our clients. NRI investors need to understand Tax Deducted at Source (TDS) rules because they sell flats and plots and bungalows while buyers need this knowledge to purchase from them. You can always reach our expert team for personalized assistance.
When a resident Indian sells a property worth more than Rs. 50 lakhs, the buyer deducts a simple 1% TDS under Section 194-IA. For NRIs, the story changes completely. There is no ₹50 lakh threshold; TDS must be deducted even if the property is sold for Rs. 5 lakhs.
Furthermore, the rate of deduction is significantly higher. This is because the government wants to ensure that the tax on the profit (Capital Gains) is collected before the money leaves the country. While resident TDS is based on the sale price, NRI TDS is technically supposed to be on the "gains," but in practice, buyers often deduct it on the total sale value unless a specific certificate is obtained.
The TDS rate applies to your property ownership duration because it determines your TDS rate. The duration of your property possession will determine whether your profit qualifies as Short-Term Capital Gain or Long-Term Capital Gain.
Taxpayers face higher actual tax payments because their "Effective Tax Rate" exceeds the standard base rate due to mandatory cess and surcharges which can increase their tax obligations to more than 20-23% for long-term gains based on the transaction value.
|
Feature |
Sale by Resident Indian |
Sale by NRI (Non-Resident) |
|
Applicable Section |
Section 194-IA |
Section 195 |
|
Threshold Limit |
Only if Sale Value > ₹50 Lakhs |
No Threshold (Applicable on any value) |
|
TDS Rate (Long Term) |
1% of Total Sale Price |
12.5% or 20% (plus surcharge & cess) |
|
TDS Rate (Short Term) |
1% of Total Sale Price |
30% (plus surcharge & cess) |
|
Tax Calculation Base |
On Total Sale Consideration |
On Total Sale Price (unless LDC is obtained) |
|
Buyer's Requirement |
PAN is sufficient |
TAN (Tax Account Number) is mandatory |
|
TDS Form for Buyer |
Form 26QB |
Form 27Q |
|
Repatriation Forms |
Not Applicable |
Form 15CA & 15CB required to move funds |
The NRI seller will be mainly liable in property deals. The concise list of duties to be carried out by the buyer includes:
The main financial challenge for NRIs arises because TDS deducts taxes based on their entire sale amount instead of their actual profits. The buyer will face a tax deduction on the entire sale price of Rs. 1 crore without proper buyer planning. The buyer will experience a significant tax payment that remains with the government until they complete their tax return process to receive their refund.
To avoid this, NRIs can apply for a Lower Deduction Certificate (LDC) under Section 197 by filing Form 13.
NRIs can legally reduce their tax liability (and thus their TDS) by reinvesting the gains. The most common exemptions include:
By demonstrating the intent to reinvest in the Form 13 application, the NRI can significantly lower the TDS amount the buyer is required to withhold.
The process of transferring funds to your home country starts after you complete the tax payment and finalize the sale. The banks in India mandate that customers submit Form 15CA and 15CB documents. The Form 15CB document serves as a certification from a Chartered Accountant (CA) that demonstrates the taxpayer has fulfilled their tax obligations. The bank will deny you the ability to transfer your sale proceeds from your NRO account until you provide these two forms.
People who live outside their home country face difficulties when they need to complete TAN registration and Form 13 applications and 15CA/CB certifications. The Income Tax Department issues notices for filing errors which result in payment delays to taxpayers.
At My Startup Solutions, we act as your local tax partners in India. We handle the entire process end-to-end:
You can handle the sale of Indian property from abroad without facing any difficulties. The professionals will take care of all technical business needs which allows you to focus on your investment activities.
For any queries regarding TDS on property or to start your application process today, contact Mystartup Solutions at +91-7081220800. The company offers transparent professional advice which enables customers to complete their transactions according to Indian tax regulations.
The TDS rate for an NRI selling property depends on holding period and purchase date. Long-term gains are taxed at 20% with indexation for pre-23 July 2024 purchases or 12.5% without indexation thereafter, while short-term gains are taxed at 30%. Applicable surcharge and 4% health & education cess are added over and above these rates.
Yes. As per current law, the buyer must obtain a Tax Deduction Account Number (TAN) to deduct and deposit TDS under Section 195. However, the government has proposed that from 1 October 2026, buyers may be allowed to use PAN instead of TAN to simplify compliance. Until officially notified, TAN remains mandatory.
No. The 1% TDS rule under Section 194-IA applies only to resident Indian sellers. When the seller is an NRI, Section 195 applies, which requires deduction at capital gains tax rates, not a flat percentage. Deducting only 1% is legally incorrect and can lead to notices and penalties for the buyer.
By default, TDS is deducted on the entire sale consideration, not on profit. To avoid excess deduction, the NRI seller can apply for a Lower Deduction Certificate (Form 13). If approved, the buyer deducts tax only on the actual capital gain, as determined by the Income Tax Officer.
Form 13 is an online application filed by the NRI seller requesting a Lower or Nil TDS certificate. It allows tax deduction based on actual capital gains instead of total sale value, significantly reducing blocked funds and refund delays.
After filing Form 13 on the TRACES portal, processing usually takes 30 to 60 days, depending on documentation quality and assessing officer workload. Early application is strongly advised before finalizing the sale deed.
Yes. Unlike resident property sales, there is no minimum threshold for NRI transactions. Even if the sale value is ₹5 lakhs, TDS under Section 195 must be deducted.
The buyer must file Form 27Q, which is applicable for payments made to non-residents. Form 26QB is not applicable for NRI sellers and should not be used.
If the buyer fails to deduct or deposit TDS, they become an assessee-in-default and may face 1% monthly interest for late deduction, 1.5% interest for late payment, penalties, and full tax recovery even after registration.
If excess TDS is deducted, the NRI must file an Income Tax Return (ITR) in India after the financial year ends. The refund is issued only after processing, which can take several months, making Form 13 extremely important.
Yes, but only for properties purchased before 23 July 2024, where the NRI can opt for 20% tax with indexation. For properties purchased after this date, indexation is removed, and a 12.5% flat rate generally applies.
Key documents include Purchase deed, Proposed sale agreement, PAN of seller and buyer, Buyer’s TAN, Proof of improvement expenses, Past income tax returns. Accurate documentation speeds up approval.
GST is not applicable on resale of ready-to-move-in or old properties. It applies only to under-construction properties sold by builders, not individual NRI resale transactions.
Repatriation requires Form 15CA (online declaration) and Form 15CB (CA certificate). NRIs can repatriate up to USD 1 million per financial year, subject to tax compliance.
Yes. Under Section 54 or 54EC, reinvestment in another property or specified bonds can reduce taxable capital gains. If proof is submitted during Form 13 filing, the assessing officer may issue a Nil or Lower TDS certificate.
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