TDS on Sale of Property by NRIs in India

TDS deduction against capital gains transactions is an NRI specific requirement. The provisions are governed under section 393 of the Income Tax Act 2025. It is treated as short term or long term capital gains based on period of holding. TDS is deducted at 12.5% on long term and 30% on short term capital gains.

Key Highlights

• Capital gains tax is attracted when an NRI sells an immovable property.
• TDS should be deducted on capital gains
  • 12.5% - Long term capital gains
  • 30% - Short term capital gains

• Capital gain exemptions available under section 54 series.

How are Gains from the Sale of Property in India Taxed for NRIs?

Whenever an NRI sells property in India, the profit is taxed as capital gains. The nature of gain depends on the holding period of the property: 

LTCG: When a property is sold after holding it for more than two years from date of purchase, the gains will be treated as LTCG. 

STCG: Where a property is sold within two years from date of purchase - the gains will be treated as STCG.

Tax Rates for NRIs on Property Sale

The following table explains the long term and short term capital gain tax rates for NRIs.

TDS on Sale of Property by NRI

When an NRI sells property in India, the buyer is responsible for deducting TDS before making payment.

• If property sold within 2 years (STCG): TDS at 30% on the sale consideration.
• If property is sold after 2 years (LTCG): TDS at 20% (plus surcharge and cess).

Unlike resident sellers (where TDS is only 1% under Section 194-IA), TDS on sale of property by NRI is much higher because it is deducted on the capital gains tax liability. It is noteworthy that TDS need to be deducted along with the applicable surcharge and cess.

How to Deduct TDS on Property Purchase from NRI?

• The property buyer is responsible for deducting the TDS amount from the sale proceeds while transferring the sale proceeds to the NRI seller. 
• They should obtain a TAN (Tax Deduction Account Number) in his/her name to deduct TDS. If two or more persons purchase the property jointly and invest money from their own sources or through joint loans, all the persons must obtain TAN. 
• Theymust deduct TDS once the TAN is obtained on every occasion of making payment to the NRI seller. 
• They must deposit the deducted TDS amount with the Income Tax Department through e-challan by the 7th day of the next month, on which the payment was made to the seller. 
• They should file the TDS return in the next quarter of depositing the TDS amount. After the TDS return is filed, the buyer can download Form 16A and provide it to the NRI seller.

Lower or NIL TDS Certificate for NRI

The buyer has to deduct TDS before transferring the sale proceeds to the NRI seller at the specified rate. However, the NRI seller can obtain the NIL/lower deduction certificate from the Income Tax Department. If a certificate is granted by the department, the buyer will deduct the TDS at the lower rate prescribed in the NIL/lower deduction certificate.

However, the seller must obtain the NIL/lower deduction certificate before executing the property sale agreement. If not, the seller can claim a refund on the TDS deducted at the time of filing ITR.

Consequences of Not Deducting TDS Properly 

Sometimes, the buyer may deduct the TDS at the rate applicable to residents instead of NRI or may not deduct TDS for some reason. In such cases, the buyer will have to face adverse consequences. The buyer is legally responsible for deducting and depositing the TDS as per the prescribed TDS rate for the NRI seller or the prescribed rate in the NIL/lower deduction certificate issued by the Income Tax Department. 

When the buyer does not deduct the TDS as per the prescribed rates, he/she is liable for a penalty equal to the amount of TDS not deducted. The buyer is also liable to pay interest on the amount of default. Plus, when TDS is not deducted correctly, the seller cannot repatriate the sale consideration amount or sale proceeds received to his/her foreign bank account/NRE account.

Repatriation of Sale Proceeds by NRI

The NRI seller must submit Form 15CA and 15CB to repatriate the sale proceeds of a property with the authorised dealer bank. The Form 15CB must be signed and submitted by a Chartered Accountant. An NRI seller can repatriate up to USD 1 million in a year outside India.

How to Save Tax on Capital Gains?

NRIs can also claim exemptions under Section 54 and Section 54EC on long-term capital gains from the sale of house property in India.

The deposit in the CGAS scheme needs to be made before the due date of filing the returns, or the date of filing the return, whichever is earlier.