TDS Rules for NRI Property Sale in India – What Every Seller Must Know

 

Selling property in India as a Non-Resident Indian (NRI) involves more than just finding a buyer. One of the biggest financial aspects to manage is TDS (Tax Deducted at Source). While Indian residents also face TDS, the rules are different—and stricter—for NRIs. In this blog, we’ll break down the essentials of TDS deduction for NRI on sale of property, and how you can navigate it efficiently.

What Is TDS and Why Is It Important for NRIs?

TDS is a mechanism used by the Indian government to collect tax at the source of income. When an NRI sells a property in India, the buyer is obligated to deduct tax before making the payment to the seller. tds deduction for nri on sale of property system ensures that taxes are collected upfront and reported properly.

TDS Deduction Rates for NRIs

The rate of TDS depends on how long the NRI has owned the property:

✅ Short-Term Capital Gains (STCG)

• Applicable if property is held for less than 24 months

• TDS is deducted as per the individual tax slab of the NRI seller (could be 10%, 20%, 30% + surcharge and cess)

✅ Long-Term Capital Gains (LTCG)

• Applicable if property is held for more than 24 months

• TDS is deducted at a flat rate of 20% (plus surcharge and cess)

• Indexation benefit is applicable when calculating tax liability

Buyer’s Responsibility Under TDS Law

In NRI property transactions, the buyer must:

• Deduct TDS at the correct rate

• Deposit the tax with the government using Form 26QB

• File the required challan and generate Form 16B as proof of deduction

• Obtain the NRI seller’s PAN and residential status

Failure to comply can result in penalties and interest under the Income Tax Act.

Misconception: TDS Is Only on Gains

One major misconception is that TDS is deducted only on the capital gain. In reality:

🔴 TDS is deducted on the full sale consideration, not just the profit earned.

This can result in a large upfront deduction, even when the actual taxable gain is small. However, there's a solution.

Section 197 – Apply for Lower/Nil TDS Certificate

NRIs can legally reduce TDS by applying for a Lower or Nil Deduction Certificate under Section 197.

Here’s how:

1. Apply online via the TRACES portal using Form 13

2. Provide documents like purchase deed, improvement expenses, and expected sale value

3. Income Tax Department assesses and issues a certificate, if eligible

4. Submit this certificate to the buyer for reduced TDS deduction

This proactive step can significantly reduce the burden of excess deduction and improve cash flow.

Claiming Refund of Excess TDS

If you did not obtain a lower TDS certificate and too much tax was deducted, don’t worry. You can still claim a refund by filing your Income Tax Return (ITR) in India.

Example:

• Sale amount: ₹90 lakhs

• Actual LTCG: ₹10 lakhs

• TDS deducted: ₹18 lakhs

• Tax liability (after exemptions): ₹1.5 lakhs

• Refund claim: ₹16.5 lakhs

Refunds are processed only after assessment, so filing your return early is recommended.

Tax Exemptions Available to NRIs

You can reduce or eliminate capital gains tax through exemptions:

• Section 54 – Reinvestment in a new residential property in India

• Section 54EC – Investment in government-specified bonds (like NHAI/REC) within 6 months

• Section 54F – Reinvest full sale proceeds into residential property (if original asset wasn’t residential)

These exemptions lower your net tax liability and therefore your TDS, if planned properly.

Important Documents for NRI Sellers

To comply with TDS and repatriate funds abroad, keep the following documents ready:

• PAN card

• Passport and OCI/PIO card (if applicable)

• Original purchase and sale deeds

• Capital gain working

• Form 13 (if applying for lower TDS)

• Form 15CA/15CB (for repatriation)

Banks and tax authorities may request these during processing.

Repatriation of Sale Proceeds and TDS Compliance

Once the sale is complete and taxes are paid, NRIs can repatriate funds up to USD 1 million per financial year from their NRO account, subject to:

• Proof of TDS payment

• Chartered Accountant's certificate (Form 15CB)

• Filing of Form 15CA (self-declaration)

• FEMA compliance

Proper documentation is essential to avoid delays or blockage of funds.

Final Thoughts: TDS Planning is Crucial for NRIs

TDS on property sale can impact your financial outcome significantly. Without proper planning, NRIs often end up with large deductions, delayed refunds, or compliance issues. Applying for a lower TDS certificate, understanding exemptions, and seeking expert help can save you time and money.

If you're planning to sell property in India, consider consulting Dinesh Aarjav & Associates, experts in NRI taxation and property compliance, to handle your TDS process smoothly and ensure maximum tax efficiency.