The sale of property in India by a Non-Resident Indian (NRI) is more than just a real estate deal — it’s a transaction tightly bound with Indian tax laws, especially concerning Tax Deducted at Source (TDS). Many NRIs are surprised to learn that the TDS rate applicable to them is significantly higher than that for resident Indians, and this can create confusion, financial strain, or even legal trouble if not handled correctly.

This article unpacks the TDS obligations for nri sale of property tds, and how to manage them efficiently.

Why Is TDS Deducted on NRI Property Sales?

The Indian Income Tax Act mandates that when any payment is made to a Non-Resident, tax must be deducted at source to ensure proper tax collection. This rule applies when an NRI sells a property in India — the buyer must deduct TDS and deposit it with the Income Tax Department before transferring the funds to the seller.

The purpose of this provision is to curb tax evasion and ensure that the government gets its due tax before the money leaves the country.

TDS Rates for NRI Property Transactions

TDS depends on how long the property has been held by the NRI:

1. Short-Term Capital Gains (STCG)

• If property is sold within 2 years of purchase

• TDS Rate: As per the NRI’s applicable income tax slab

• Effective rate: 30% or higher

2. Long-Term Capital Gains (LTCG)

• If held for more than 2 years

• TDS Rate: 20% + surcharge + cess

• Effective rate: Approximately 23.92% for transactions over ₹1 crore

These are gross rates and do not account for deductions like indexation or exemptions under sections like 54 or 54EC, which an NRI can later claim while filing the income tax return.

Role of the Buyer

The onus of deducting and depositing TDS lies with the buyer of the property. If the buyer fails to deduct TDS or deducts at the wrong rate, they may be held liable for the tax amount, penalties, and interest.

Buyer’s Responsibilities:

• Obtain a TAN (Tax Deduction Account Number)

• Deduct TDS from the entire sale value, not just the capital gain

• Deposit TDS using Form 26QB

• Issue Form 16A (TDS certificate) to the seller

• File TDS returns as required

Example Scenario

An NRI sells a residential apartment in Mumbai for ₹90 lakhs. The property was held for 5 years. In this case:

• The buyer must deduct 20% + cess on the full ₹90 lakhs

• Approximate TDS: ₹18–19 lakhs

• The NRI will receive the balance and can later file ITR to compute actual tax and claim refund if excess TDS was deducted

How to Reduce TDS Burden? Use Lower TDS Certificate

If the actual capital gains are significantly lower than the sale amount, NRIs can avoid high TDS by applying for a Lower/Nil TDS Certificate from the Income Tax Department.

Procedure:

• File Form 13 online on the TRACES portal

• Submit documents like purchase deed, sale agreement, cost of improvements, and PAN

• Upon verification, the Assessing Officer may issue a certificate specifying a reduced TDS rate

The buyer must use this certificate at the time of making the deduction.

Can the NRI Get a Refund of TDS?

Absolutely. If the TDS deducted exceeds the actual tax payable, NRIs can claim a refund by filing their Indian Income Tax Return for the relevant financial year.

For example, if your actual long-term capital gain is only ₹10 lakhs, and TDS of ₹20 lakhs was deducted, you can claim a refund of the excess ₹10 lakhs by filing your ITR and submitting all supporting documents.

Essential Documents for TDS Compliance

For NRIs:

• PAN Card

• Passport and address proof

• Purchase and sale deeds

• Cost of improvement/renovation bills

• Details of exemptions claimed under Sections 54, 54EC, etc.

For Buyers:

• TAN and PAN

• Form 26QB filing acknowledgment

• TDS deposit challan

• TDS certificate (Form 16A) issued to seller

Conclusion

Selling property in India as an NRI involves navigating a complex but manageable TDS framework. Understanding the applicable tax rates, ensuring compliance by the buyer, and applying for a lower TDS certificate where applicable can save a substantial amount of money and avoid legal troubles. Always consult a tax expert to plan the sale and ensure that your documentation and filings are error-free.

Dinesh Aarjav & Associates offers specialized assistance for NRI property sales, TDS compliance, and capital gains planning to ensure your transaction is smooth, legal, and tax-efficient.