When purchasing immovable property from a Non-Resident Indian (NRI), the buyer is required to deduct Tax Deducted at Source (TDS) under Section 195 of the Income Tax Act, 1961. Below is a detailed breakdown of the process:
1. TDS Rates for Property Purchased from an NRI
The applicable TDS rate depends on whether the capital gain from the sale is long-term or short-term:
| Type of Capital Gain | Holding Period | TDS Rate |
| Long-Term Capital Gains (LTCG) | Property held for more than 2 years and sold before 23.07.2024 | 20% + Surcharge + Cess |
| Long-Term Capital Gains (LTCG) | Property held for more than 2 years and sold after 23.07.2024 | 12.5%+ Surcharge+ Cess |
| Short-Term Capital Gains (STCG) | Property held for 2 years or less | As per NRI’s income tax slab |
Surcharge & Cess for Long-Term Capital Gains (LTCG)
| Particular | Property Sale Price (Rs.) | |||
| Less than 50 Lakhs | 50 Lakhs to 1 Crore | Above 1 Crore | ||
| Long-Term Capital Gains Tax | 20% or 12.5% | 20% or 12.5% | 20% or 12.5% | |
| (Add) | Surcharge | Nil | 10% of above | 15% of above |
| Total Tax (incl Surcharge) | 20% or 12.5% | 22% or 13.75% | 23% or 14.375% | |
| (Add) | Health & Ed. Cess | 4% of Above | 4% of Above | 4% of Above |
| Applicable TDS Rate (incl. Surcharge & Cess) | 20.8% | 22.88% or 14.30% | 23.92% or 14.95% | |
2. Responsibilities of the Buyer
✅ When purchasing property from an NRI, the buyer must:
Deduct TDS at the applicable rate on the entire sale consideration (not just the capital gain).
✅ Deposit the TDS amount to the Income Tax Department using Form 281 (not Form 26QB, which applies only to resident sellers).
✅ File the TDS return (Form 27Q) on a quarterly basis.
✅ Issue Form 16A to the NRI seller as proof of TDS deduction.
3. How NRI Seller Can Apply for Lower TDS Deduction
If the actual capital gain is lower than the total sale value, the NRI seller can apply for a Lower TDS Certificate (under Section 197) by:
- Submitting Form 13 on the Income Tax Department’s website.
- If approved, the department will issue a certificate specifying a reduced TDS rate, which the buyer must apply while deducting TDS.
4. Due Dates for TDS Payment & Filing
📌 TDS Payment: The deducted TDS must be deposited within 7 days from the end of the month in which TDS was deducted.
📌 TDS Return Filing (Form 27Q): Must be filed quarterly.
5. Tax Exemptions & Savings Options for NRI Sellers
NRIs can reduce or avoid capital gains tax by:
✔ Reinvesting in another residential property under Section 54 (if LTCG applies).
✔ Investing in Capital Gains Bonds under Section 54EC (maximum investment: ₹50 lakh).
Key Takeaways
✅ The buyer is responsible for deducting and depositing TDS.
✅ TDS is calculated on the total sale value, not just the profit.
✅ NRI sellers can apply for a lower TDS certificate if the actual capital gain is lower.
✅ Non-compliance can lead to penalties for the buyer.
If the seller is an NRI, then Section 195 applies instead of Section 194IA. Key differences:
- TDS at 20%/ 12.5% (LTCG) or as per slab rate (STCG) applies instead of 1%.
- Surcharge & Cess applicable (total TDS could be up to 23.92%/14.95%).
- Surcharge may be higher with respect to the sale price of the property
- Buyer must obtain a TAN (Tax Deduction Account Number).
- TDS return is filed using Form 27Q (instead of 26QB).
Conclusion
- For Resident Sellers: 1% TDS (Section 194IA) applies if the sale value is ₹50 lakh or more.
- For NRI Sellers: Higher TDS (Section 195) applies, and a TAN is required.
- Buyers must deposit TDS on time and issue Form 16B to the seller.