Are you an NRI planning to sell your property in India? Before you proceed, it’s essential to understand how TDS (Tax Deducted at Source) applies to your transaction. TDS isn’t just a small procedural step—it directly affects how much money you’ll receive and how smoothly the sale process will go.
For NRIs, the Indian Income Tax Act mandates that the buyer of the property must deduct TDS before making payment. This applies regardless of the property’s value and is influenced by whether the gains are short-term or long-term. Failing to comply can lead to penalties, delayed repatriation of funds, or even legal trouble.
In this detailed guide, we explain how TDS is calculated on property sales by NRIs, what documents are needed, how to reduce the TDS burden legally, and the steps both buyers and sellers must follow to stay compliant with Indian tax laws.
How TDS Applies to Property Sales by NRIs
When an NRI sells property in India, the buyer is obligated to deduct TDS before transferring the payment. Here’s a detailed look at how it works:
- For Short-Term Capital Gains (STCG): If the property is sold within 24 months of acquisition, the gains are categorized as STCG. The TDS rate for STCG is 30%, as it aligns with the applicable income tax slab rate for NRIs.
- For Long-Term Capital Gains (LTCG): If the property is held for more than 24 months, the gains are categorized as LTCG. The TDS rate for LTCG is 12.5%, regardless of the tax rate applied.
Who is Responsible for Deducting TDS?
The responsibility for deducting and depositing TDS lies with the buyer of the property. Key steps include:
- Obtaining a TAN (Tax Deduction Account Number): The buyer must acquire a TAN, as it is required to deposit TDS with the Income Tax Department.
- Filing TDS Returns: After deducting TDS, the buyer must file the details through Form 27Q and pay the deducted amount using an e-challan by the 7th day of the following month.
- Issuing Form 16A: Once TDS is filed, the buyer provides Form 16A to the NRI seller, which is crucial for claiming TDS credit during tax filing.
Threshold Limits and Section 195
Under Section 195 of the Income Tax Act, there is no minimum threshold for deducting TDS on payments made to NRIs. Whether the sale amount is large or small, TDS must be deducted if the income is taxable in India.
The table below summarises the effective rate of TDS for different income levels of NRIs in India and the type of capital gains.
effective rate of TDS for different income levels of NRIs in India
Consequences of Non-Compliance
Failing to deduct or deposit TDS can have severe repercussions:
- The buyer becomes liable to pay the TDS amount along with penalties and interest.
- The seller’s ability to repatriate funds to foreign accounts is hindered.
- Legal actions, including prosecution, may be initiated if misrepresentation of residency status or tax evasion is detected.
How NRIs Can Save Taxes While Selling Property
NRIs can reduce their tax liabilities by leveraging exemptions under the Income Tax Act:
- Exemption under Section 54: Reinvest capital gains from the sale of a residential property into another residential property in India within specified timeframes to claim tax exemptions.
- Exemption under Section 54EC: Invest in specified government-backed bonds, such as NHAI or REC bonds, within six months of the sale to defer or reduce capital gains tax.
- Lower TDS Deduction (Form 13): File Form 13 under Section 197 to request a reduced or nil TDS deduction, minimizing upfront tax payments and avoiding long refund wait times.
For more details, refer to Essential Tax Guidance for NRIs Selling Property in India.
Navigating Capital Gains Tax
Understanding capital gains tax is crucial for NRIs selling property in India. Accurately determining whether the gains are short-term or long-term impacts the applicable TDS rate and available exemptions. For long-term capital gains (LTCG), NRIs now have two options: opting for a flat 12.5% tax rate without indexation for properties registered after July 2024, or the traditional 20% tax rate with indexation for properties registered before this date. These choices significantly influence your tax liability. For detailed insights into capital gains tax, read Capital Gains Tax for NRIs Selling Property in India.
Key Takeaways for NRIs Selling Property
- Understand TDS Rates: Be aware of the applicable TDS rates for both short-term and long-term capital gains.
- Obtain Relevant Certificates: Apply for a TAN (buyer) and a lower TDS certificate (seller) to streamline the process.
- Plan for Exemptions: Utilize exemptions under Sections 54 and 54EC to minimize tax liability.
- Comply with Documentation: Ensure all necessary forms, such as Form 16A and Form 27Q, are filed to avoid complications.
How NRI Edge Can Help Navigating the TDS requirements and tax implications of property sales in India can be daunting for NRIs. At NRI Edge, we provide end-to-end assistance, ensuring:
- Accurate tax calculations and compliance.
- Guidance on filing for lower TDS certificates.
- Assistance with documentation and regulatory procedures.
- Tailored advice to maximize financial returns.
Let us handle the complexities so you can focus on your priorities. Contact NRI Edge today for expert support with your property sale.
Conclusion
Selling property in India as an NRI involves navigating various forms of TDS for NRI on sale of property, tax obligations, and compliance requirements. By understanding the applicable rules, leveraging available exemptions, and seeking professional guidance, NRIs can ensure a seamless and financially optimized property sale experience.
Frequently Asked Questions (FAQs)
- What is the TDS rate for NRIs selling property in India in 2025?
If the property is sold within 24 months (short-term capital gains), the TDS rate is 30%. For property held more than 24 months (long-term capital gains), the TDS rate is 12.5% (without indexation) for properties registered after July 2024. For properties registered earlier, NRIs may opt for 20% with indexation. - Can an NRI apply for a lower TDS deduction?
Yes. NRIs can submit Form 13 to the Income Tax Department under Section 197 to request a certificate for lower or nil TDS deduction, reducing the amount blocked as tax upfront. - Who is responsible for deducting TDS when an NRI sells property in India?
The buyer is responsible for deducting TDS and must deposit it with the government using their TAN (Tax Deduction Account Number). The buyer must also issue Form 16A to the NRI seller. - Is TDS applicable even if the property sale value is below ₹50 lakhs?
Yes. For NRIs, TDS is applicable irrespective of the sale value because it falls under Section 195, which doesn’t have a minimum threshold. - How can NRIs claim a refund of excess TDS deducted?
If more TDS is deducted than the actual tax liability, NRIs can claim a refund by filing their income tax return in India for that financial year. The excess amount will be refunded after processing. - What documents are required for TDS compliance when selling property as an NRI?
Key documents include:
- PAN card (both buyer and seller)
- TAN of buyer
- Form 16A (TDS certificate)
- Form 27Q (TDS return)
- Form 13 (for lower deduction, if applicable)
- Sale deed
- Proof of holding period and cost of acquisition
