TDS on Sale of Immovable Property by NRIs: A Complete Guide
Who is Considered an NRI for Income Tax Purposes?
For income-tax purposes, residential status is determined year-wise under Section 6 of the Income-tax Act, 1961. If the seller is a Non-Resident Indian (NRI) or Resident but Not Ordinarily Resident (RNOR) in the year of sale, special TDS provisions apply under Section 195.[1][2]
NRIs are individuals who do not meet the residency criteria, such as staying in India for less than 182 days in the financial year or not satisfying other conditions like 60-day stay rules adjusted for employment abroad. This status triggers higher TDS rates compared to resident sellers, who face only 1% TDS under Section 194-IA if the sale value exceeds ₹50 lakh.[3][9]
Determining Residential Status
- Resident: 182+ days in India in the relevant year OR 60 days in the year + 365 days in preceding 4 years.
- NRI: Fails above tests; RNOR has specific transitional rules.
- Status checked for the year of transfer (sale).[1]
TDS Rates and Applicability on Property Sales by NRIs
When an NRI sells immovable property in India, the buyer must deduct TDS at source under Section 195. Unlike residents (1% on sale value > ₹50 lakh), NRIs face TDS on the entire sale consideration at rates based on capital gains type, plus surcharge and 4% cess.[2][3]
Key changes post-Budget 2024 (effective July 23, 2024): Long-term capital gains (LTCG) tax reduced to 12.5% without indexation (previously 20% with indexation). Short-term capital gains (STCG) remain at slab rates up to 30%.[2][4][8]
TDS Rates Table
- Long-Term Capital Gains (Property held >24 months): 12.5% base (post Jul 23, 2024) or 20% (pre Jul 23, 2024 with indexation); effective up to 14.95% incl. surcharge (15%) + cess (4%).[2][4]
- Short-Term Capital Gains (Held <24 months): 30% base + surcharge (10-15%) + 4% cess; effective up to 35.88%.[1][3][5]
- TDS deducted by buyer on full sale amount unless Lower Deduction Certificate (LDC) obtained.[6]
Example: NRI sells property for ₹1 crore (held >2 years post-2024). TDS ≈ ₹14.95 lakh (12.5% +15% SC +4% cess), even if actual gain tax is lower.[2][5]
Buyer Responsibilities, Calculations, and Ways to Reduce TDS
The buyer (resident or non-resident) is responsible for TDS deduction, obtaining TAN, depositing via Form 26QB within 30 days, and issuing Form 16A to the NRI seller. Non-compliance attracts penalties.[5][6]
NRIs can lower TDS by applying for a Lower/Nil Deduction Certificate (Form 13) under Section 197, proving lower/no capital gains via CA certificate, purchase deed, etc. This allows TDS only on actual gains.[2][3][15]
Sample Calculation with LDC
- Sale: ₹1.8 crore; Purchase: ₹1 crore (indexed cost lower).
- Without LDC: TDS on full ₹1.8 crore @14.95% = ₹26.91 lakh.
- With LDC (gain ₹40 lakh): TDS @12.5% + cess = ~₹5.2 lakh. Savings: ₹21.71 lakh.[2][6]
NRIs must file ITR to claim refund of excess TDS. Reinvest LTCG in residential property (Sec 54) or bonds (Sec 54EC) for exemptions.[6][14]
Key Compliance Tips and Recent Updates
Post-Finance Act 2024, no indexation for property sales after Jul 23, 2024 simplifies but increases tax for some. Always verify holding period from purchase date. Consult a CA for Form 13, ITR filing, and repatriation under FEMA.[4][7][8]
Buyers: Ensure PAN of seller; deposit TDS promptly. NRIs: Plan sales post-2 years for LTCG benefits; apply for LDC early (60-90 days before sale).[3][5]