Understanding TDS on Property Purchase from NRI in India
Understanding TDS on Property Purchase from NRI in India

When buying a property from a Non-Resident Indian (NRI), there are specific tax implications that Indian buyers must understand — the most critical being Tax Deducted at Source (TDS). Unlike transactions between resident Indians, buying property from an NRI requires careful compliance with Indian tax laws under Section 195 of the Income Tax Act, 1961. Failing to follow the right TDS procedures can lead to penalties, interest, and legal issues for the buyer.
What is TDS in Property Transactions?
TDS stands for Tax Deducted at Source. When a buyer pays the seller for a property, a portion of the amount is deducted and deposited with the Income Tax Department on the seller’s behalf. This deduction ensures tax compliance and allows the government to collect revenue upfront.
TDS Rules for Property Purchase from NRI
If you're TDS on property purchase from NRI, the TDS rules are significantly different from those involving resident sellers:
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Applicable Law: Section 195 of the Income Tax Act governs TDS on payments to NRIs.
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TDS Rate: The buyer must deduct TDS at the applicable rate on the entire sale value, not just the capital gains.
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TDS Rate Details:
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20% for long-term capital gains (property held for more than 2 years).
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30% for short-term capital gains (property held for less than 2 years).
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Plus surcharge and cess (typically 4% cess, and surcharge based on income slab).
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Important Note: The TDS can be higher if the property value is large and the NRI’s total income crosses certain thresholds (₹50 lakh/₹1 crore), attracting a surcharge.
Buyer’s Responsibility
Unlike resident-to-resident transactions where the TDS rate is 1% for properties over ₹50 lakh, buying from an NRI involves several added steps:
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PAN of Seller: Ensure the NRI seller has a valid PAN.
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Obtain TAN: The buyer must apply for a Tax Deduction Account Number (TAN) using Form 49B.
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Deduct and Deposit TDS: TDS must be deducted at the time of payment (including advance payments) and deposited with the government within 7 days of the end of the month of deduction.
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TDS Return Filing: The buyer needs to file Form 27Q quarterly to report the TDS deducted.
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Issue TDS Certificate: Provide Form 16A to the seller as proof of TDS deposited.
Lower or Nil TDS Certificate
If the NRI seller’s actual capital gains are lower or if there's a capital loss, they can apply for a lower or nil TDS certificate under Section 197 from the Income Tax Department. This certificate must be submitted to the buyer before the transaction. Without this certificate, the buyer has no option but to deduct tax at the higher applicable rate.
Common Mistakes to Avoid
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Not deducting TDS: This is the most common error. The Income Tax Department may recover the amount from the buyer if the TDS is not deposited.
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Deducting only on capital gains: TDS is on the total sale value unless a lower TDS certificate is presented.
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Incorrect PAN or no TAN: Failing to quote the correct PAN or not obtaining TAN can lead to rejection of TDS returns.
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Late deposit or filing: Attracts interest and penalty under Sections 201 and 271H of the Income Tax Act.
Documentation Checklist
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PAN card of buyer and seller
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TAN of buyer
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Sale agreement
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TDS certificate (Form 16A)
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Proof of TDS payment (Challan 281)
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Form 27Q (TDS return)
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Lower/Nil TDS certificate (if applicable)
Conclusion
Buying property from an NRI requires more than just negotiating the deal. Understanding and fulfilling the TDS obligations is a crucial part of the transaction. Since the compliance burden lies on the buyer, it is wise to consult a tax advisor or professional well-versed in NRI transactions. Proper documentation and timely action can help you avoid legal troubles and financial penalties.
For seamless handling of property transactions involving NRIs and expert TDS assistance, consider reaching out to Dinesh Aarjav & Associates — specialists in NRI taxation and compliance.
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