Understanding TDS on Property Sale: A Comprehensive Guide Including NRI Sellers
Understanding TDS on Property Sale: A Comprehensive Guide Including NRI Sellers
Tax Deducted at Source (TDS) on property sales is an important tax compliance requirement that affects both buyers and sellers in India. Under Section 194IA for resident sellers and Section 195 for NRI sellers, these provisions ensure transparency and bring high-value property transactions into the tax net. Whether you are buying or selling residential, commercial, or other immovable property, understanding TDS obligations is critical for smooth transactions and avoiding penalties.
What is TDS on Property Sales?
TDS mechanisms in India operate through two primary sections:
Section 194IA applies to property sales by resident Indian sellers, where TDS is deducted at 1% of the sale consideration.
Section 195 applies to property sales by Non-Resident Indians (NRIs), where TDS is deducted on capital gains at higher progressive rates.
The primary objective is to ensure proper tax collection, enhance transparency in property transactions, and reduce the instances of underreporting in the real estate sector.
When Does TDS Apply to Resident Sellers?
TDS under Section 194IA becomes applicable when specific conditions are met:
The sale consideration (or stamp duty valuation, whichever is higher) exceeds Rs. 50 lakhs. From April 1, 2025, the TDS threshold is triggered if either the sale consideration or the stamp duty value surpasses Rs. 50 lakh, providing greater protection against underreporting of property values.
The property is not rural agricultural land. Agricultural properties used solely for agricultural purposes are exempt from TDS provisions.
The transaction involves a resident seller. Different rules apply entirely for NRI sellers.
TDS Rates for Resident Sellers
The standard TDS rate for resident sellers is 1% of the sale consideration or stamp duty value, whichever is higher. However, important exceptions exist:
Without PAN or Aadhaar-linked PAN: The TDS rate increases to 20% if the seller does not provide their PAN or if the PAN is not Aadhaar-linked.
Calculation Method: TDS is deducted on the entire sale consideration, not merely on the amount exceeding Rs. 50 lakhs. For example, if a property is sold for Rs. 70 lakh, TDS of 1% is calculated on the full Rs. 70 lakh (Rs. 70,000).
TDS on Property Sale by NRI Sellers: A Detailed Analysis
Understanding NRI TDS Requirements
When an NRI (Non-Resident Indian) sells property in India, the buyer must deduct TDS before making payment to the seller. Unlike the straightforward 1% TDS for resident sellers, NRI TDS is significantly more complex because it is calculated on capital gains, not the entire sale value.
Critical Difference: For NRI sellers, TDS is deducted on the profit earned (capital gains), not on the full sale price. This is fundamentally different from resident seller transactions where TDS applies to the entire consideration amount.
NRI TDS Rates Based on Holding Period
The TDS rate for NRI sellers depends on how long the property was held before sale:
| Type of Capital Gain | Holding Period | Base TDS Rate | Effective TDS Rate (with surcharge & cess) |
| Long-Term Capital Gain (LTCG) | More than 2 years | 12.5% (new) or 20% (if purchased before 23 July 2024 with indexation) | ~13.9% to 23.92% depending on income and indexation choice |
| Short-Term Capital Gain (STCG) | Less than 2 years | 30% | ~30% to 33% (with surcharge & cess) |
Budget 2025 Update: From April 1, 2025, the long-term capital gains tax rate for NRIs was reduced to 12.5% (without indexation benefit), a significant change from the previous 20% rate with indexation.
NRI TDS Calculation: Practical Examples
Example 1: Long-Term Capital Gain (Property held > 2 years)
An NRI sells a residential property in India for Rs. 1.5 crore. The purchase price (indexed cost) was Rs. 70 lakh. The property was held for 3 years.
- Capital Gain = Rs. 1.5 crore – Rs. 70 lakh = Rs. 80 lakh
- TDS Rate on LTCG = 12.5% + 15% Surcharge (for income > Rs. 50 lakh) + 4% Health & Education Cess
- Total Effective TDS Rate = ~13.92%
- TDS Amount = Rs. 80 lakh × 13.92% = Rs. 11.14 lakh
The buyer must deduct and deposit Rs. 11.14 lakh with the Income Tax Department, not 1% of Rs. 1.5 crore.
Example 2: Short-Term Capital Gain (Property held < 2 years)
An NRI sells a property for Rs. 1 crore that was purchased for Rs. 80 lakh one year ago.
- Capital Gain = Rs. 1 crore – Rs. 80 lakh = Rs. 20 lakh
- TDS Rate on STCG = 30% + Surcharge (based on income) + 4% Cess
- Total Effective TDS Rate = ~33% to 35%
- TDS Amount = Rs. 20 lakh × 33% = Rs. 6.6 lakh (approximately)
This demonstrates why STCG incurs significantly higher TDS than LTCG.
No Threshold for NRI TDS
Unlike resident sellers, there is no minimum property value threshold for NRI TDS. TDS is deducted irrespective of the transaction value. Even if an NRI sells a property valued at Rs. 20 lakh, TDS must still be deducted on the capital gains.
Who Deducts TDS for NRI Sellers?
The buyer remains responsible for deducting and depositing TDS when purchasing from an NRI seller. The buyer must:
Obtain a TAN (Tax Deduction Account Number) before deducting TDS. If multiple buyers jointly purchase the property, each buyer must obtain an individual TAN.
Verify the NRI seller’s tax residency status and obtain their PAN before executing the property sale agreement.
Deduct TDS at the applicable rate before making payment to the NRI seller.
Deposit the deducted TDS with the Income Tax Department using an e-challan by the 7th day of the following month in which payment was made.
File Form 27Q (TDS return) in the next quarter after depositing TDS.
Issue Form 16A (TDS Certificate) to the NRI seller after filing the TDS return.
Reducing TDS for NRI Sellers: The Lower Deduction Certificate
One critical advantage for NRI sellers is the ability to obtain a NIL or Lower Deduction Certificate from the Income Tax Department if the TDS to be deducted exceeds their actual tax liability.
Scenarios where this applies:
An NRI may have legitimate deductions (such as capital gains exemptions under Section 54) that reduce their taxable income below the TDS amount.
The NRI may have other income losses that offset capital gains.
The NRI has already paid estimated taxes through other means.
Process:
The NRI seller must apply to the Assessing Officer in Form 13 before the property sale agreement is executed.
The Income Tax Department evaluates the application and may issue a Lower or Nil Deduction Certificate.
The buyer then deducts TDS at the rate specified in the certificate instead of the standard rate.
Example: If an NRI’s total tax liability is Rs. 8.5 lakh but the standard TDS would be Rs. 15 lakh (on Rs. 1 crore sale), the Income Tax Department may issue a certificate allowing the buyer to deduct only Rs. 8.5 lakh.
Capital Gains Tax Exemptions for NRI Sellers
NRI sellers may claim exemptions on capital gains under the Section 54 series, which can significantly reduce their tax liability and TDS burden:
Section 54 Exemption (Reinvestment in House Property):
Applicable for long-term capital gains only.
The NRI must purchase or construct a new residential property in India within one year before or two years after the date of sale, or construct it within three years from the sale date.
The new property must be situated exclusively in India; foreign properties do not qualify.
The exemption is available for only one residential property during the five-year period.
Investment amount must match or exceed the capital gains to claim full exemption.
If the new property is sold within 3 years of purchase, the exemption is reversed.
Section 54EC Exemption:
Applicable to long-term capital gains.
The NRI must invest the capital gains in specific government securities or bonds as prescribed.
This provides alternative investment flexibility for NRIs.
Section 54F Exemption:
Applicable to long-term capital gains from sale of any long-term capital asset (not limited to house property).
The NRI can invest in residential property to claim exemption.
More flexible than Section 54 but comes with specific conditions.
Challenges and Compliance Issues for NRI Sellers
Repatriation of Funds:
If the buyer fails to deduct TDS correctly, the NRI seller may face difficulties repatriating sale proceeds to their foreign bank account or NRE (Non-Resident External) account. Banks require TDS certificates as proof of tax compliance before processing international transfers.
Income Tax Department Scrutiny:
Improper TDS deduction can trigger Income Tax Department investigations and may result in prosecution for the NRI seller for misrepresenting their tax residency status.
Buyer’s Liability:
Buyers who fail to deduct or deposit TDS face penalties equal to the TDS amount not deducted, plus interest charges and potential legal action.
Filing Process for NRI Property Sales
- Obtain NRI Details: Secure the NRI seller’s PAN, passport details, and bank account information.
- Calculate Capital Gains: Determine the actual capital gain by subtracting the indexed cost of acquisition from the sale price.
- Obtain TAN: Buyer acquires a Tax Deduction Account Number.
- Deduct TDS: Calculate TDS based on the nature of capital gains (LTCG or STCG) and applicable surcharges.
- Make Payment: Transfer the net amount (sale consideration minus TDS) to the NRI seller.
- File Form 27Q: Deposit the TDS amount via e-challan and file Form 27Q within the prescribed quarter.
- Issue Form 16A: Provide the TDS certificate to the NRI seller for their tax filing.
Comparative Analysis: Resident vs. NRI Seller TDS
| Aspect | Resident Seller | NRI Seller |
| Applicable Section | Section 194IA | Section 195 |
| TDS Base | Full sale consideration | Capital gains only (with valid certificate) |
| Minimum Threshold | Rs. 50 lakh | No threshold |
| Standard TDS Rate | 1% | 12.5% (LTCG) / 30% (STCG) + surcharge + cess |
| Rate if PAN not provided | 20% | As per income slab (varies) |
| Lower TDS Certificate | Not applicable | Available (Form 13) |
| Form for TDS Filing | Form 26QB | Form 27Q |
| TDS Certificate | Form 16B | Form 16A |
| Refund Possibility | Limited | More common due to higher TDS rates |
| Processing by Banks | Less stringent | Stricter verification for repatriation |
| Capital Gains Exemptions | Not typically available | Available under Sections 54, 54EC, 54F |
Conclusion
TDS on property sales serves as a critical tax compliance mechanism affecting both resident and NRI transactions. While resident sellers face a straightforward 1% TDS on sale consideration, NRI sellers navigate a more complex landscape with TDS calculated on capital gains at substantially higher rates. Understanding the distinctions between these two scenarios, leveraging available tax exemptions, and ensuring proper compliance with filing procedures is essential for smooth property transactions and avoiding legal complications.
For corporate advisors and compliance professionals, guiding clients through these nuanced TDS provisions—particularly for high-value NRI transactions involving international repatriation—demonstrates deep expertise and adds significant value to your service offerings. Engaging qualified professionals to calculate TDS accurately and plan tax strategies appropriately ensures that all obligations are met within prescribed timelines while minimizing unnecessary tax outflow.
