TDS on Sale of Property by NRI in India [New Rates for 2024]

Properties sold in India by Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) are liable for taxation under the Indian income tax laws. An NRI who wants to sell a property situated in India has to pay tax on capital gains. TDS is deducted whenever any property is purchased or sold. TDS on the sale of property by NRI depends on the sum of money received. In this article, we will discuss the applicability of TDS on the sale of property by NRI in India.

To speak to an NRI tax expert about TDS on property or get a lower TDS certificate, click on the button below.

Also Read: Income Tax e-filing: Top 10 NRI Income Tax Filing Benefits

Table of Contents

• Tax implications for NRIs selling property in India
• TDS on sale of property by NRI in India
• How to save tax on capital gains
  • Exemption under Section 54
  • Exemption under Section 54F
  • Exemption under Section 54 EC
• FAQs

Tax Implications for NRIs Selling Property in India

NRIs selling property in India are liable to pay taxes. The tax liability will depend on the period of time for which they have held the property before selling it.

If you sell a property that you have owned for more than 2 years, then you will be liable for long term capital gain tax on sale of property at 20%. In case a property is held for 2 years or less, the short-term capital gains tax will be applicable as per tax slab rates.

The date of the purchase of the property by the original owner will be considered for calculating capital gains on an inherited property.  

TDS on Sale of Property by NRI in India 

NRI TDS rate on sale of property owned by NRIs is 20% as long-term capital gain tax. For properties sold before 2 years, the TDS rate will be as per income tax slab rate of NRI seller.

• The buyer deducts 20% as TDS (Tax Deducted at Source ) as Long-term capital gains tax on the sale of property held for more than 2 years. 
• Short-term capital gains tax on the sale of property held for less than 2 years: As per income tax slab of NRI seller.

Surcharges and cess would also be charged on the capital gains. Here are the effective rates of TDS on the sale of property by NRI for long-term capital gains. 

The maximum surcharge rate on tax payable on dividend income and capital gain mentioned in Section 112 of Income Tax Act, has been capped at 15% as announced in Union Budget 2022.

Hence, regardless of whether the value of property sold by an NRI is Rs. 1 cr or Rs. 5 cr, or even Rs. 10 cr – the rate of TDS will remain the same i.e. 23.92% 

In the case of short-term capital gains, surcharge and cess would be added to the applicable tax rate as per your income tax slab in the same manner as in the case of long-term capital gains.

The TDS shall be deducted when any payment is made to the NRI seller for the purchase of property, even if advance is being paid. The TDS shall be deposited by the buyer with the Income Tax Dept.

The TDS on purchase of property from NRI shall be deducted regardless of the transaction value of the property. Even if the price of the property is less than Rs. 50 lakh, the TDS shall be deducted.

How to Save Tax on Capital Gains

NRIs can claim exemptions under Section 54 and Section 54EC on long-term capital gains from the sale of house property in India. 

Exemption under Section 54

NRIs can claim exemptions on long-term capital gain on the sale of a house property under Section 54. The exemption is applicable on self-occupied and let-out house property.  

To claim this exemption, you can invest the gains for the purchase of property either one year before the sale or 2 years after the sale of your property. You can also use the gains in the construction of a property that must be completed within 3 years from the date of sale.

Only one house property can be purchased or constructed from the capital gains to claim the exemption under Section 54 of Income Tax. It is mandatory that the property is situated in India. The exemption shall not be extended for properties bought or constructed outside India. 

Note: If you sell the new property for which you claim exemption within 3 years of its purchase, the exemption can be taken back.  

If you could not invest the capital gains until the date of filing of return (usually 31st July) of the financial year in which you sold your property, you can deposit the gains in a PSU bank or other banks. In your return claim this as an exemption from your capital gains, you won’t have to pay tax on it. 

Exemption under Section 54F

You have to purchase one house property within one year before the date of transfer or 2 years after the date of transfer to claim exemption under Section 54F. You can also construct one house property within 3 years after the date of transfer of the capital asset. 

Note the new house property must be situated in India and should not be sold within 3 years of its purchase or construction. 

Capital Gains Bonds for Tax Exemption under Section 54 EC

You can save tax on your long-term capital gains by investing them in capital gains bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC). You can redeem them after 5 years and must sell them before the lapse of 5 years from the date of sale of the house property. 

You are allowed a period of 6 months to invest in these bonds. However, to be able to claim an exemption, you will have to invest before the income tax return filing date. 

Repatriation of Funds 

As an NRI, if you wish to repatriate the proceeds from the sale of a property, to your country of residence, you are required to submit Form 15 CA and 15 CB. Form 15 CA ensures that taxes have been collected on the fund before it is repatriated abroad. You can fill out and submit the Form 15 CA yourself. Form 15 CB must be signed and submitted by a competent authority like a chartered accountant. You are allowed to repatriate up to USD 1 million during a financial year outside India.    

Also Read: 5 Ways to save on the tax NRIs have to pay

How to file TDS on Sale of Property by NRI in India? Step-by-Step Process

Here is the process for filing TDS returns for NRIs:

1. Calculating tax liability.
2. Getting TAN of the buyer.
3. Collecting documents for Lower Withholding Certificate.
4. Registering on the I-T portal and filing the application.

TDS Payment, TDS Return and TAN No. for NRIs

1. TDS deduction: The buyer must deduct TDS at the time of payment to the NRI seller. This includes instances when payments are made in installments; in such cases, TDS should be deducted proportionally at the time of each payment.
2. TAN number: The buyer, whether an individual or a company, must obtain a Tax Deduction Account Number (TAN) before deducting TDS. Only the buyer is required to have a TAN No not the seller. This number is used by the tax department to track all transactions related to TDS.
3. TDS Payment and TDS Return: The buyer must deposit the TDS with the government within a specified period, and also file a TDS return detailing the transaction. The TDS return form (Form 27Q) provides details of the TDS deducted and deposited.
4. TDS Certificate: After depositing the TDS and filing the TDS return, the buyer should provide a TDS certificate (Form 16A) to the NRI seller as proof of the deduction and deposit. The NRI seller can use this certificate to claim credit for the TDS while filing their Indian income tax return.
5. Lower TDS Deduction: If the NRI seller believes that their tax liability on the capital gains from the property sale will be lower than the TDS, they can apply to the Income Tax Department for a certificate for lower deduction of TDS (under Section 197). If approved, the buyer will deduct TDS at this lower rate.

Important Points about TDS on Sale of Property by NRI

Listed below are the important points regarding the deduction of TDS on sale of property by NRI: 

• Both NRIs as well as OCI card holders are eligible for a lower TDS certificate.
• Make sure to get the Certificate from the Income Tax Department for computation of capital gains to reduce the TDS to be deducted. 
• The income tax officer will review several documents including purchase price, date of purchase, expenses on renovation/ construction, if any, etc. along with Form 13. If he finds them satisfactory, he will issue a lower TDS certificate. 
• If the NRI seller is unable to procure the certificate, the TDS would be deducted from the sale value, resulting in excess TDS deduction. 
• In addition to the property registration documents, the NRI seller will also need to collect Form 16A from the buyer. 
• The NRI seller can reinvest the capital gains in India to reduce the TDS and tax liability.
• The seller has the option to claim the refund of the excess TDS deducted at the end of the year. 
• If there are two sellers (co-owners), both of them will have to file Form 13 separately for reducing the TDS rates.

Important Points for an NRI Seller

Listed below are the points that NRI sellers must keep in mind regarding the deduction of TDS on the sale of a property by an NRI:

1. It is advisable for the seller to try and obtain a certificate from the income tax department in order to calculate the capital gains, which would result in a reduced TDS deduction.
2. Various documents, including the Purchase Price, Date of Purchase, expenses on Renovation/Construction, and others, need to be submitted along with Form 13. These documents will be reviewed by the income tax officer, and if accepted, a certificate for a lower TDS deduction will be provided.
3. If the seller is unable to obtain the certificate, TDS will be deducted based on the sale value, resulting in a higher deduction.
4. The seller must collect Form 16A from the buyer, along with the Property Registration Documents.
5. The seller can reduce their capital gains, thereby reducing the TDS and tax liability, if they intend to reinvest the capital gains in India.
6. If the seller chooses not to obtain the certificate, they can apply for a refund of the excess TDS deducted at the end of the year.
7. If there are two sellers who are co-owners of the property, both of them need to submit Form 13 separately to reduce the TDS cost.
8. The compliance of the lower TDS certificate (Form 16) applies to both NRI and OCI cardholders, and OCI cardholders can also avail the benefits.

Important Points for the Buyer

When purchasing a property from an NRI, the buyer is responsible for the following:

1. The buyer should deduct the TDS at the time of each payment, not during the property registration process.
2. The deducted TDS amount must be deposited with the income tax department as per the specified schedule for TDS deposits.
3. The buyer should file the TDS return with the income tax department as per the specified schedule for TDS return filing.
4. After filing the TDS return, the buyer should provide Form 16A to the seller. Form 16A is a TDS certificate confirming that the buyer has deposited the TDS amount with the seller.
5. If there is a delay in TDS payment, interest will be levied at a rate of 1% or 1.5% per month, depending on the circumstances.
6. Late filing of TDS return will result in a penalty of Rs 200, and the income tax officer may impose a penalty of up to Rs 1 lakh.
7. In the case of a home loan, TDS should be deducted when making payments to the seller, except for EMIs paid to the bank.
8. TDS is deducted in accordance with the aforementioned schedule for advance payments. This schedule applies to all payments made prior to obtaining the lower TDS certificate.

Properties are one of the best NRI investment options in India. However, buying and selling a property is taxed.

Due to a complicated tax system and recurrent amendments, understanding tax laws can be confusing and NRIs may be subject to additional fees or miss claiming deductions and other benefits. At SBNRI, we understand this struggle. You can download SBNRI App to connect with our NRI Tax Experts to know more about new TDS/ TCS rules for NRIs. You will also get end-to-end assistance related to NRI tax filing. 

SBNRI will also help you get a lower TDS Certificate. You can also click on the button below to ask any questions. Visit our blog and YouTube Channel for more details.

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