Buying Property from an NRI? Don’t Pay the Full Amount Without Deducting TDS
When a resident buyer purchases property from an NRI seller, the buyer has an important tax responsibility under Section 195 of the Income Tax Act.
Many buyers assume that TDS on property is only 1%, like normal resident-to-resident property transactions. But this is not correct when the seller is an NRI.
For an NRI property seller, TDS is generally deducted under Section 195, and the rate depends on whether the property is a long-term or short-term capital asset.
Why TAN is Required for Buying Property from an NRI
In a normal property purchase from a resident seller, the buyer usually deducts 1% TDS under Section 194-IA and pays it through Form 26QB.
But when the seller is an NRI, the buyer has to deduct TDS under Section 195. For this, the buyer generally needs a TAN and must file a TDS return in Form 27Q.
So, applying for TAN is the correct step when your client is buying property from an NRI.
Example: Resident Buyer Purchasing Property from NRI for ₹2.40 Crore
| Particulars | Details |
|---|---|
| Buyer | Resident Indian |
| Seller | NRI |
| Property sale value | ₹2.40 crore |
| Property holding period | More than 24 months |
| Nature of gain | Long-Term Capital Gain |
| Lower TDS certificate | Not available |
For long-term capital gains on property after the July 2024 changes, the tax rate is generally 12.5%, subject to applicable surcharge and cess.
TDS Calculation on ₹2.40 Crore Property Purchase
| Particulars | Calculation | Amount |
|---|---|---|
| Sale consideration | - | ₹2,40,00,000 |
| Basic TDS @ 12.5% | ₹2,40,00,000 × 12.5% | ₹30,00,000 |
| Surcharge @ 15% | ₹30,00,000 × 15% | ₹4,50,000 |
| Sub-total | ₹30,00,000 + ₹4,50,000 | ₹34,50,000 |
| Health & Education Cess @ 4% | ₹34,50,000 × 4% | ₹1,38,000 |
| Total TDS to be deducted | - | ₹35,88,000 |
So, the effective TDS rate becomes 14.95%.
How Much Should Be Paid to the NRI Seller?
The buyer should not pay the full ₹2.40 crore to the NRI seller.
| Particulars | Amount |
|---|---|
| Total property value | ₹2,40,00,000 |
| Less: TDS to be deposited with Government | ₹35,88,000 |
| Balance payable to NRI seller | ₹2,04,12,000 |
So, the buyer should pay:
₹35,88,000 to the Government as TDS
₹2,04,12,000 to the NRI seller
Important Point: TDS May Be Lower If Seller Gets Certificate
The above calculation assumes that the NRI seller has not obtained a lower TDS certificate.
If the NRI seller applies for and obtains a Lower or Nil TDS Certificate from the Income Tax Department, then the buyer can deduct TDS at the rate mentioned in that certificate.
Without such certificate, the buyer should not release the TDS portion to the seller.
Buyer’s Compliance Checklist
| Step | Compliance |
|---|---|
| 1 | Apply for TAN |
| 2 | Deduct TDS before paying the NRI seller |
| 3 | Deposit TDS to the Government |
| 4 | File quarterly TDS return in Form 27Q |
| 5 | Issue Form 16A to the NRI seller |
Final Takeaway
If your client is buying a property from an NRI for ₹2.40 crore, and the property is a long-term capital asset, the buyer may have to deduct ₹35.88 lakh as TDS and pay only the balance ₹2.0412 crore to the NRI seller.
This is not a small compliance point. If the buyer fails to deduct or deposit proper TDS, the buyer may face interest, penalty, and future tax complications.
Before completing any NRI property purchase, always verify the seller’s residential status, holding period, PAN, capital gain nature, lower TDS certificate status, and correct TDS rate.
Need Help with NRI Property TDS Compliance?
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For expert assistance with NRI property sale TDS, TAN, Form 27Q, and Form 16A filing, contact EFILETAX today.