TDS on Property Purchase from NRIs: Compliance Guide for Buyers
Buying a property from a Non-Resident Indian (NRI) involves specific Tax Deducted at Source (TDS) obligations under Section 195 of the Income Tax Act, 1961. This guide outlines the TDS rates, procedures, and legal requirements to help you stay compliant and avoid penalties.
Why Deduct TDS When Buying Property from an NRI?
When an NRI sells a property in India, the transaction generates capital gains. To ensure that these gains are taxed appropriately, the buyer must deduct TDS before making the payment. This TDS deduction acts as a mechanism for the government to collect taxes upfront and prevent tax evasion.
TDS Deduction Rates for NRIs
1. Long-Term Capital Gains (Held for More Than 2 Years)
- Base TDS Rate: 20% of the sale consideration.
- Surcharge:
- Up to ₹50 lakh: No surcharge.
- ₹50 lakh to ₹1 crore: 10% surcharge.
- Above ₹1 crore: 15% surcharge.
- Health & Education Cess: 4% on tax + surcharge.
Effective TDS Rates:
| Sale Consideration | Effective TDS Rate |
|---|---|
| Up to ₹50 lakh | 20.8% |
| ₹50 lakh to ₹1 crore | 22.88% |
| Above ₹1 crore | 23.92% |
2. Short-Term Capital Gains (Held for 2 Years or Less)
- TDS Rate: As per the NRI’s income tax slab rates (up to 30%), plus surcharge and cess.
Buyer’s Obligations Under Section 195
- Obtain a Tax Deduction Account Number (TAN):
- Mandatory for deducting and depositing TDS.
- Deduct TDS at Payment:
- Deduct TDS at the applicable rate when paying the NRI seller or crediting their account, whichever is earlier.
- Deposit TDS:
- Use Challan ITNS 281 to deposit the TDS with the Income Tax Department by the 7th of the following month.
- File Form 27Q:
- Submit a quarterly statement of TDS on payments to NRIs.
Filing Deadlines for Form 27Q:
| Quarter | Due Date |
| April – June | July 31st |
| July – September | October 31st |
| October – December | January 31st |
| January – March | May 31st |
- Issue Form 16A:
- Provide the NRI seller with Form 16A within 15 days of filing Form 27Q.
Consequences of Non-Compliance
- Interest:
- 1% per month for failure to deduct TDS.
- 1.5% per month for failure to deposit TDS.
- Penalties:
- Penalty under Section 271C for failure to deduct TDS.
- Penalty under Section 201 for failure to deposit TDS.
Tips for Buyers
- Verify Seller’s PAN: Ensure the NRI seller provides a valid PAN to avoid higher TDS rates.
- Seek a Lower TDS Certificate: The NRI seller can apply for a lower TDS certificate if their actual tax liability is less than the standard rate.
- Consult a Tax Professional: Given the complexities, professional guidance can help ensure full compliance and avoid costly mistakes.
Conclusion
Purchasing property from an NRI involves meticulous TDS compliance under Section 195. By understanding the applicable rates, deadlines, and procedures, you can ensure a smooth transaction while avoiding penalties. Always stay informed and seek professional help if needed.
For more details, refer to the official Income Tax Department guidelines or consult with a tax advisor.
“Compliance is the key to peace of mind. Deduct TDS correctly, and invest worry-free.”