When is TDS required?
Two distinct property scenarios:
Scenario 1 — Resident seller, value > ₹50 lakh: Buyer deducts TDS at 1% of sale value. Form 26QB.
Scenario 2 — NRI seller: Buyer deducts TDS at 12.5% LTCG / 20% STCG of sale value (not gain). Higher rate. No threshold.
Why is the NRI rate so high?
The 12.5%-20% is on sale value, not capital gain. Over-collects vs actual liability:
- ₹2 crore property purchased for ₹50 lakh
- LTCG = ₹1.5 crore, tax @ 12.5% = ₹18.75 lakh
- But TDS = 12.5% of ₹2 crore = ₹25 lakh (vs ₹18.75 lakh actual)
NRI seller files ITR to claim refund.
Buyer TDS process
Step 1: Apply for TAN (Tax Deduction Account Number) — online, free.
Step 2: Deduct TDS at payment time (each installment) or registration (whichever earlier).
Step 3: Deposit via Form 26QB within 7 days from end of month of deduction.
Step 4: Issue Form 16A to NRI seller within 15 days of TDS return due date.
Step 5: NRI seller uses Form 16A to claim credit/refund in Indian ITR.
Lower TDS Certificate (Section 197)
NRI seller can apply to Assessing Officer for Lower TDS Certificate (Form 13). Certificate specifies lower TDS rate (e.g. 5% instead of 12.5%) based on actual capital gain.
Process:
- Apply 4-6 weeks before sale
- Submit purchase documents (basis), valuation, sale agreement
- AO reviews and issues certificate
- Buyer deducts at certificate rate
Critical for high-value sales — saves NRI from waiting 1-2 years for refund.
Buyer doesn't know seller's NRI status
Buyer's liability based on actual seller status, not what's claimed. If you fail to deduct NRI-rate TDS thinking seller was resident, you remain liable for under-deducted tax + interest + penalty.
Best practice: Check seller's status. Request passport, visa, NRI declaration. Get CA certificate confirming resident status if deducting at 1%.
Common TDS errors
- Buyer deducts at 1% when seller is actually NRI
- Form 26QB filed with wrong PAN
- TDS not deposited by due date (interest 1% per month)
- Form 16A not issued to seller
- Buyer pays full value in cash (criminal under Section 269ST if > ₹2 lakh)
US tax implications for buyer
US person buying from another US person who happens to be NRI:
- Indian TDS still applies
- Transaction is reportable in US records but NOT a US taxable event (just a basis)
- Purchase-related expenses (stamp duty, registration, brokerage) increase US basis
Worked example — US person buyer
You (US resident) buy Mumbai flat from NRI seller for ₹3 crore. Held 6 years (LTCG).
- Sale value: ₹3 crore
- Required TDS: 12.5% × ₹3 crore = ₹37.5 lakh
- Without Lower TDS Cert: You deduct ₹37.5 lakh, pay seller ₹2.625 crore
- With Lower TDS Cert at 5%: You deduct ₹15 lakh, pay seller ₹2.85 crore
US tax: Basis = ₹3 crore in USD at FX. No US-tax event.
Practical advice
- If buying from NRI: insist on Lower TDS Certificate
- Apply for TAN before signing sale agreement
- Use Form 26QB online — straightforward
- Issue Form 16A promptly
- Document seller-status diligence
Explore our complete US Tax Return Guide to understand refunds, filing rules, and IRS procedures for NRIs.