TDS on NRI property sale is one of the most consequential numbers in any NRI sale transaction — it affects how much money the seller actually receives, how long capital is locked up, and the buyer's compliance burden.
The rates are higher and the calculation method is fundamentally different from resident-to-resident transactions (TDS is on SALE PRICE, not on the GAIN).
This guide explains the full TDS framework with examples.
What is the TDS rate when an NRI sells property in India?
TDS is deducted by the buyer at source under Section 195 of the Income Tax Act:
(1) Long-Term (held over 24 months) — 12.5% of sale consideration (post-Budget 2024) plus surcharge (10-15% based on sale value) plus 4% cess. Effective rate: approximately 13-14.95% of sale consideration.
(2) Short-Term (held 24 months or less) — 30% of sale consideration plus surcharge (up to 37%) plus 4% cess. Effective rate: approximately 31-44% of sale consideration.
(3) These rates apply on the SALE PRICE, not on the capital gain — leading to massive over-deduction.
(4) Lower TDS Certificate from the Income Tax Department can reduce the rate to actual capital gains tax liability — strongly recommended (covered in next blog).
Why is TDS on NRI property sale calculated on sale price and not on gain?
This is the most common confusion. For RESIDENT sellers, Section 194-IA prescribes 1% TDS on the sale consideration (where consideration exceeds Rs 50 lakhs) — a small administrative TDS.
For NRI sellers, Section 195 applies, which mandates that the buyer must deduct tax on the full consideration UNLESS a Lower TDS Certificate is obtained. The reasoning is that the Income Tax Department wants to ensure tax collection on the entire capital gain at source — and the gain cannot be definitively computed by the buyer (depends on cost basis, improvements, indexation choice, exemption claims). So TDS defaults to a high percentage of sale price, refundable through ITR or reduced through Form 13 application.
With an example, how much TDS is deducted on a Rs 1 crore NRI property sale?
Example: Property held over 24 months (long-term), sale consideration Rs 1 crore.
(1) Base TDS rate: 12.5% × 1 crore = Rs 12.5 lakhs. (2) Surcharge (15% applies since sale value above Rs 1 crore): 15% × 12.5 lakhs = Rs 1.875 lakhs. Subtotal: Rs 14.375 lakhs. (3) Cess (4%): 4% × 14.375 lakhs = Rs 0.575 lakh. Total TDS = Rs 14.95 lakhs (approximately 14.95% of sale price). The seller receives only Rs 85.05 lakhs from the buyer; Rs 14.95 lakhs goes to the government. If the actual capital gain is, say, Rs 40 lakhs (cost basis Rs 60 lakhs), the actual tax is only ~Rs 6 lakhs — meaning Rs 8.95 lakhs is excess TDS that has to be refunded after ITR (6-18 months). Hence the importance of Lower TDS Certificate.
What are the buyer's obligations when buying property from an NRI seller?
The BUYER carries primary TDS obligation — failure attracts penalty on the buyer, not the seller.
Buyer must:
(1) Obtain a TAN (Tax Deduction Account Number) before deducting TDS — apply through Form 49B online at NSDL.
(2) Deduct TDS from the sale consideration at the prescribed rate at the time of payment OR credit, whichever is earlier.
(3) Deposit TDS to the government within 7 days of the end of the month in which deduction was made.
(4) File Form 27Q (NRI TDS return) quarterly within 31 days from the end of the quarter.
(5) Issue Form 16A to the seller within 15 days from the due date of the quarterly return.
(6) If Lower TDS Certificate (Form 13) was provided by seller, deduct TDS at the lower rate specified. Penalty for default: interest at 1-1.5% per month, penalty up to amount of tax not deducted, prosecution in egregious cases.
What is Form 27Q and how does the buyer file it?
Form 27Q is the quarterly TDS return filed by deductors who have deducted tax on payments to non-residents (other than salary).
Filing process:
(1) Login to TRACES / Income Tax e-filing portal with TAN credentials.
(2) Prepare Form 27Q in CSV format with: deductee details (NRI seller's PAN, name, address, country code), nature of payment (property sale - section 195), gross amount, TDS rate, amount deducted, deposit details (challan number, BSR code, date).
(3) Validate file using FVU (File Validation Utility) provided by NSDL.
(4) Upload validated file.
(5) Pay any late filing fee (Rs 200 per day, capped at TDS amount). Once filed, Form 16A can be downloaded by the deductor and given to the seller.
The seller checks Form 26AS (consolidated TDS statement) to verify TDS credit is appearing.
What if the buyer doesn't have a TAN — can they still buy from an NRI?
Yes, but the buyer MUST obtain a TAN before making payment.
TAN application:
(1) File Form 49B online at NSDL (Protean) website.
(2) Pay processing fee Rs 65.
(3) TAN is allotted in 5-10 working days.
There is no alternative — Section 195 TDS cannot be deducted without a TAN. Some buyers try to avoid TAN by structuring as "buying from resident POA holder" — this is illegal and exposes the buyer to tax demand if discovered.
The seller's residency status (not the POA holder's) determines whether Section 195 applies. If the registered owner is NRI, even if a resident POA holder facilitates the sale, the buyer must obtain TAN and deduct NRI-rate TDS.
How does the NRI seller claim TDS credit and refund excess?
TDS refund process for the NRI seller:
(1) Wait for the buyer to file Form 27Q and the TDS to reflect in your Form 26AS (typically 30-60 days after deduction).
(2) Verify the TDS credit in Form 26AS matches what the buyer deducted; if mismatch, ask the buyer to revise Form 27Q.
(3) File your Indian ITR-2 for the year of sale, declaring the capital gain (computed correctly with cost basis, indexation if elected, exemptions if claimed) and TDS credit.
(4) The ITR will compute actual tax liability; if TDS exceeds tax, claim refund.
(5) Refund is processed by Centralised Processing Centre (CPC) Bengaluru — typically 6-12 months from ITR filing, sometimes faster (3-6 months) for clean returns.
(6) Refund is credited to the bank account specified in ITR (must be NRI's NRO or NRE account with PAN-linked).
What if TDS is wrongly computed or under-deducted?
Common TDS errors and remedies:
(1) Buyer deducts at resident rate (1%) instead of NRI rate (12.5%) — buyer faces demand for shortfall plus interest plus penalty; seller may also face demand for underpaid tax in their ITR scrutiny. Remedy: buyer pays the shortfall to government; seller does not get extra credit.
(2) Buyer deducts at higher rate than warranted (e.g., 30% short-term when actually long-term) — seller receives less; seller claims excess in ITR refund.
(3) Buyer deducts but doesn't deposit to government — seller's Form 26AS won't show credit; seller must follow up with buyer. If buyer is non-cooperative, seller can complain to Income Tax Department but recovery can be difficult.
(4) TDS wrongly deducted on buyer's PAN instead of seller's — filing of correction statement (revised Form 27Q) is needed. Always verify Form 26AS within 60 days of deduction.
For complete details on selling property in India as an NRI and understanding the complete legal, tax, and repatriation process, visit our Selling Property in India page.