Legal Reference
Section 195 (TDS on NRI income — buyer must deduct), Section 54 (reinvestment), Section 54EC (bonds), Section 398 (lower TDS certificate), FEMA repatriation, ITA 2025
1. NRI Selling Indian Property: The TDS Problem
When an NRI sells property in India, the buyer must deduct TDS on the ENTIRE sale consideration — not just the gains. This creates a cash flow problem: if an NRI sells a Rs 1 crore property with LTCG of Rs 20 lakh, the buyer deducts 20% TDS on Rs 1 crore = Rs 20 lakh — even though the actual tax on gains is only Rs 20L × 12.5% = Rs 2.5 lakh. The NRI must file ITR to claim the excess Rs 17.5 lakh as refund.
2. TDS Rates for NRI Property Sale
| Type of Gain | TDS Rate on Consideration |
|---|
| Long-term capital gains (held 24+ months) | 20% (or 12.5% if opted — Budget 2024) |
| Short-term capital gains (held under 24 months) | 30% |
Note: TDS is on the FULL sale consideration, not on the gain. This is different from resident Indian property TDS (1% of consideration above Rs 50L).
3. Solution: Lower TDS Certificate
To avoid the cash flow problem, the NRI can apply for a lower/nil TDS certificate from the AO under Section 398 of ITA 2025 before the sale. The AO issues a certificate specifying TDS at the correct tax rate on actual gains — allowing the buyer to deduct TDS at the lower rate. This requires advance planning — apply 2-3 months before the sale.
4. Capital Gains Exemptions Available to NRIs
NRIs selling Indian property can claim the same capital gains exemptions as residents:
- Section 54: Reinvest LTCG in another Indian residential property within 2 years
- Section 54EC: Invest LTCG in NHAI/REC bonds within 6 months (up to Rs 50L)
- Section 54F: Reinvest entire net consideration in residential property
These exemptions can bring the actual tax liability close to zero even after the full TDS deduction — resulting in a large refund.
5. FEMA Repatriation After Property Sale
Sale proceeds from Indian property go into the NRI NRO account (since it is India-source income). From NRO, NRIs can repatriate up to USD 1 million per financial year after paying applicable taxes and obtaining a CA certificate (Form 15CA/15CB). Inherited property proceeds may have different rules — check RBI guidelines. Direct credit to NRE account is not permitted for property sale proceeds.
6. PAN Mandatory for NRI Property Transactions
NRIs selling property in India must have a PAN. Without PAN, the buyer deducts TDS at 20% or the applicable rate (whichever is higher under Section 206). PAN is also needed to file ITR to claim refund of excess TDS. Apply for PAN (Form 49A or online) well before the property transaction.
7. Why TaxClue
NRI property sales involve TDS compliance, capital gains computation, exemption planning, and FEMA repatriation — simultaneously. TaxClue handles the complete NRI property sale process. Contact us under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What TDS does the buyer deduct when buying from an NRI?
When buying property from an NRI, the buyer must deduct TDS on the full sale consideration: 20% for LTCG property (held 24+ months) or 30% for STCG property (held under 24 months). This is different from resident seller TDS (1% above Rs 50L). The TDS is on the entire consideration, not just the capital gain. The NRI must file an ITR to claim any excess TDS as refund after applying capital gains exemptions.
How can an NRI reduce TDS on property sale?
An NRI can apply for a lower TDS certificate under Section 398 of ITA 2025 from the Assessing Officer before the property sale. The application shows the actual capital gains (after indexation and cost of improvement) and applicable tax. The AO issues a certificate directing the buyer to deduct TDS at the lower rate. This requires advance planning — apply 2-3 months before the expected sale date. Without this certificate, the buyer must deduct at the standard 20%/30% rate.
Can an NRI claim Section 54 exemption on property sale?
Yes. NRIs can claim Section 54 exemption — reinvesting LTCG from sale of an Indian residential property into another Indian residential property within 1 year before or 2 years after the sale. The exemption conditions are the same as for residents: invest in one new house, do not sell the new house within 3 years, maximum Rs 10 crore exemption. This can reduce the actual tax liability significantly, resulting in a large TDS refund.
Where do property sale proceeds go for an NRI?
Sale proceeds from Indian property must be credited to the NRI NRO account (Non-Resident Ordinary) — since the proceeds are India-source income. From the NRO account, after paying applicable taxes and obtaining Form 15CA/15CB from a CA, the NRI can repatriate up to USD 1 million per financial year outside India. The proceeds cannot be directly credited to an NRE account.
What if an NRI does not have PAN for property sale?
PAN is mandatory for NRIs involved in Indian property transactions. Without PAN, the buyer deducts TDS at the higher of 20% or 20% (Section 206 — applicable rate or 20%, whichever higher). More importantly, without PAN the NRI cannot file an ITR to claim refund of excess TDS. Apply for PAN via Form 49A or the online NSDL/UTI portal well before the property sale — it typically takes 2-3 weeks to obtain.
