Why NRI property sales have a different TDS regime
When an NRI sells immovable property in India, the buyer is required to deduct TDS at source — at a materially higher rate than applies to resident sellers, reflecting the higher default withholding applied to non-resident transactions generally, and calculated on the full sale value rather than only the gain.
Who's responsible for deducting and depositing TDS
The buyer, not the seller, is responsible for deducting TDS and depositing it with the government, and for obtaining a TAN (Tax Deduction Account Number) to do so — an obligation many buyers dealing with an NRI seller for the first time aren't aware of.
Applying for a lower deduction certificate
Because the standard TDS rate is calculated on the full sale value rather than the actual capital gain, it often results in over-deduction relative to the NRI seller's actual tax liability. The NRI seller can apply to the tax department for a certificate authorising a lower rate of deduction, based on the actual computed gain — this application needs to be filed and processed before the sale closes to be useful, so it needs early planning, not a last-minute request.
What NRI sellers should plan for
- Apply for the lower/nil deduction certificate well before the transaction, if the standard TDS rate would clearly over-withhold relative to actual tax due
- Keep documentation of the original purchase cost and any improvement costs, which determine the actual capital gain
- File an Indian income tax return to claim a refund of any excess TDS deducted, if applicable
- Consider DTAA relief if the NRI is tax resident in a country with a favourable treaty with India
A practical note for buyers
Buyers purchasing property from an NRI seller should factor the TDS obligation into transaction planning from the start — this isn't optional, and failing to deduct correctly exposes the buyer to their own compliance risk.
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