TDS on Sale of Property by NRI in India: Complete Guide

When an NRI sells property in India, the profit earned is taxed under the head 'Capital Gains'.

Capital gains are treated as long-term or short-term based on the holding period. The TDS will be deducted at 20% on the long-term capital gains, and at 30% on short-term capital gains.

In addition, we will see TDS for NRI property sales and other essential information in this blog.

How are Gains From the Sale of Any Property by the NRIs Taxed in India? 

When an NRI sells property in India, the profit made from the property sale will be taxed as a 'Capital Gains'. 

The property gains will depend on the NRI's holding period.

Long Term Capital Gains (LTCG): When an NRI sells their property after holding it for more than 2 years, then it will be termed as LTCG.

Short Term Capital Gains (STCG): When an NRI sells his property in India within 2 years or less from the date of purchase, then the gains that arise from such property will be considered as STCG. 

What is the Tax Rate for NRIs on Property Sale

If an NRI earns capital gains from a property sale, then the applicable tax rates will be: 

STCG (Short-term Capital Gains): If the property is sold within 2 years from the purchasing date, then it will be taxed as STCG. 

LTCG (Long Term Capital Gains): If you sell a house property after holding it for more than 2 years or more from the purchase date, then it will be considered as LTCG and taxed as follows. 

• If the property is purchased before 23 July, 2024, then it will be taxed at 20% along with the indexation benefits. 
• The property which is purchased on or after 23 July 2024 will be taxed at 12.5%. There are no indexation benefits provided to the NRI. 

Here is the table given below for the TDS rates for NRIs 

What is the TDS on Property Sale by an NRI? 

If an NRI sells a property in India, the buyer must deduct TDS before making the payment. Here is the applicable TDS on the sale of property for NRI given below: 

• If the property is sold within 2 years or less, then the TDS will be charged at 30% on the capital gains (or sale value if no certificate). 
• If the property is sold after 2 or more years, then the TDS will be charged at 20% with additional surcharges and cess.

NRI needs to pay a high TDS because of the deduction on the capital gains tax liability. Whereas an Indian resident only needs to pay 1% TDS under section 194-IA. 

Process to Deduct TDS on Property Purchase from an NRI? 

For the Deduction of TDS from the sale of property in India, the buyer is responsible for it. For the deduction of TDS, the buyer of the property should have a valid TAX (Tax Deduction Account Number) in his or her name for TDS deduction. 

For the property that is purchased by two or more persons jointly, they also have to get a TAN. 

The buyer of the property should deduct the TDS once the TAN is obtained by the NRI seller on the occasion of making a payment. 

The buyer of the property must deposit the applicable TDS amount to the Income Tax Department via the e-challan on the 7 date of the next month after the payment is made to the seller. 

The buyer must file a TDS return in the next quarter for the deposit of their TDS amount. Once the TDS is filed, the property buyer can get the Form 16A and provide it to the NRI seller. 

What is a Low or NIL TDS Certificate for NRIs? 

The buyer needs to deduct the TDS before the sale of any property by an NRI seller at an applicable tax rate. 

An NRI can also get the Nil or Lower deduction certificate through the Income Tax Department. Once the certificate is granted by the Income Tax department, then the buyer will deduct the TDS at the lowest rate following the Nil/Lower deduction certificate.

If the TDS is more than the seller's tax liability, then the NRI seller can also apply for a NIL/Lower deduction certificate at the income tax department. However, for this, the seller must have a Nil/Low deduction certificate before executing the sale of property agreement. 

The officer will report the TDS after calculating all the capital gains. Also, the seller is eligible to claim the TDS refund when it is more than the actual tax liability, when there is no Nil/Low deduction certificate. 

What are the Consequences of No TDS Deduction?

Here are the consequences of no TDS deduction given below:

• The buyer will be legally responsible for the TDS depositing and deducting according to the applicable TDS rate for the NRI seller. 
• The buyer is legally responsible for the Nil/lower deduction certificate issued by the Income Tax department. 
• Not deducting TDS rates according to the applicable rates, you need to pay the equal amount of TDS that was not deducted. 
• The buyer will also need to pay interest on the amount that he defaulted on. 
• A seller cannot repatriate the property sale amount or receive to his foreign or NRE account. 

What is Meant by the Repatriation of Sale Proceeds by NRI?

For the repatriation of the proceeds of property by an NRI seller, they need to submit Form 15CA and 15CB. With the authorised dealer bank in India. The Form 15CB should be submitted and signed by a chartered accountant. An NRI seller in India can repatriate funds up to 1 million USD in a year from outside India. 

Methods to Save NRI Capital Gains Tax on Property

Here are some of the methods to save the capital gains tax and claim exemption under Section 54 and Section 54EC on the long-term capital gains. 

Understanding Exemption under Section 54

Section 54 is available for the sale of any long-term capital gains of NRI property in India. To get this exemption, you need to invest in a house property in India. 

You are not required to invest in the property by yourself. You can claim an exemption up to the amount of the capital gains. However, your exemption needs to be limited to the total capital gain on sale. 

Additionally, you can also purchase the property after two years of sale or one year before the sale of your property. 

You can also invest in the construction of your property, but your construction should be completed within 3 years from the date of sale. 

The property that you buy should be located in India, and you can claim the exemption. However, for the property purchased outside India or constructed cannot be exempted. 
You will not get any exemption, or it can be withdrawn, if you sell your new NRI property within 3 years from the date of purchase. 

Under section 54, you can claim up to 10 crore LTCG as an exemption.

If you have not invested your capital gains on the last date of filing the return, which is 31 July. In that case, you can deposit your capital gains in a PSU bank to claim the Capital Gains Account Scheme, 1988. 

In return, you can claim this as an exemption, and you are no longer to pay any tax. 

Exemption Under Section 54EC

An NRI can save taxes on long-term capital gains by investing in some bonds that are issued by the National Highway Authority of India (NHAI) or the Rural Electrification Corporation (REC).

You can redeem these bonds after 5 years, and you cannot sell before the completion of 5 years from the date of the sale of the house property in India. 

Note: You cannot claim an exemption from investment under any deduction. You are allowed to claim an exemption if you have invested for six months in these bonds, and the investment must be made before the filing date of your return. 

In the budget of 2014, it is clearly mentioned that an NRI is allowed to invest a maximum of INR 50 lakh in bonds in a financial year. 

Exemption Section 54F

To claim an exemption under section 54F, an NRI needs to buy a house property in India within one year before or two years after the date of construction, or transfer. 

The new property should be located in India, and you cannot sell your property within three years of construction and purchase. 

The benefits of this exemption are available to the LTCG from the sale of any capital asset apart from the residential house property. 

To claim this exemption under section 54F, an NRI should not hold more than one house property in India, and not sell it within 3 years from the date of purchase or construction. 

The entire sale starts with the investment, and if all the sale proceeds are invested, then you can get a full exemption on the capital gains. 

Final Thoughts 

Having correct information while selling a property in India as an NRI is very important. It will help you to reduce the stress of tax burdens and get a Lower Deduction Certificate (LDC). 

It will help you to understand the tax implications as an NRI in India. Furthermore, the main responsibility for complying with TDS lies with the buyer. As a seller, you must ensure that you show your actual residency status and maintain transparency in your sale transaction. 

For more assistance, you can take help from the Visament website. Here we provide you with the best consultancy services all around the world. We have skilled and highly qualified experts who know all the documentation and help you save tax on the capital gains, and provide you with the essential information about the exemption and TDS.