Introduction
As of May 2025, the new financial year in India is well underway, and Non-Resident Indians (NRIs) considering selling their property in India must navigate a complex landscape of evolving tax regulations and procedural formalities. The Union Budget and amendments to the Income Tax Act have introduced changes that can significantly impact your financial outcomes and timelines. In this article, we provide a structured and comprehensive overview to assist NRIs in successfully navigating the property sale process in India.
Whether you are evaluating your tax obligations, seeking to avoid unnecessary delays, or ensuring compliance with regulatory requirements, this guide will walk you through the process-step-by-step. Let us begin by understanding the primary routes available to NRIs wishing to sell property in India.
Two Primary Methods for Selling Property in India as an NRI
When selling property in India, NRIs typically have two avenues. The choice between them can significantly impact the timing, amount, and convenience of receiving your funds. Below, we examine each method in detail.
Option 1: Sell and Pay the Standard TDS (20-23%)
The more traditional approach involves allowing the buyer to deduct Tax Deducted at Source (TDS) at the standard rate of 20% to 23% of the total sale consideration. Here's how this process unfolds:
- The buyer deducts TDS on the full sale amount and remits it to the Income Tax Department.
- The seller subsequently files an income tax return in India.
- Any excess tax paid is claimed as a refund.
However, this method has notable drawbacks:
- Delayed Access to Funds: Refunds may take up to 18 months to process.
- Administrative Hurdles: Owing to heightened scrutiny and compliance checks, refund claims are increasingly scrutinized.
- Unresolved Tax Matters: If there are any pending tax issues or inconsistencies in your filings, the refund process can be significantly delayed or denied.
In light of these challenges, NRIs are increasingly opting for a more efficient alternative.
Option 2: Apply for a Lower TDS Certificate (Recommended)
The preferred and more strategic route for most NRIs in 2025 involves applying for a Lower TDS Certificate from the Income Tax Department. This approach allows the buyer to deduct TDS only on the actual capital gains-rather than the full sale price.
Consider the Following Scenario:
If your computed tax liability is only 5%, you can obtain a certificate permitting the buyer to deduct TDS at that rate, thereby receiving 95% of the sale proceeds upfront, without waiting for a refund.
Benefits of the Lower TDS Certificate Approach:
- Immediate Access to Funds: Avoid prolonged refund cycles and reinvest your money sooner.
- Optimized Cash Flow: Retain the bulk of your proceeds and put them to productive use.
- Simplified Compliance: Reduce interaction with tax authorities post-sale.
Given the efficiency and financial prudence this method offers, it is widely recommended for NRIs in 2025.
Step-by-Step Process to Obtain a Lower TDS Certificate
Navigating the procedural requirements for obtaining a Lower TDS Certificate may seem daunting, but with the right guidance and timely action, the process can be seamless. Here is a detailed breakdown of each step:
Step 1: Sign a Memorandum of Understanding (MoU)
Begin by executing a Memorandum of Understanding (MoU) with the prospective buyer. This preliminary agreement outlines the intent to transact and sets the groundwork for further steps.
Important Note: It is advisable to keep the token amount under ₹1 lakh. Until the Lower TDS Certificate is issued, any amount received is subject to the full TDS deduction of 23%.
Step 2: Buyer Verifies Legal and Financial Credentials
The buyer will undertake a due diligence process which typically includes:
- Verification of ownership documents
- Title clearance and encumbrance check
- Legal authentication of your NRI status
- Preliminary loan eligibility assessment (if applicable)
Upon satisfactory completion, it is common for the buyer to advance 20% of the consideration from personal funds.
Step 3: Sign the Agreement for Sale
The Agreement for Sale formalizes the transaction and is often registered with local authorities. It serves as a legally binding commitment and is typically used by the buyer to initiate the home loan process.
Step 4: Buyer Applies for TAN (Tax Account Number)
Before deducting any TDS, the buyer must obtain a valid TAN (Tax Account Number). This is distinct from a PAN and is mandatory for all TDS deductions.
Professional Assistance: Compliance packages are available at an approximate cost of ₹7,000, covering end-to-end support for obtaining TAN and filing documentation.
Step 5: Compile and Submit Required Documentation
To support your application for the Lower TDS Certificate, you will need the following:
1. Proof of NRI Status
- Passport with visa and entry/exit stamps
- Confirmation of having resided outside India for more than 182 days in the preceding financial year
- Property Purchase Agreement
- Original sale deed or allotment letter from when the property was purchased
2. Proof of Payment and Cost of Acquisition
- Bank statements, cheque copies, and other evidence reflecting the purchase price
- Details of any capital improvements to adjust your cost basis
These documents are essential in determining your actual capital gains, upon which the applicable TDS rate will be calculated.
Step 6: File the Application Online
With all documents in place, the application for the Lower TDS Certificate is submitted via the official Income Tax Department portal.
Processing Time: The certificate is typically issued within 30 to 45 days. If the department raises any queries, your appointed representative can address them on your behalf.
Step 7: Provide the Certificate to the Buyer
Once approved, share the Lower TDS Certificate with the buyer. They will deduct tax only at the approved rate and remit the remaining amount directly to your account. This ensures full compliance and efficient fund transfer.
Step 8: Final Sale and Registration
The final stage includes:
- Disbursement of the buyer's home loan, if applicable
- Execution and registration of the Sale Deed
- Handover of possession and property keys
Pro Tip: Even if not legally mandated in your state, registering the Sale Deed is highly advisable to avoid future disputes and validate the transaction.
Key Points to Keep in Mind
- MoU Registration: Not compulsory, but useful for recordkeeping and clarity.
- Timelines: Initiate the process at least 60 days before your intended sale date.
- Professional Help: Engage tax consultants or property lawyers familiar with NRI transactions.
- Repatriation of Funds: Ensure compliance with RBI norms for repatriating funds abroad.
Conclusion
Selling property in India as an NRI in 2025 need not be a stressful or time-consuming endeavor. With proper planning, a well-informed strategy, and a preference for the Lower TDS Certificate route, you can streamline the process, avoid administrative roadblocks, and maximize the return on your investment.
By starting early, maintaining transparency, and leveraging professional expertise, you not only protect your interests but also gain financial agility. As always, a proactive approach and thorough documentation remain the cornerstones of a successful transaction.
The author is a Chartered Accountant and former EY professional. He currently serves as the Chief Consultant for the NRI Desk and Influencer Desk at AKT Associates. Arun specialises in NRI taxation and creates educational content to empower the global Indian community.
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