TDS on Sale of Immovable Property by NRIs

1. Introduction

Investing in immovable property in India has long been a popular choice among Non-Resident Indians (NRIs). Many NRIs purchase residential houses, apartments, commercial properties and land in India, either for their own use or as a long-term investment. However, when the time comes to sell such property, the tax implications can be more complicated than they initially appear.

One of the most important issues is Tax Deducted at Source (TDS). Unlike an ordinary property transaction between two residents, the sale of property by an NRI generally requires the purchaser to examine the provisions applicable to payments made to non-residents. This can create practical difficulties for both parties, particularly when the TDS amount is significantly higher than the actual capital gains tax payable by the seller.

With effect from 1 April 2026, the Income-tax Act, 2025, has replaced the Income-tax Act, 1961, for transactions governed by the new legislation. The provisions dealing with TDS have been reorganised, and section 393(2) is an important reference point for tax deduction on specified payments to non-residents.

This article explains the key tax and compliance requirements applicable when an NRI sells immovable property in India, including TDS, capital gains, available exemptions, PAN and TAN requirements, and repatriation of sale proceeds. The objective is to help NRIs and property purchasers understand their responsibilities and plan the transaction properly, rather than discover tax complications after the sale has been completed.

2. Understanding TDS on the sale of property by an NRI

When an NRI sells property situated in India, the purchaser must examine whether tax is required to be deducted from the payment made to the seller. The obligation arises under the provisions governing payments to non-residents, subject to the applicable statutory conditions.

It is important to understand that the responsibility for deducting and depositing TDS generally rests with the purchaser. The seller's responsibility is to provide the necessary information, comply with the applicable tax requirements and report the transaction correctly in the income-tax return.

Does the ₹50 lakh threshold apply to NRIs?

Many property purchasers are familiar with the general rule requiring TDS at 1% on specified purchases of immovable property where the consideration meets the prescribed threshold of ₹50 lakh. However, this rule should not be applied automatically when the seller is an NRI.

The provisions governing payments to non-residents operate differently, and the purchaser must determine the applicable TDS requirement before proceeding with the transaction.

Therefore, a purchaser should not assume that TDS is unnecessary simply because the sale consideration is below ₹50 lakh. The seller's residential status and the provisions applicable to the transaction must be examined first.

3. What is the applicable rate of TDS?

The rate of TDS on the sale of property by an NRI depends on the nature of the income, the applicable withholding provisions and the relevant tax rates. Surcharge and health and education cess may also need to be considered. For capital gains purposes, the holding period of the property is particularly important.

Long-term capital gains

For an ordinary immovable property qualifying as a long-term capital asset, the applicable long-term capital gains provisions must be examined. For transfers taking place on or after 23 July 2024, the general rate for such long-term capital gains is 12.5% without indexation, subject to applicable statutory provisions and special circumstances. However, the rate used for TDS should not automatically be assumed to be the same as the final tax rate applicable to the seller. The withholding provisions must be examined separately.

Short-term capital gains

If the property does not qualify as a long-term capital asset, the gain is generally treated as short-term capital gain. For immovable property, the general holding-period threshold is 24 months. The applicable tax treatment depends on the seller's circumstances and the relevant provisions. It would therefore be incorrect to assume that every short-term gain is automatically taxable at a flat rate of 30%.

Surcharge and health and education cess

The final amount of tax to be withheld may also depend on the applicable surcharge and health and education cess. These cannot be determined merely by looking at the sale price of the property. The purchaser should obtain a proper tax computation before deducting TDS, particularly in high-value transactions.

Can the NRI obtain a lower TDS certificate?

Where the expected tax liability is lower than the amount that would otherwise be deducted, the NRI may explore applying to the jurisdictional Assessing Officer for a lower or nil deduction certificate, subject to the applicable provisions.

For example, the seller may have substantial eligible acquisition costs, qualifying transfer expenses or a legitimate claim for exemption. In such circumstances, the amount of actual capital gains tax may be considerably lower than the TDS calculated on the payment. The application should be made sufficiently in advance. The purchaser should not independently reduce TDS merely because the seller expects to pay less tax; the applicable certificate or other legal authority must support the reduced deduction.

4. When should TDS be deducted and deposited?

The timing of TDS is another important aspect of the transaction. Under the applicable provisions, deduction may be required when the amount is credited or paid, whichever occurs earlier, subject to the relevant statutory conditions. The parties should therefore address TDS before making the payment rather than waiting until the registration of the sale deed.

In practice, the purchaser should:

• Confirm the seller's residential status and obtain the necessary PAN details.
• Determine the applicable TDS rate and the amount on which tax is required to be deducted.
• Deduct tax at the prescribed time.
• Deposit the tax within the applicable statutory deadline.
• File the prescribed statement or challan-cum-statement.
• Provide the seller with the prescribed TDS certificate.

Failure to comply with the applicable requirements can result in interest, fees, penalties and other legal consequences. The seller should also follow up with the purchaser to ensure that the TDS has actually been deposited and correctly reported.

5. Importance of PAN

A Permanent Account Number (PAN) plays an important role in the TDS process. It helps identify the seller, enables proper reporting of the transaction and facilitates the credit of tax deducted against the seller's tax liability.

An NRI who intends to sell property in India should ensure that the PAN details are available and correctly recorded in the transaction documents. If the seller does not have a PAN, the issue should be addressed well before the sale is completed. The parties should examine the applicable provisions governing the consequences of a missing or invalid PAN rather than assume that the normal rate of deduction will continue to apply.

Having the correct PAN details from the beginning can help avoid unnecessary delays in reporting, tax credit and refund processing.

6. TAN requirements and the change effective 1 October 2026

The requirement to obtain a Tax Deduction and Collection Account Number (TAN) has traditionally been a significant compliance concern for individuals purchasing property from NRIs.

Under the earlier procedure, a resident individual or HUF purchasing immovable property from a non-resident generally had to obtain a TAN to comply with the applicable TDS requirements.

An important procedural change took effect on 1 October 2026. Under the amended framework, a resident individual or Hindu Undivided Family (HUF) purchasing immovable property from a non-resident is not required to obtain a TAN solely for this transaction. The prescribed PAN-based procedure can instead be used, subject to the applicable conditions.

The Income Tax Department's guidance identifies Form 141, Schedule E, for the relevant challan-cum-statement procedure under section 393(2). This is a welcome simplification for individual buyers who may otherwise have needed to obtain a separate tax registration for a single property transaction.

However, the change does not remove the obligation to deduct and deposit TDS. Purchasers must still follow the correct procedure for their category and transaction date. Companies, firms and other entities should separately examine their applicable TAN and reporting requirements.

7. How are capital gains calculated?

While TDS determines how much tax the purchaser must withhold, capital gains computation determines the seller's actual taxable profit. Under the Income-tax Act, 2025, section 72 deals with the general computation of capital gains.

Broadly, the computation involves taking the full value of consideration and deducting eligible transfer expenses, the cost of acquisition and the cost of improvement, subject to the applicable statutory rules.

A simplified illustration is given below:

The above illustration assumes that the stated expenses and costs are eligible under the applicable provisions. It does not calculate the final tax payable.

When preparing the actual computation, the following matters deserve attention:

• Cost of acquisition: The original purchase price and relevant acquisition date must be established. Special rules may apply to inherited or gifted property.
• Cost of improvement: Only qualifying expenditure supported by appropriate records should be considered.
• Transfer expenses: Eligible expenses directly connected with the sale may be deductible.
• Holding period: The property must be classified correctly as a short-term or long-term capital asset.
• Stamp duty value: The applicable provisions governing deemed consideration should be examined where the stamp duty value differs from the agreed sale price.
• Exemptions: Any claim for reinvestment relief should be evaluated separately.

The amount of TDS deducted by the purchaser should not be confused with the capital gains calculated by the seller. Both calculations serve different purposes and must be carried out independently.

8. Stamp duty value and its tax implications

In some transactions, the stamp duty value of the property may be higher than the price agreed between the buyer and the seller. This difference can have implications for the computation of capital gains under the applicable provisions governing deemed consideration.

However, it is not correct to assume that the stamp duty value automatically replaces the actual sale price for every TDS purpose. The parties should distinguish between the actual consideration received, the amount relevant for TDS and the value that may be taken into account for computing capital gains under the applicable statutory provisions.

Where there is a substantial difference between the sale consideration and the stamp duty value, it is advisable to obtain professional advice before completing the transaction.

9. Exemptions available on capital gains

An NRI may be able to reduce or eliminate capital gains tax by satisfying the conditions for a statutory exemption. The availability of an exemption depends on the type of asset sold, the nature of the reinvestment and compliance with the prescribed time limits. The corresponding provisions under the Income-tax Act, 2025 should be referred to for transactions governed by the new Act.

Exemption on investment in another residential house

An NRI selling a qualifying residential house may be eligible for exemption where the capital gains are reinvested in another qualifying residential house in India within the prescribed period. Section 81 of the Income-tax Act, 2025 deals with capital gains on the transfer of a residential house property and investment in another residential house.

The amount of exemption and the conditions attached to it must be examined carefully. Merely purchasing another property does not automatically entitle the seller to full exemption.

Exemption on investment in specified bonds

An exemption may also be available where eligible long-term capital gains arising from the transfer of land or a building, or both, are invested in qualifying specified bonds within the prescribed time limit. Section 83 of the Income-tax Act, 2025 is relevant to this category of relief. The eligible bonds, investment ceiling, holding requirements and other conditions should be checked before the investment is made.

Exemption where another residential house is purchased

Where an individual or HUF sells a qualifying long-term capital asset other than a residential house and invests the net consideration in a qualifying residential house in India, relief may be available under section 86 of the Income-tax Act, 2025. The exemption is subject to specific conditions and restrictions, including requirements relating to investment periods and ownership of other residential houses.

Capital Gains Accounts Scheme

In appropriate cases, the Capital Gains Accounts Scheme may help preserve eligibility for an exemption where the qualifying amount has not been utilised before the relevant return-filing deadline. The seller should verify the applicable conditions before relying on this facility.

One point deserves particular emphasis: the purchaser should not reduce TDS merely because the NRI intends to reinvest the sale proceeds. Where a lower or nil deduction certificate is required, it should be obtained before applying the reduced rate.

10. Relief under the Double Taxation Avoidance Agreement

Many NRIs are tax residents of countries that have entered into Double Taxation Avoidance Agreements (DTAAs) with India. These agreements are intended to provide relief from double taxation and allocate taxing rights between the countries concerned.

However, the existence of a DTAA does not automatically exempt the sale of Indian property from Indian income-tax. In many cases, the country in which the immovable property is situated retains the right to tax gains arising from its transfer. The precise position depends on the wording of the applicable treaty.

An NRI seeking treaty relief should generally examine the following:

• Whether a valid Tax Residency Certificate (TRC) is available.
• What the relevant treaty says about gains from immovable property.
• Whether additional declarations or documents are required.
• Whether the treaty's conditions and anti-abuse provisions are satisfied.
• Whether relief is available under the treaty read with the domestic law.

A TRC establishes evidence of tax residence, but it does not, by itself, eliminate Indian TDS or capital gains tax. The seller should also consider whether tax paid in India may be eligible for foreign tax credit in the country of residence, subject to that country's domestic law and the applicable treaty.

11. What if the property is agricultural land?

Agricultural land requires separate examination because its tax treatment depends on its location, legal classification and the applicable statutory definition of a capital asset.

Certain agricultural land falling outside the definition of a capital asset may not attract capital gains tax under the ordinary capital gains provisions. Other land described as agricultural in revenue records may nevertheless fall within the taxable definition, depending on the relevant statutory criteria.

Before selling agricultural land, the parties should verify:

1. The location of the land and its distance from the relevant municipality or notified area.
2. The applicable population and other statutory criteria.
3. The revenue records and actual nature of the land.
4. Whether the land qualifies as a capital asset under the Income-tax Act, 2025.
5. Whether any separate TDS or reporting obligation applies.

It would be unsafe to conclude that the transaction is entirely free from tax merely because the land is recorded as agricultural land or because the seller is an NRI.

12. Filing the income-tax return and claiming a refund

After the transaction, the NRI should verify that the TDS deducted by the purchaser has been deposited and correctly reflected in the seller's tax records.

The seller should then prepare the capital gains computation, claim eligible exemptions and calculate the final tax liability in accordance with the applicable provisions.

If the tax deducted exceeds the final tax payable, the excess amount may be claimed as a refund by filing the applicable income-tax return and complying with the prescribed requirements. If the TDS is insufficient to cover the final liability, the seller must pay the balance tax and meet the applicable advance-tax and return-filing obligations.

This is one of the reasons why a proper tax computation should be prepared before the sale. It helps the seller understand the likely tax cost and determine whether an application for lower TDS is appropriate.

13. Repatriation of sale proceeds

For many NRIs, selling the property is only the first step. They may also wish to transfer the sale proceeds to their overseas bank account.

Such a transfer is known as repatriation and is governed by the applicable Foreign Exchange Management Act (FEMA) framework, Reserve Bank of India directions and authorised dealer bank procedures.

The amount that can be repatriated depends on how the property was acquired, the source of funds, the nature of the transaction and the applicable foreign exchange rules.

Eligibility and limits

Different rules may apply depending on whether the property was acquired using eligible foreign exchange, funds held in an NRE or FCNR account, or funds held in an NRO account.

The commonly applicable limit of USD 1 million per financial year for specified remittances from NRO balances and other eligible assets should not be treated as a universal limit applicable identically to every property sale. Before initiating repatriation, the NRI should consult the authorised dealer bank to confirm the applicable conditions and limits.

Documents generally required

Depending on the circumstances, the bank may ask for:

• The registered sale deed and purchase documents.
• Evidence of the source of funds used to acquire the property.
• Bank statements showing receipt of the sale proceeds.
• PAN and identification documents.
• TDS certificates and evidence of tax payment.
• The capital gains computation and relevant tax documents.
• Prescribed declarations, certificates or forms.

The exact requirements should be confirmed with the authorised dealer bank before the transfer is initiated.

Why tax compliance matters

The NRI should ensure that the Indian tax obligations arising from the transaction have been properly addressed before repatriating the funds. TDS compliance, final capital gains tax liability and FEMA requirements are separate matters. Deduction of TDS does not automatically establish that the entire balance can be repatriated, just as permission to repatriate funds does not determine the final tax liability.

14. Practical checklist before completing the sale

To avoid unnecessary delays and disputes, both parties should address the following matters before completing the transaction.

For the NRI seller

• Confirm residential status and provide correct PAN details.
• Keep the original purchase documents and evidence of acquisition cost ready.
• Calculate the estimated capital gains and final tax liability.
• Check eligibility for exemptions and lower or nil TDS.
• Ensure that TDS has been correctly reported and obtain the prescribed certificate.
• File the applicable income-tax return and claim any eligible refund.
• Confirm the repatriation requirements with the authorised dealer bank.

For the purchaser

• Verify the seller's residential status and PAN.
• Determine the correct TDS provision and rate.
• Check whether a lower or nil deduction certificate is available.
• Deduct and deposit tax within the prescribed time.
• Follow the applicable TAN-based or PAN-based reporting procedure.
• File the prescribed statement and issue the TDS certificate.
• Maintain the sale deed, payment records and proof of tax compliance.

15. Conclusion

Selling property in India can be a significant financial event for an NRI. A little planning before the transaction can make a substantial difference to the tax outcome and help prevent avoidable delays in receiving or transferring the sale proceeds.

The purchaser must ensure that TDS is deducted and deposited correctly, while the NRI seller must focus on the computation of capital gains, eligibility for exemptions, tax return compliance and repatriation requirements.

The Income-tax Act, 2025, has reorganised the relevant tax provisions, and the procedural change effective 1 October 2026 has simplified TDS compliance for resident individuals and HUFs purchasing property from non-residents by removing the requirement to obtain a TAN solely for that transaction, subject to the prescribed procedure.

Nevertheless, the correct TDS rate, surcharge, exemptions and reporting requirements must be established with reference to the specific transaction. In particular, the amount deducted as TDS may be considerably higher than the seller's ultimate tax liability, making advance planning especially valuable.

For NRIs, the best approach is to obtain professional tax advice before signing the sale deed, evaluate the available reliefs, complete the prescribed compliance and retain all supporting records.

Proper planning, timely compliance and informed decision-making can help NRIs sell their Indian property with greater confidence and avoid unnecessary tax and regulatory complications.