What TDS Means for NRIs Selling Property in India

When an NRI sells property in India, the buyer is required by law to deduct tax at source (TDS) before making the payment. This is not an optional step. Under Section 195 of the Income Tax Act, the buyer must withhold a portion of the sale proceeds and deposit it with the Indian government. This deduction acts as a safeguard, ensuring taxes are collected on income generated in India, even when the seller lives abroad.

In short, TDS is the foundation of NRI tax on property sale in India. Understanding who deducts it, at what rate, and how to reduce it can make a major difference in how much money you actually receive.

Who Deducts TDS and When It Must Be Paid

The responsibility for deducting TDS always lies with the buyer. The deduction must occur before the payment is made to the seller. Once deducted, the buyer must deposit the tax using Form 26QB within thirty days and issue Form 16A as a certificate of deduction. The NRI seller should collect this certificate and cross-verify it with their tax records before filing their Indian income tax return.

This system ensures that the property sale tax for NRI in India is automatically collected, but it also creates a challenge for sellers who may end up overpaying if their real taxable gains are lower than the sale value.

TDS Rates for NRI Property Sales

The TDS rate depends on how long the property has been held. If the property has been owned for more than 24 months, it qualifies as a long-term capital asset, and the TDS is deducted at 20 percent with indexation benefits. For properties held for less than 24 months, it is considered a short-term asset, and TDS is deducted at 30 percent as per the income tax slab.

After the 2024 amendments, NRIs selling property after July 23, 2024, can also opt for a 12.5 percent long-term capital gains tax without indexation. This update is significant because it gives NRIs more flexibility in how they manage NRI property taxation in India, allowing them to choose whichever method is more beneficial.

The Real Cost: Surcharge and Cess Additions

What many sellers don’t realize is that the actual TDS deducted is often higher than the basic rate. That’s because surcharges and cess are added on top. The surcharge can range from 10 to 37 percent depending on total income, and a 4 percent Health and Education Cess is applied to the final amount. This means your effective TDS on property sale could range from 20.8 to 23.9 percent for long-term capital gains.

Understanding these numbers upfront helps NRIs avoid surprises when calculating tax on property sale in India for non residents.

How Property Holding Period Affects Your Tax

The duration you own the property determines the type of tax you’ll pay. If you sell before completing 24 months of ownership, your gains are treated as short-term and taxed according to your income slab. After two years, your gains are considered long-term, allowing you to benefit from lower fixed rates and indexation.

This distinction is crucial for managing NRI tax on property sale in India, as selling just a few months too early could mean paying nearly 50 percent more in taxes.

Reducing TDS with a Lower Deduction Certificate

One of the most effective ways to reduce upfront deductions is to apply for a Lower Deduction Certificate (LDC) under Section 197. By filing Form 13 with the Income Tax Department, NRIs can get approval for a lower TDS rate that reflects the actual taxable gain instead of the full sale amount.

If you sell a property for ₹1 crore but your actual capital gain is only ₹15 lakh, a standard TDS deduction would block ₹20 lakh  because buyers are required to deduct 20% on the entire sale price unless you have an LDC. With a Lower Deduction Certificate, TDS applies only to the ₹15 lakh gain, reducing the deduction to just ₹3 lakh.

That means ₹17 lakh stays with you instead of sitting with the tax department for months, giving you immediate cash flow and a far smoother experience with tax on property sale in India.

Claiming Exemptions to Save on Capital Gains

NRIs can also reduce or eliminate tax liability by reinvesting their capital gains. Under Section 54, you can reinvest the proceeds from selling a residential property into another home in India within two years or use the funds to build a new one within three years. Section 54EC allows investment of up to ₹50 lakh in specified government bonds such as NHAI or REC within six months.

These reinvestments reduce your taxable gain and therefore lower your TDS deduction. They are a smart way to keep your tax on property sale in India legally minimized while reinvesting in compliant financial instruments as an NRI.

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‍What Buyers and Sellers Must Do to Stay Compliant

Compliance is equally important for both parties in an NRI property sale. The buyer must obtain a Tax Account Number (TAN), deduct TDS before making any payment, and deposit the amount within thirty days. The seller must ensure they collect Form 16A, verify it against their Form 26AS (income tax record), and report the sale in their Indian income tax return to claim the credit or refund.

Proper coordination between the buyer, seller, and chartered accountant ensures that NRI property taxation in India remains transparent and legally sound.

The Risk of Ignoring TDS Rules

Failing to deduct or deposit TDS correctly can lead to severe penalties. Buyers who don’t comply may face fines equal to the unpaid TDS amount and interest of one percent per month. Sellers who skip declaring the sale properly in their return risk losing refund eligibility and facing delays in repatriating funds abroad.

Compliance isn’t optional. It’s the foundation of managing tax on property sale in India for NRIs smoothly and avoiding legal trouble later.

How DTAA Helps NRIs Avoid Double Taxation

For NRIs based in Canada, the US, or the UK, the Double Taxation Avoidance Agreement (DTAA) ensures they don’t pay tax twice on the same income. This treaty allows you to claim a foreign tax credit in your resident country for the TDS already paid in India.

In practical terms, if you’ve paid tax on your Indian property sale, that amount is offset against your Canadian or US tax liability. DTAA protection is one of the best tools for reducing the total NRI tax on property sale in India burden and ensuring you don’t lose money across jurisdictions.

How to Claim a TDS Refund or Credit

If your TDS deduction is higher than your actual tax liability, you can claim a refund through your Indian Income Tax Return (ITR). File your return, attach Form 16A as proof of TDS, reconcile it with your Form 26AS, and claim the refund for the excess amount paid. Typically, refunds are processed within three to six months.

NRIs can also use the same TDS certificate to claim a foreign tax credit under the DTAA while filing returns in their home country. Managing this process correctly ensures your NRI-incurred tax on property sale in India is fully optimized and compliant on both sides.

Common Pitfalls to Avoid

Many NRIs unintentionally lose money by letting buyers deduct TDS on the entire sale price instead of just the gain. Others forget to apply for the LDC or fail to file Form 15CA and 15CB before repatriating funds. Some even neglect to update their residential status in their Indian ITR, which affects how their tax is calculated.

Avoiding these simple mistakes can save both time and money. Working with professional partners like Remittor ensures your property sale tax for NRI in India is handled accurately, with all the necessary filings completed on time.

A Real Example of Smart Tax Planning

Consider an NRI who sold an apartment in Bangalore for ₹1.2 crore, earning a capital gain of ₹20 lakh. The buyer deducted ₹24 lakh at 20 percent on the total sale value. After consulting with Remittor and applying for an LDC for his next transaction, the deduction was limited to ₹4 lakh, matching the actual gain. That one change saved him ₹20 lakh in locked-up funds and eliminated the long wait for a refund.

This example highlights how proactive planning can significantly lower NRI-incurred tax on property sale in India, putting more money back into your hands.

Conclusion: Plan Smart, Save More

Paying taxes is inevitable, but overpaying them isn’t. With careful planning, compliance, and expert guidance, NRIs can minimize their tax outflow and repatriate funds abroad smoothly. Managing tax on property sale in India, for NRIs, effectively is all about understanding the rules, applying the right exemptions, and filing the right forms on time.

Remittor’s integrated legal, tax, and remittance services help you manage every step, from securing lower TDS certificates to transferring your money abroad legally and efficiently. Because your wealth should move as freely as your ambitions do.