Buying Property from an NRI? Buyer Must Deduct TDS—Key Details

A new rule in India requires buyers to deduct tax at source (TDS) when purchasing property from a Non-Resident Indian (NRI). This change, effective as of August 2025, puts the legal responsibility on the buyer to ensure the correct tax is paid to the government. If the buyer does not follow these rules, they can face heavy penalties, interest charges, and even be treated as a tax defaulter.

This update is important for anyone planning to buy property from an NRI in India. The government wants to make sure taxes are collected properly and on time. As reported by VisaVerge.com, stricter enforcement and new rules have made it more important than ever for buyers and sellers to understand their roles and follow the law.

What Is TDS and Why Does It Matter?

TDS stands for Tax Deducted at Source. It means the buyer must take out a certain percentage of the payment and send it directly to the government before paying the rest to the seller. This rule applies when the seller is an NRI. The main goal is to make sure the government gets its share of tax from property sales, especially when the seller lives outside India.

How Much TDS Should the Buyer Deduct?

• For property held by the NRI for more than 24 months (long-term capital gains), the buyer must deduct 12.5% plus surcharge and cess from the capital gains.
• If the property was held for 24 months or less (short-term capital gains), the TDS rate can be as high as 30% plus surcharge and cess, depending on the seller’s income tax slab.
• If neither the buyer nor the seller has a certificate for lower TDS deduction, the buyer must deduct TDS on the entire sale price, not just the profit.

Which Law Applies?

• Section 195 of the Income Tax Act covers TDS on payments to NRIs, including property sales.
• Section 194-IA (which requires 1% TDS on property sales over Rs. 50 lakhs) only applies if the seller is a resident Indian, not an NRI.

What If the Seller Wants to Pay Less TDS?

NRIs can apply for a Lower TDS Deduction Certificate under Section 195(3). This certificate allows the buyer to deduct TDS only on the actual capital gains, not the full sale price. The process to get this certificate takes about 4-6 weeks, so the seller should apply early. If the seller does not have this certificate, the buyer must deduct TDS at the higher rate.

Step-by-Step Guide for Buyers

If you are a buyer planning to purchase property from an NRI, here’s what you need to do:

1. Check the Seller’s NRI Status and PAN
   Make sure the seller is an NRI and has a valid PAN (Permanent Account Number). If the PAN is not active or not linked with Aadhaar, higher TDS rates may apply.

1. Calculate the TDS Amount
   Figure out if the property sale is a long-term or short-term capital gain. If the seller does not have a lower TDS certificate, calculate TDS on the full sale price.

2. Get a TAN (Tax Deduction Account Number)
   The buyer must have a TAN to deduct and deposit TDS. You can apply for a TAN on the official government website.

3. Deduct and Deposit TDS
   Deduct the correct TDS amount from the payment to the NRI. Deposit this amount with the government, usually before the 7th of the next month.

4. File TDS Returns and Give Form 16A
   File TDS returns and issue Form 16A (TDS certificate) to the NRI seller. This form proves that TDS has been deducted and paid.

5. Help with Income Tax Returns
   Remind the seller to file their income tax return in India. If too much TDS was deducted, the seller can claim a refund.

1. For Sending Money Abroad
   If the NRI wants to send the sale money abroad, make sure to fill out Form 15CA and Form 15CB. These forms are needed for remitting funds outside India.

What Happens If the Buyer Does Not Deduct TDS?

If the buyer fails to deduct or deposit TDS, they can face:

• Penalties and Interest: The government can charge interest on the unpaid TDS and impose penalties.
• Legal Trouble: The buyer can be treated as an “assessee in default,” meaning they are responsible for the unpaid tax.
• Problems with Property Registration: The property may not be registered in the buyer’s name until all taxes are paid.

What Should NRIs Do?

NRIs selling property in India should:

• Keep PAN Active and Linked with Aadhaar: This avoids higher TDS rates under Section 206AA.
• Apply for a Lower TDS Certificate: If the actual tax on capital gains is less than the standard TDS, apply early for a lower deduction certificate.
• File Income Tax Returns in India: This is needed to claim any refund if too much TDS was deducted.
• Use Double Taxation Avoidance Agreements (DTAA): If the NRI’s home country has a DTAA with India, they can avoid paying tax twice. Submit a Tax Residency Certificate (TRC) and Form 10F to claim this benefit.

Recent Changes and Stricter Rules

The government has kept the TDS rate for long-term capital gains at 12.5% for the financial year 2025-26. The new Income Tax Bill 2025 highlights the importance of TDS on NRI income, including property sales. Tax authorities have warned that they will strictly enforce these rules and penalize those who do not comply.

Expert Advice and Community Impact

Tax professionals say buyers should start the TDS process early and apply for all needed certificates. Real estate experts warn that not following the rules can lead to big financial losses and legal trouble. NRI advisors suggest keeping all documents ready and making sure PAN and other details are up to date.

For buyers, the main risk is being held responsible for the seller’s tax if TDS is not handled correctly. For NRIs, failing to provide the right documents or not filing returns can mean losing money to higher TDS or missing out on refunds.

Common Mistakes and How to Avoid Them

• Not Checking Seller’s NRI Status: Always confirm if the seller is an NRI. The rules are different for resident Indians.
• Missing the TAN Application: Without a TAN, the buyer cannot deduct or deposit TDS.
• Delaying the Lower TDS Certificate: If the seller wants to pay less TDS, apply for the certificate early to avoid delays.
• Ignoring PAN-Aadhaar Link: If the seller’s PAN is not linked with Aadhaar, the TDS rate can be much higher.
• Not Filing TDS Returns: The buyer must file TDS returns and give Form 16A to the seller.
• Skipping Forms for Remittance: For sending money abroad, fill out Form 15CA and Form 15CB as required.

Where to Find Official Information

For more details, buyers and sellers can visit the Income Tax Department portal. This site has up-to-date rules, forms, and instructions for TDS, PAN, TAN, and other tax matters.

Practical Example

Suppose a buyer in India wants to purchase a flat from an NRI living in Canada 🇨🇦. The flat was bought by the NRI more than 24 months ago. The sale price is Rs. 1 crore. The buyer must:

• Confirm the seller’s NRI status and PAN.
• Deduct 12.5% plus surcharge and cess from the sale price, unless the seller has a lower TDS certificate.
• Apply for a TAN and deposit the TDS with the government.
• File TDS returns and give Form 16A to the seller.
• Make sure the seller files their income tax return in India to claim any refund.

Key Takeaways

• Buyers must deduct TDS when buying property from an NRI, or face penalties.
• NRIs should keep their PAN active, apply for lower TDS certificates, and file returns to avoid losing money.
• Both parties must keep all documents and follow the correct steps to avoid legal and financial problems.

By following these steps and staying informed, buyers and NRIs can complete property transactions smoothly and avoid trouble with tax authorities. For more guidance, always check the latest updates on the official government website or consult a tax professional.