TDS on Sale of Property by NRIs: A Comprehensive Guide for Overseas Sellers (Updated for 2025)

Selling property in India as a Non-Resident Indian (NRI) can be highly rewarding, but it also involves complex tax implications—most notably, Tax Deducted at Source (TDS). TDS on property sales is designed to collect tax at the source of payment, ensuring that tax liabilities on capital gains are met promptly. This comprehensive 2025 guide explains how TDS applies to property sales by NRIs, the applicable rates for long-term and short-term capital gains, and detailed steps for compliance. We also cover additional elements like advance payments, double taxation, and repatriation of sale proceeds, ensuring you have all the information to navigate your transaction confidently.

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1. Understanding Capital Gains and TDS on Property Sales

Capital Gains Tax

• Long-Term Capital Gains (LTCG):
  • Applies when the property is held for more than 2 years (threshold reduced from 3 years in Budget 2017).
  • For NRIs, LTCG is taxed at 20% (after indexation) for transactions before July 23, 2024, and 12.5% (without indexation) for those after this date.
• Short-Term Capital Gains (STCG):
  • Applies when the property is sold within 2 years.
  • Tax is levied as per the applicable income tax slab rates for the seller (which may be as high as 30%), along with surcharge and cess.
• Inherited Properties:
  • The acquisition cost for inherited property is taken from the original owner’s purchase cost, which then determines whether the gains are long or short-term.

TDS Mechanism for NRIs

• Deduction at Source:
  • Under Section 195 of the Income Tax Act, the buyer is responsible for deducting TDS from the sale consideration before releasing the funds.
• TDS Certificate:
  • The buyer deposits the deducted TDS with the Income Tax Department and issues a Form 16A (TDS certificate) to the seller.
• Tax Return Filing:
  • NRIs can claim the deducted TDS as a credit in their income tax return. If the TDS exceeds the final tax liability, a refund will be issued.

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2. Detailed TDS Rates and Effective Rates for NRIs

For long-term capital gains, the effective TDS rate on property sale by NRIs is determined as follows:

Particulars	Less than 50 Lakhs	50 Lakhs to 1 Crore	Above 1 Crore
Long-Term Capital Gains Tax	20% or 12.5%	20% or 12.5%	20% or 12.5%
(Add) Surcharge	Nil	10% of above	15% of above
Total Tax (incl. Surcharge)	20%	22% or 13.75%	23% or 14.375%
(Add) Health & Ed. Cess (4%)	4% of Above	4% of Above	4% of Above
Applicable TDS Rate (incl. Surcharge & Cess)	20.8%	22.88% or 14.30%	23.92% or 14.95%

Note:

• The rates “20% or 12.5%” depend on whether the transfer is before or after July 23, 2024.
• Earlier, higher surcharges applied for properties valued above ₹2 Crores and even more so for those above ₹5 Crores. However, Budget 2022 capped the maximum surcharge at 15%, ensuring that the effective TDS rate remains constant at approximately 23.92% or 14.95% regardless of whether the property is worth ₹1 Crore, ₹5 Crores, or ₹10 Crores.
• For short-term capital gains (property held for 2 years or less), the TDS is deducted at the applicable income tax slab rates of the seller, with surcharge and cess added accordingly.

Additional Considerations:

• TDS must also be deducted on any advance payments made during the property transaction.
• The buyer is responsible for depositing the TDS with the Income Tax Department and must deduct TDS irrespective of the transaction value, even if the sale value is above or below ₹50 lakhs.

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3. How the TDS Process Works

1. At the Time of Sale:
   • The buyer deducts TDS from the total sale consideration.
2. TDS Deposit:
   • The deducted amount is deposited with the Income Tax Department using the buyer’s TAN (Tax Deduction and Collection Account Number).
3. Issuance of TDS Certificate:
   • The buyer issues Form 16A to the seller, detailing the amount deducted.
4. Tax Filing:
   • The seller includes the TDS details in their income tax return to claim credit. If the TDS exceeds the final tax liability, a refund is issued.

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4. Steps for NRIs to Ensure Compliance and Optimize Tax Liability

1. Verify TDS Certificate:
   • Confirm that Form 16A contains accurate details such as sale price, TDS rate, and property information.
2. Maintain Detailed Documentation:
   • Keep copies of sale deeds, purchase documents, renovation bills, and other expenses to calculate capital gains accurately.
3. Calculate Capital Gains:
   • For long-term properties, use indexation benefits to adjust the purchase price for inflation; for short-term, use the actual purchase price.
4. File Income Tax Return Promptly:
   • Report the TDS details to claim credit or refund any excess deduction.
5. Consult a Tax Expert:
   • Engage a chartered accountant or tax advisor specializing in NRI taxation to ensure full compliance and optimize refund potential.

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5. Additional Compliance Details and Buyer Responsibilities

• Deduction on Total Sale Price:
  TDS is deducted on the entire sale price, not merely on the capital gains.
• Advance Payments:
  If any advance payment is made during the transaction, TDS must be deducted on that amount as well.
• TAN Requirement:
  The buyer must use their TAN to deposit the deducted TDS. Failure to do so makes the buyer liable for the shortfall.
• Double Taxation Avoidance (DTAA):
  NRIs should check DTAA provisions between India and their country of residence to avoid being taxed twice on the same income.
• Repatriation of Sale Proceeds:
  For repatriating funds abroad, NRIs must submit Form 15CA and Form 15CB. While Form 15CA can be self-generated, Form 15CB must be issued by a chartered accountant.
• Residential Status:
  Use the Residential Status Calculator provided by the Income Tax Department to confirm your tax residency, as this affects the applicable TDS rate.

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6. Steps to Reduce TDS Liability Using Form 13

• Application for Lower TDS Deduction:
  NRIs may file Form 13 with the Income Tax Department to request a certificate for nil or lower TDS deduction based on the actual capital gains computed.
• Engage a Chartered Accountant:
  Given the complexity, many NRIs choose professional assistance to file Form 13.
• Co-Owner Compliance:
  In cases where the property is co-owned, each owner must individually file Form 13 to reduce their TDS liability.
• Documentation:
  Submit detailed records, including purchase price, renovation expenses, and the original date of purchase, to support your application for a lower deduction.

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7. Tools & Services to Streamline Your Transaction

• Due Diligence Services:
  Use Due Diligence to verify property documents and ensure there are no hidden liabilities.
• Legal Opinion Services:
  Engage Legal Opinion to obtain expert advice on the TDS implications and to review your capital gains calculations.
• Buy Services:
  Platforms like Buy Services integrate legal and financial compliance measures, ensuring a smooth transaction process for NRIs.