NRIs often lose substantial sums when selling property due to a lack of awareness of TDS regulations. This can cause them to lose 20-30% of the total sale value as soon as the income hits their bank account. Understanding the TDS on sale of property by NRI, along with the difference between short-term and long-term capital gains, can help prevent this issue. An NRI legal tax expert can help them with proper TDS compliance and the claim of eligible tax benefits. This blog will be an NRI’s guide to the TDS rules applicable to property sales in India. 

TDS on Sale of Property by NRI - Quick Info

Under Section 195 of the Income Tax Act, 1961, the buyer must deduct TDS on sale of property by NRI. If the property is held for more than 24 months (post-July 23, 2024), LTCG applies, and TDS is 12.5% (without indexation) plus surcharge and cess, and if sold within 24 months, STCG applies, and TDS is deducted at applicable slab rates. TDS is deducted on the full sale value unless the NRI obtains a lower deduction certificate under Section 197 to reduce excess deduction. [1]

What is TDS on the Sale of Property by an NRI?

In accordance with Section 195 of the Income Tax Act, 1961, TDS or Tax Deducted at Source refers to the tax that the buyer must deduct at the time of making payment to an NRI property seller. This deduction is mandatory, regardless of the property value. In practice, TDS is deducted from the total sale consideration unless a lower deduction certificate is obtained. These rules are also aligned with compliance requirements issued by the Central Board of Direct Taxes (CBDT).

How Does the TDS Rate Differ for Residents?

TDS for residents is lower than for NRIs. TDS for NRIs is governed by Section 195 of the Income Tax Act, 1961, and is deducted at the rates applicable to capital gains, including surcharge and cess. TDS for Indian residents, on the other hand, is covered under Section 194-IA and is deducted at 1% of the sale value if the property value exceeds ₹50 lakh.

Latest NRI TDS Rate in 2026

Under Section 195 of the Income Tax Act, 1961, TDS on sale of property by NRI is deducted at the applicable capital gains tax rates. With a lower TDS certificate, long-term capital gains are taxed at 12.5% without indexation, while short-term capital gains are taxed at applicable slab rates. This table will break down the latest NRI TDS rates in 2026:

Note: The highest surcharge rate can be subject to marginal relief provisions as per the Income Tax Act

Resident vs NRI TDS Comparison

TDS is governed under different provisions of the Income Tax Act, 1961, and varies for resident and NRI sellers. Transactions involving NRIs attract a higher TDS rate compared to those involving Indian residents.

Step-by-Step TDS Deduction Process for Buyers Purchasing Property from an NRI

As a buyer, you must deduct TDS at the time of making payments to the NRI seller, from the total sale consideration, unless the seller provides a lower deduction certificate. Here’s the step-by-step TDS deduction process you need to follow:​

Step 1: Obtain PAN & TAN: 

Ensure the NRI seller provides a valid PAN. As the buyer, you also need to obtain a TAN number since you must deduct TDS under Section 195.

Step 2: Determine TDS rate & amount:

Deduct TDS at the applicable slab rates, depending on whether the property qualifies for short-term or long-term capital gains. If the sale qualifies for LTCG (post–23 July 2024, without indexation), use 12.5% plus surcharge plus 4% cess; if it is STCG, use the applicable income tax slab rates plus surcharge plus cess.

Step 3: Check for a Lower or Nil TDS Certificate:

Ask the NRI seller if they have obtained a lower or nil deduction certificate under Section 197. If yes, deduct TDS at the rate specified in the certificate.​

Step 4: Deduct TDS at the time of payment:

Deduct TDS when making payment to the NRI seller, including advance payments or instalments. In most cases, deduct TDS from the total sale consideration, unless the seller has a lower deduction certificate.

Step 5: Deposit TDS with the government:

Deposit the deducted TDS using Challan 281 on the Income Tax portal within 7 days from the end of the month in which you made the deduction.

Step 6: File TDS return through Form 27Q:

After depositing the TDS, you must file the quarterly TDS return through Form 27Q.

Step 7: Issue Form 16A to the NRI Seller:

After filing the return, download Form 16A and give it to the NRI seller as proof that you have deducted and deposited the TDS.

What are the Documents Required for TDS on the Sale of Property by an NRI?

The filing of TDS on the sale of property by an NRI requires the following documents for processing. NRIs are advised to apply for a lower deduction certificate to avoid excessive tax deductions:​

• PAN card
• Sale agreement & sale deed
• Buyer’s TAN
• Proof of NRI status (passport, visa, or overseas address proof)
• Property documents
• TDS payment proof
• Lower TDS certificate(if applicable) 

Lower TDS Certificate & Refund on Sale of Property

Under Section 197 of the Income Tax Act, 1961, NRIs can obtain a lower or nil TDS certificate when the applicable rate exceeds their actual tax liability. This helps NRIs avoid excess tax deductions, prevent funds from being blocked, and reduce the need to claim refunds later.

Applicants can apply for a lower TDS certificate using Form 13 on the Income Tax TRACES portal, which is reviewed by an Assessing Officer. If a certificate is not obtained, the excess TDS can be claimed as a refund while filing the ITR.

How to Claim a TDS Refund?

• Step 1: Log in to the Income Tax e-filing portal and select the assessment year.
• Step 2: Report the property sale and capital gains details while filing the Income Tax Return.
• Step 3: Enter the TDS details as shown in Form 26AS or the TDS certificate issued by the buyer.
• Step 4: If the TDS deducted exceeds the actual tax liability, the excess will be automatically calculated as a refund.
• Step 5: After verification and processing by the Income Tax Department, the refund will be credited to the registered bank account.

Common Mistakes NRIs Make When Dealing with TDS on Property Sale

Oftentimes, NRIs end up paying more tax than required due to a lack of awareness. Many of these issues can be avoided by following an NRI tax planning guide before March 31 and keeping the following points in mind:

• Not obtaining a Lower TDS Certificate: NRIs often fail to apply for a lower TDS certificate under Section 197, leading the buyer to deduct TDS on the total sale consideration rather than the actual capital gains.
• Using the Wrong TDS Form: Unlike Form 26QB, which is used for resident sellers, NRI property transactions must be reported on Form 27Q.
• Incorrect Capital Gain Calculation: Failing to properly calculate capital gains, misclassifying them as long-term or short-term, and failing to factor in indexed costs can lead to excessive tax liability.
• PAN-Aadhaar Not Linked: If the PAN becomes inoperative due to non-linkage with Aadhaar, it may result in higher TDS deductions.
• Ignoring DTAA Provisions: A Double Taxation Avoidance Agreement is a treaty between two countries that prevents taxpayers from paying tax on the same income twice. Ignoring DTAA income tax provisions can result in taxpayers paying taxes in both countries.
• Not filing Income Tax Returns: Even if TDS has been deducted, filing for ITR can help claim refunds for excess tax deductions.
• Ignoring TAN Requirement: A buyer must obtain a TAN to deduct and deposit TDS on property purchases from NRI sellers.

Compliance Rules & Penalties for TDS on Sale of Property by NRI

For TDS on the sale of property by an NRI, certain compliance requirements must be followed under the Income Tax Act, 1961, along with applicable penalties for non-compliance. [2]

Compliance Rules:

• For properties sold on or after July 23, 2024, long-term capital gains are taxed at 12.5% without indexation. For properties sold before July 23, 2024, LTCG is taxed at 20% with indexation benefits, while short-term capital gains are taxed as per the applicable income tax slab rates.
• The buyer is responsible for deducting TDS and depositing it with the government.
• PAN cards for both parties are mandatory. The buyer must file Form 27Q and issue Form 16A to the NRI seller.
• If the applicable tax liability is lower than the standard deduction, NRIs can apply for a lower TDS certificate under Section 197
• To repatriate sale proceeds outside India, Forms 15CA and 15CB are required in compliance with RBI and FEMA regulations.

Penalties for Non-Compliance:

• An interest of 1% per month, non-deductible, and 1.5% for late payment is charged to the buyer.
• A fee of ₹200 per day may be charged for delayed TDS return filing under Section 234E, capped at the total TDS amount.
• Under Section 271H, a penalty between ₹10,000 and ₹1,00,000 may be imposed for failure to file or incorrect filing of TDS returns.
• Failure to deposit TDS with the government may result in prosecution under Section 276B, which can lead to imprisonment for 3 months to 7 years and a fine.

Book an NRI Property Sale Legal Consultation with NoBroker

​Knowing the intricate details about TDS on the sale of property by NRI can help save a lot of money! While the basics of taxation in India and foreign countries are easy to understand, many people are more comfortable seeking professional help from tax experts. If you are looking for a tax consultant to manage the entire process, you will certainly find assistance on NoBroker. From legal consultation and tax advisory to document preparation, proofreading, TDS compliance, and property sale management, NoBroker’s legal experts are there with you for consultation. NoBroker is your one-stop shop for everything legal-related.