If you are a Non-Resident Indian (NRI) and you plan to sell a property in India, it is important to understand the taxes involved. Selling property in India can bring in a good amount of money, but it also comes with tax responsibilities, especially when it comes to capital gains tax and Tax Deducted at Source (TDS). Knowing the rules around these taxes can help you stay compliant, avoid penalties, and even save money by claiming refunds where applicable.
This guide will explain everything you need to know about capital gains tax, TDS, how much tax you have to pay, what documents you need, how to claim a refund, and how to deal with the buyer and the Income Tax Department.
1. What is Capital Gains Tax?
Capital gains tax is the tax you pay when you earn a profit from selling an asset such as a house, land, or apartment. If you bought a property in India and later sold it for a higher price, the profit you make is called a capital gain.
In India, capital gains are divided into two types:
a. Short-Term Capital Gains (STCG)
If you sell a property that you owned for less than 24 months, the profit is treated as a short-term capital gain. This gain is taxed based on your income tax slab rate in India.
For NRIs, this slab can go up to 30%, and on top of that, there is a surcharge and health & education cess. So, the total tax can be quite high.
b. Long-Term Capital Gains (LTCG)
If you sell a property that you owned for 24 months or more, the gain is called a long-term capital gain.
For NRIs, long-term capital gains aretaxed at a flat 12.5% rate without indexation benefit.
Note:
The TDS (Tax Deducted at Source) deducted by the buyer is still at 12.5% plus surcharge and cess, which can be more than the actual tax you owe.
2. TDS on Sale of Property by NRIs
Whenever an NRI sells a property in India, the buyer is required by law to deduct TDS before making the payment. This means the buyer will subtract a certain percentage of the money and deposit it with the Indian government as advance tax on your behalf.
Important Points:
- Who deducts TDS? The buyer of the property.
- How much TDS is deducted?
- If the gain is short-term (property held for less than 2 years): TDS is 30% plus surcharge and cess.
- If the gain is long-term (property held for more than 2 years): TDS is 12.5% plus surcharge and cess.
This TDS is deducted on the entire sale value, which results in excess tax being deducted.
Let’s understand two different cases here:
a. Section 195 (For NRIs)
Under Section 195, if you are an NRI selling a property, the buyer must deduct TDS at 12.5% (for LTCG) or 30% (for STCG) on the capital gain portion, on the entire property value.
b. Section 194-IA (For Resident Sellers)
If the property value is above ₹50 lakhs, and the seller is a resident Indian, the buyer needs to deduct only 1% TDS on the entire sale value. This is not applicable to NRIs.
3. What is TAN and Why Does the Buyer Need It?
TAN stands for Tax Deduction and Collection Account Number. This number is mandatory for any person who is deducting TDS.
Why the Buyer Needs TAN:
- The buyer must apply for a TAN before deducting TDS from the payment made to the NRI seller.
- TAN is used to deposit the TDS with the government and to file TDS returns.
- Without TAN, the buyer cannot deposit the deducted tax and the seller will not receive credit for that TDS.
Even if the buyer is also an NRI, they still need to get a TAN to comply with Indian tax laws.
Applying for TAN is a simple online process through the NSDL or TIN website.
4. When and How is TDS Deducted?
TDS must be deducted at the time of payment to the NRI seller or when the payment is credited to their account, whichever is earlier.
After TDS is Deducted:
- The buyer deposits the TDS amount with the Income Tax Department using Challan 281.
- The buyer files a TDS return using Form 27Q.
- After that, the buyer downloads and gives Form 16B to the NRI seller. This is the TDS certificate.
This Form 16B is proof that the buyer deducted and paid the tax on behalf of the seller. The NRI seller can use this while filing their income tax return.
5. Claiming TDS Credit and Filing ITR by NRI Seller
After selling the property, the NRI seller must file an Income Tax Return (ITR) in India for that financial year.
In the ITR, the seller should:
- Report the details of the property sale.
- Mention the capital gains earned.
- Claim the TDS credit based on Form 16B and Form 26AS.
What is Form 26AS?
Form 26AS is a tax credit statement that shows how much TDS has been deposited in your name. It includes all TDS entries by buyers, banks, or others.
If the total tax payable is less than the TDS deducted, the NRI can claim a refund of the extra amount. The refund will be processed by the Income Tax Department after filing the return.
6. How to Avoid High TDS? Apply for Lower or Nil TDS Deduction
Sometimes, the TDS deducted (12.5% or 30%) is much higher than the actual tax liability. In such cases, the NRI can apply for a lower TDS certificate from the Income Tax Department before the sale of the property.
How to Apply:
- Fill and submit Form 13 online on the income tax portal.
- Attach required documents like:
- Agreement to sell
- Cost of acquisition and purchase documents
- PAN details
- Estimated capital gains calculation
- The Assessing Officer will review your application and may issue a certificate for lower or nil deduction of TDS.
- You can give this certificate to the buyer, and they will deduct TDS at the lower rate as approved.
This helps you avoid over-deduction and the long wait for refunds.
Summary Table – Quick Reference
| Aspect | Details |
| Capital Gains Tax Rate | STCG: As per slab (up to 30%); LTCG: 12.5% without |
| TDS Rate on Sale | 12.5% on capital gains (Section 195); 1% (for residents under Section 194-IA) |
| Who Deducts TDS? | Buyer of the property |
| TAN Requirement | Buyer must apply for and use TAN |
| When to Deduct TDS? | At payment or credit to seller, whichever is earlier |
| Proof of TDS | Buyer issues Form 16B to the seller |
| Claiming TDS by Seller | File ITR, refer Form 26AS, claim refund if applicable |
| Lower TDS Deduction | Seller may apply for lower TDS via Form 13 before the transaction |
Final Words: A Note for NRIs and Buyers
For NRIs:
Selling property in India can be a rewarding decision, especially if your investment has appreciated in value. However, it’s crucial to plan your sale carefully to avoid unnecessary tax burdens. Always consider the holding period of your property to determine whether your capital gains are short-term or long-term. Filing Form 13 for a lower or nil TDS deduction in advance can save you from excess tax being deducted upfront. Ensure that your PAN is active and linked to your Indian bank account to receive any tax refund without delays. After the sale, file your Income Tax Return (ITR) to report the capital gains and claim the TDS credit. By understanding and following the proper procedures, you can ensure a smooth and tax-efficient property transaction.
For Buyers:
As a buyer purchasing property from an NRI, you have important responsibilities under Indian tax law. You must deduct TDS at the correct rate (12.5% or 30%) based on whether the seller’s gains are long-term or short-term. It’s also essential to apply for a TAN before deducting TDS and to deposit the tax with the government on time. Issuing Form 16B to the seller is a mandatory step that provides them with proof of deduction. If the NRI provides a lower TDS certificate, ensure you follow that rate. Complying with these rules not only protects you legally but also avoids penalties and future complications. Professional advice from a tax expert or chartered accountant can further streamline the process.
Whether you are an NRI or a buyer, understanding these legal and tax obligations will make the property sale and purchase transparent, hassle-free, and compliant with Indian tax laws.
