Buying Property from an NRI – TDS Rules & Practical Compliance Guide | HSJ and Associates, CA in Udaipur

Buying Property from an NRI – TDS Rules & Practical Compliance Guide

By CA Swati Jain
Managing Partner – HSJ and Associates

Buying property from a Non-Resident Indian (NRI) is a valid transaction under Indian law, but it involves stricter tax compliance compared to resident transactions. Many buyers make mistakes in TDS handling, leading to penalties and notices.

Why TDS is Important in NRI Property Deals

When purchasing property from an NRI, Section 195 applies. Unlike resident transactions (1% TDS under Section 194-IA), here the buyer must deduct TDS on the entire sale value, not just capital gains.

Applicable TDS Rates (FY 2025–26)

• Long-term property (held more than 24 months):
  • TDS at 12.5% plus surcharge and cess

• Short-term property (held up to 24 months):
  • TDS as per NRI slab rates (generally around 30% plus surcharge and cess)

TDS is calculated on the sale consideration, not on profit.

Step-by-Step Compliance for Buyers

1. Verify seller’s NRI status and documents
Check passport, PAN, and residential status

2. Obtain TAN
Mandatory before deducting TDS

3. Deduct TDS at the time of payment
Applies even to advance payments

4. Deposit TDS with the government
Due by the 7th of the following month

5. File TDS return (Form 27Q)
Quarterly filing requirement

6. Issue TDS certificate (Form 16A)
Provide to seller as proof

7. Make payment through banking channels
Preferably to NRE/NRO account

8. Complete property registration
As per applicable state laws

If TDS is not deducted or deposited properly, the buyer can be treated as an assessee-in-default with interest and penalties.

Option to Reduce TDS Burden

• Seller can apply for lower or nil TDS certificate (Form 13)
• TDS will be deducted on actual capital gains

Documents to Verify Before Purchase

• PAN, Passport, Visa or OCI of seller
• Title deed or sale deed
• Encumbrance certificate (preferably 30 years)
• Property tax receipts
• Occupancy or completion certificate
• Bank NOC (if loan exists)
• Power of Attorney (if seller is abroad, properly apostilled)

Proposed Changes – Budget 2026

• Removal of TAN requirement
• TDS payment using buyer’s PAN
• Alignment with resident property TDS process

Practical Tips for Buyers

• Use proper banking channels for all payments
• Ensure property is non-agricultural
• Conduct legal and tax due diligence
• Consult a professional before payment

Final Thoughts

Buying property from an NRI is not complicated, but TDS compliance is critical. The responsibility lies on the buyer, and errors can lead to significant consequences.

CA Swati Jain
Managing Partner
HSJ and Associates