TDS When an NRI Sells Property in India

When the seller of Indian immovable property is a non-resident, the buyer does not deduct one per cent. The one per cent rate sits in the table to Section 393(1) of the Income-tax Act, 2025, and that table is headed "For payments to resident". A payment to a non-resident seller falls under Section 393(2), serial number 17 of its table, which covers any sum chargeable under the provisions of the Act other than salary, and the rate there is the rate in force. In practice that means the Finance Act rate for the tax year, or a lower treaty rate where one applies, computed on the capital gain rather than assumed on the whole price only if a certificate has been obtained first.

Part of the NRI succession and inheritance practice at S Jain & Attorneys, Bangalore.

Everything that goes wrong in these transactions flows from that one distinction. The buyer applies the familiar one per cent, the sale completes, and eighteen months later the buyer receives a notice treating him as an assessee in default for the difference, with interest. This note sets out what the buyer has to do, what the seller has to do, and the order in which the two have to happen.

Why the law changed under your feet

The Income-tax Act, 1961 was repealed by Section 536 of the Income-tax Act, 2025, which came into force on 1 April 2026. Proceedings relating to tax years beginning before that date continue under the old Act, but a sale completed today is governed by the new one. If you are working from an older article, a bank's checklist, or a draft agreement prepared two years ago, the section numbers in it are the numbers of a repealed statute. The substance of the deduction obligation survived; the numbering did not.

The buyer needs a TAN, and that changes the timetable

Section 397(1)(a) of the Income-tax Act, 2025 requires every person deducting tax to apply for a tax deduction and collection account number. Section 397(1)(c)(i) exempts persons deducting under a short list of entries in the Section 393(1) table, which includes serial number 3(i), the resident property entry. That is why an ordinary purchase from a resident seller can be done on the buyer's PAN alone.

The exemption does not reach Section 393(2). A buyer purchasing from a non-resident must therefore obtain a TAN, deposit the tax under it, file the quarterly TDS return and issue a certificate to the seller under Section 395(4). If the buyer is an individual who has never deducted tax at source in his life, this is unfamiliar work, and it takes weeks that nobody built into the schedule. Raise it at the term sheet stage.

There is a second trap in Section 397(2). If the seller does not furnish a valid PAN to the buyer, tax has to be deducted at the higher of the rate in the relevant provision, the rate in force, or twenty per cent. Section 397(2)(c) carves out non-residents for certain specified payments subject to prescribed conditions, but the safe course is simple: the non-resident seller obtains an Indian PAN before the transaction, not during it.

What the deduction is actually on

The words in serial number 17 are "any other sum chargeable under the provisions of this Act". That wording matters, and it is the wording the Supreme Court construed under the corresponding provision of the repealed Act in GE India Technology Centre Private Ltd v. Commissioner of Income Tax, decided on 9 September 2010 by a Bench of S.H. Kapadia, CJI and K.S. Radhakrishnan, J. The Court held that the provisions relating to deduction at source apply only to those sums which are chargeable to tax under the Act, rejecting the argument that the moment there is a remittance to a non-resident the obligation to deduct arises on the whole of it.

That principle is a comfort, not a self help remedy. The buyer cannot decide for himself what proportion of the price is chargeable and deduct only on that. The route is a certificate, and the Act provides two of them.

The two certificates under Section 395

Section 395(1) allows the payee, that is the non-resident seller, to apply to the Assessing Officer for deduction of income-tax at a lower rate or for no deduction at all. On being satisfied that the payee's total income justifies it, the Assessing Officer issues a certificate, and the buyer then deducts at the rate specified in the certificate for as long as it is valid.

Section 395(2) works from the other side. The person responsible for paying a non-resident any sum mentioned in Section 393(2) serial number 17 may apply to the Assessing Officer where he considers that the whole of the sum would not be chargeable in the hands of the recipient. The application is for determination of the appropriate proportion of the sum chargeable to tax, and once that determination is made, tax is deducted only on that proportion.

In an NRI property sale the seller's application under Section 395(1) is the usual route, because the seller is the one who holds the purchase documents, the cost of improvement bills and the computation. The buyer's Section 395(2) application is the fallback when the seller will not cooperate or has left the country. Section 397(2)(f)(ii) records a small but fatal detail: if the applicant does not furnish a valid PAN, no certificate is granted at all.

How the gain is computed, in outline

Under Section 2(101)(a) of the Income-tax Act, 2025, a capital asset held for not more than twenty-four months immediately preceding the date of transfer is a short-term capital asset. Immovable property held for longer is therefore long-term. Section 72(1) computes the gain by deducting from the full value of consideration the expenditure incurred wholly and exclusively in connection with the transfer and the cost of acquisition and improvement.

Section 197(1)(b) taxes long-term capital gains at 12.5 per cent, before surcharge and cess. Section 197(3) preserves an option to be taxed at 20 per cent with indexation for land or building acquired before 23 July 2024, and the words that matter for an NRI are the opening words of that sub-section: it applies "in the case of an individual or a Hindu undivided family, being a resident". Section 72(2) makes the indexed cost available only for the purposes of that formula. A non-resident seller therefore computes the gain without indexation.

Section 402(9) is worth reading before the price is fixed. For the deduction provisions, consideration for the transfer of immovable property includes club membership fees, car parking fees, electricity and water facility charges, maintenance fees and advance fees incidental to the transfer. A price broken up in the agreement to keep it under a threshold does not work.

Reliefs a non-resident seller can still use

Three reinvestment provisions survive for a non-resident, because none of them carries a residence condition. Section 82 exempts the long-term gain on a residential house to the extent it is applied in buying one residential house in India within one year before or two years after the transfer, or building one within three years, with an option for two houses where the gain does not exceed two crore rupees, exercisable once. Section 85 exempts the gain on land or building to the extent invested within six months in specified bonds redeemable after five years, subject to a cap of fifty lakh rupees. Section 86 gives proportionate relief where the asset sold is a long-term asset other than a residential house and the net consideration is applied to a residential house in India.

Each of these has conditions on holding periods, on the deposit of unutilised amounts before the return is filed, and on caps of ten crore rupees. Claiming one of them is also the usual ground on which a Section 395(1) certificate is sought, because the effect of the relief is that far less than the headline gain is chargeable.

What happens if the buyer under deducts

Section 398(1) of the Income-tax Act, 2025 deems a person who fails to deduct, or who deducts and fails to pay, to be an assessee in default. Section 398(3)(a) attaches simple interest at 1 per cent for every month or part of a month from the date the tax was deductible to the date it is deducted, and at 1.5 per cent for every month or part of a month from deduction to actual payment. Section 398(4) makes the tax and interest a charge on all the assets of the defaulter, which in this transaction means the flat the buyer has just bought.

There is a relief. Section 398(2) provides that the person is not deemed to be an assessee in default if the payee has furnished a return of income, taken the amount into account in computing income in that return, and paid the tax due, and if the deductor furnishes a certificate to that effect from an accountant in the prescribed form. That is a real defence and it is worth chasing the seller's return rather than paying twice. Interest still runs under Section 398(3)(c) up to the date the payee filed the return.

Section 398(5) allows an order deeming a person to be an assessee in default to be made up to six years from the end of the tax year in which the tax was deductible, or two years from the end of the tax year in which a correction statement is delivered, whichever is later. A buyer who assumes the file is closed because two years have passed is mistaken. Section 448 permits a separate penalty equal to the tax not deducted, and Section 398(7) bars a penalty under Section 412 unless the Assessing Officer is satisfied that the failure was without good and sufficient reasons.

The treaty question

Section 159(4) of the Income-tax Act, 2025 provides that where India has entered into an agreement with another country for relief from double taxation, the provisions of the Act apply to an assessee to whom the agreement applies only to the extent they are more beneficial to that assessee. Section 159(8) makes the relief conditional: a non-resident is entitled to claim it only where he obtains a certificate of residence from the government of that country and provides such other documents and information as may be prescribed.

For immovable property this is usually less dramatic than clients hope. Most Indian treaties allow gains from the alienation of immovable property to be taxed in the country where the property is situated. What the treaty more often changes is the credit available at the other end. The point of getting a tax residency certificate is therefore twofold: it supports whatever treaty position is available at the deduction stage under Section 2(90)(c), and it is the document the foreign revenue authority will ask for when you claim credit there.

A sequence that avoids the usual damage

1. Establish the seller's residential status for the tax year in writing. It is decided by day counts under Section 6, not by citizenship or by which country the seller thinks of as home.
2. Get the seller an Indian PAN if he does not have one, and get the buyer a TAN. Neither can be done in a week when the sale deed is already drafted.
3. Have the capital gain computed by a chartered accountant on the actual purchase documents, and settle the exemptions being claimed before any application is filed.
4. Apply under Section 395(1) for a lower or nil deduction certificate, and record in the agreement to sell that the balance consideration is payable only after the certificate is produced.
5. Deduct at the certified rate, deposit under the buyer's TAN, file the quarterly return and issue the certificate to the seller under Section 395(4).
6. File Form 15CA, with Form 15CB where required, before the money is remitted abroad, and keep the whole file together.
7. The seller files an Indian return for the tax year and claims any refund of excess deduction there. A refund is claimed by the payee, never by the buyer.

Once the tax has been dealt with, the money still has to leave the country, and that is a separate set of rules and forms handled in our note on repatriating money from India as an NRI. Do not treat the two as one exercise; banks certainly do not.

Where these sales come apart before tax is even reached

Title is the usual culprit. If the seller inherited the property, the buyer's lender will want the chain established, which brings in the questions dealt with in a succession certificate compared with a legal heir certificate and, where there are several heirs, whether one legal heir can sell property without the others. Where the family is already fighting, the sale usually waits for the outcome described in a partition suit in India.

Revenue records are the other. A khata standing in a deceased parent's name, or a B khata property, will stall a housing loan long before the tax computation matters. Those are addressed in e khata transfer in Bengaluru and B khata to A khata conversion in Karnataka, and the wider pre sale exercise is in the property verification checklist. If the original title deeds are with a bank that cannot produce them, read what to do when a bank has lost your original property documents before you market the property at all.

Finally, get the commercial documents right. The distinction between the two instruments people use interchangeably is set out in a sale agreement compared with a sale deed, and if the property is mortgaged, the release mechanics differ by the type of mortgage, which is covered in types of mortgage under the Transfer of Property Act. An NRI who owns Indian property should also keep a will for Indian assets current, because the next transfer of this property may not be a sale.

Frequently Asked Questions

This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

Related Guides

If a sale is being negotiated or a notice has already arrived, our NRI succession and inheritance practice, our NRI legal services and our property and real estate practice act for both buyers and non-resident sellers in Bengaluru. These guides go further on the points above.

• Repatriating Money From India as an NRI
• Sale Agreement Compared With a Sale Deed
• Property Verification Checklist Before You Buy
• E Khata Transfer in Bengaluru
• Can One Legal Heir Sell Property Without the Others?
• An NRI Will for Indian Assets
• Types of Mortgage Under the Transfer of Property Act
• Wills, Probate and Succession in Bengaluru