Understanding TDS on Sale of Property in India by NRIs

Understanding TDS on Sale of Property in India by NRIs as per INCOME TAX ACT 2025

Here is the updated version of the blog post, revised to strictly align with the provisions of the Income-tax Act, 2025 and the Income-tax Rules, 2026:

Understanding TDS on Sale of Property in India by NRIs

When NRIs sell property in India, TDS (Tax Deducted at Source) becomes a key compliance requirement under Section 393(2) [Table: Sl. No. 17] of the Income-tax Act, 2025. Understanding NRI property sale TDS becomes crucial for both sellers and buyers, as the purchase of property from an NRI has TDS requirements that differ significantly from resident transactions. State Bank of India (SBI), as India’s largest public sector bank with extensive NRI services, provides comprehensive support to Non-Resident Indians navigating property transactions and TDS compliance requirements. This blog explains the key aspects of TDS on property sales by NRIs, the applicable rates, procedures, and important considerations.

TDS Applicability on Property Sale by NRIs

For NRI property sale tax deduction, the legal framework is provided under Section 393(2) [Table: Sl. No. 17] of the Income-tax Act, 2025. This section mandates that any person making a payment to a non-resident must deduct tax at the source from such payments if they are chargeable to tax in India (under the head “Capital gains”, etc.).

Banks in India (like SBI etc ) facilitates NRI property transactions through specialised services including NRO account management for property sale proceeds, authorised dealer services for fund repatriation limit, and dedicated NRI relationship managers who guide customers through TDS compliance requirements.

How TDS Differs for NRIs vs. Resident Indians

The TDS on the sale of immovable property by an NRI differs significantly from that applicable to resident Indians:

Aspects	For NRIs
Legal Provision	Section 393(2) [Table: Sl. No. 17] of the Income-tax Act, 2025.
Minimum Amount	All transactions (no threshold/minimum limit).
TDS Rate	12.5% (LTCG) + surcharge + cess (for long-term capital gains).30% or applicable slab rates (STCG) + surcharge + cess (for short-term capital gains).
No PAN Cases	Tax may be deducted at a higher rate in the case of no PAN, invalid, or inoperative PAN cases in accordance with Section 397(2) (higher of the rates in force / rate specified in the Act / or 20%).
Exemption from Higher TDS	Rule 217 of the Income-tax Rules, 2026 provides that the higher deduction rate under Section 397(2)(b)(i) would not apply to a non-resident if the requisite details and documents (name, email id, contact number, address in the country of residence, Tax Residency Certificate (TRC), and Tax Identification Number) are furnished to the deductor.
Lower TDS Option	Available via Form No. 128 (if the NRI payee applies for a lower/nil deduction certificate under section 395(1)) or Form No. 129 (if the payer applies for determination of the appropriate taxable proportion under section 395(2)).

TDS Deduction Process: Responsibilities of Buyers and NRIs

For NRI Property Buyers

When purchasing immovable property in India from resident sellers, an NRI buyer must follow these tax deduction steps under Section 393(1) [Table: Sl. No. 3(i)]:

Obtain seller’s PAN (Permanent Account Number).
Deduct the appropriate amount (1% of the consideration or stamp duty value, whichever is higher, if the value is ₹50 Lakhs or more) under the purchase of property TDS rules.
Deposit the TDS on the sale of immovable property with the government within the prescribed time limit of 30 days from the end of the month in which the deduction is made.
File the challan-cum-statement in Form No. 141 (which replaces the old Form 26QB) online within 30 days from the end of the month in which the property sale TDS was deducted.
Issue Form No. 132 (which replaces the old Form 16B) to the seller as proof of tax deduction at source within 15 days from the due date of furnishing Form 141.

For NRI Property Sellers

NRI sellers involved in Indian property transactions (where tax is deducted by the buyer under Section 393(2)) should:

Share PAN details to facilitate proper TDS on the transaction. (Failure to do so may attract a higher TDS rate of 20% under Section 397(2), unless the NRI furnishes specific documents like a Tax Residency Certificate under Rule 217 to claim exemption from the higher rate).
Ensure the correct TDS amount for the property sale is deducted.
Collect Form No. 131 (the general TDS certificate replacing the old Form 16A) from the buyer as proof of TDS compliance.
Consider applying for a lower TDS certificate if eligible.
A certificate from an Accountant (furnished via Form No. 145) along with the reporting by the authorized dealer may also be required while remitting funds outside India.

How NRIs Can Apply for a Lower TDS Certificate

NRIs can reduce their advance tax burden through a lower TDS certificate process:

Submit Form No. 128 (if applying as a payee under Section 395(1)) or request the buyer to submit Form No. 129 (if applying as a payer under Section 395(2)) to the Assessing Officer for TDS relief / lower rate of TDS.
Provide supporting documentation showing the actual capital gains calculation for the NRI property.
Demonstrate eligibility for property sale exemptions under the new Act’s provisions, specifically
- Section 82 (for residential to residential property),
- Section 85 (for investment in specified bonds), or
- Section 86 (for any other capital asset to a residential house) which replace the old Sections 54, 54EC, and 54F respectively.
Receive a Section 395 certificate specifying the lower TDS rate for the transaction.
Provide this certificate to the buyer before completing the property transaction in India.

NRIs can significantly reduce the upfront tax burden in cases where the actual tax liability is expected to be lower than the standard TDS rates, making the purchase/sale of property more tax-efficient.

Claiming TDS Refund for NRIs

When TDS on the Sale of Property by an NRI exceeds the actual tax liability, follow these steps for a tax refund under the Income-tax Act, 2025:

File an income tax return: File a return of income in India under Section 263 declaring the property sale by the NRI.
Calculate the actual tax liability: Calculate the actual capital gains tax liability on the property sale, considering eligible deductions and property sale exemptions (such as those under Sections 82, 85, or 86 of the new Act).
Claim the excess TDS refund: Claim the excess TDS refund in the tax return, as Section 433 mandates that every claim for refund under the Act must be made by furnishing a return under Section 263.
Provide bank details: Provide valid Indian bank account details for the tax refund.
Follow up with the Indian tax department if necessary.
For official guidelines, refer to the Income Tax Department’s page.
In order to claim a refund, proper documentation and timely filing of the return before the due dates specified under Section 263(1) are crucial.

Repatriation of Property Sale Proceeds for NRIs

After fulfilling TDS obligations on the property sale, NRIs can repatriate funds from India following these FEMA regulations and updated Income-tax Rules, 2026:

Compliance with FEMA Regulations:

Property Acquisition: Ensure that the property was acquired in accordance with FEMA provisions applicable at the time of purchase.
Repatriation Limits: For residential properties, repatriation is restricted to the sale proceeds of up to two such properties.

Tax Compliance:

Tax Deduction at Source (TDS): The buyer is legally required to deduct TDS under Section 393(2) [Table: Sl. No. 17] of the Income-tax Act, 2025 when making the payment to the NRI.

Documentation for Authorised Dealer Bank:

Application Form: Complete the ‘Request for Outward Remittance from NRO Account’ form provided by Banks in India (like SBI )
Income Tax Clearances (Forms 145 & 146): Under Rule 220 of the Income-tax Rules, 2026, the remitter must furnish information regarding the payment to the non-resident in Form No. 145 (which replaces the old Form 15CA). Furthermore, if the remittance is taxable under the Act and exceeds ₹5,00,000 during the tax year, a certificate from an accountant in Form No. 146 (which replaces the old Form 15CB) must also be obtained and submitted.

Repatriation Limits:

Annual Cap: NRIs can remit up to USD 1 million per financial year (April to March) from their Non-Resident Ordinary (NRO) account, inclusive of all capital account transactions.

Foreign Exchange Conversion:

The remitted amount will be converted from Indian Rupees to the designated foreign currency at the prevailing exchange rate of Bank (like SBI).

Additional Considerations:

Joint Accounts: If the NRO account is held jointly, ensure that all account holders are compliant with the repatriation requirements.
Timeframe: Initiate the repatriation process promptly after the sale to comply with any time-bound regulations.

Here is the updated version of your text, strictly revised to align with the provisions of the Income-tax Act, 2025 and the Income-tax Rules, 2026:

How NRIs Can Ensure Smooth Property Sale Transactions

Plan: Understand the tax implications well before initiating the sale.
Consult Professionals: Engage tax consultants familiar with NRI property sale TDS regulations under the new Income-tax Act, 2025.
Document Everything: Maintain comprehensive records of the property purchase, improvements, and sale.
Apply for Lower TDS: If eligible, apply for a lower TDS certificate well in advance.
Verify Buyer Compliance: Ensure the buyer correctly deducts and deposits TDS and issues the appropriate TDS certificate (Form No. 131).
File Tax Returns: Submit income tax returns in India under Section 263 to claim refunds and maintain compliance.
Stay Updated: Keep track of any changes in TDS rules for NRI property sales under the Income-tax Rules, 2026.

Quick Tips to Obtain a Lower TDS Certificate (LDC)

Apply Early: Submit Form No. 128 (if applying as a payee) or request the buyer to submit Form No. 129 (if applying as a payer) to the Assessing Officer for a lower deduction certificate at least 30-45 days before the property transaction date.
Leverage Exemptions: Utilise Section 82, section 85, or section 86 property sale exemptions (which replace the old Sections 54, 54EC, and 54F) by investing your capital gains into specified assets, such as another residential house or notified bonds.
Document Improvements: Maintain receipts of all property improvements to increase your cost of acquisition.
Calculate Accurately: Prepare a detailed capital gains computation showing your actual tax liability.
Consider Loan Repayments: Include outstanding home loan payments in your cost calculations.
Time Your Sale: Plan property sales across different tax years to manage tax brackets.
Leverage Banks NRI Services: Utilise Banks dedicated NRI relationship managers and authorised dealer services for seamless property transaction support and TDS compliance guidance.

TDS Compliance: Hassle-Free Property Sales for NRIs Navigating TDS compliance for NRI property sales requires thorough understanding of both procedural and regulatory requirements. Varios Banks comprehensive NRI services, including specialized relationship managers, authorized dealer facilities, and digital banking solutions, ensure smooth property transactions with proper TDS compliance. By planning early, maintaining proper documentation, and understanding repatriation norms, NRIs can avoid delays, reduce tax liability, and complete property transactions efficiently.

Disclaimer: Tax laws are subject to periodic amendments by the Government of India. The information provided here is for general guidance only and should not be considered as professional tax advice. NRIs are strongly advised to consult with qualified tax professionals or chartered accountants familiar with current tax regulations before making investment decisions. Always verify the latest tax rates and compliance requirements with official sources or your financial advisor, as these may change from time to time.

Sources

Section 82 Income Tax Act 2025 Profit on sale of property used for residence.

Section 85 Income Tax Act 2025 Capital gains not to be charged on investment in certain bonds.

Section 86 Income Tax Act 2025 Capital gains on transfer of certain capital assets not to be charged in case of investment in residential house.

Section 263 Income Tax Act 2025 Return of income.

Section 393 Income Tax Act 2025 Tax to be deducted at source.

Section 395 Income Tax Act 2025 Certificates.

Section 397 Income Tax Act 2025 Compliance and reporting.

Section 433 Income Tax Act 2025 Form of claim for refund and limitation.

RULE 220 INCOME-TAX RULES 2026 Furnishing of information for payment to a non-resident, not being a company, or to a foreign company.

Form 128 Income Tax Rules 2026 Application for issuance of certificate for lower or nil deduction of income-tax under section 395(1) and lower collection of income-tax under section 395(3)

Form 131 Income Tax Rules 2026 Certificate under section 395(4) for tax deducted at source other than on salary paid to an employee under section 392 or pension or interest income of specified senior citizen under section 393(1) [Table: Sl. No. 8(iii)]