When an NRI sells property in India, the tax and TDS rules are significantly different from those applicable to resident Indians. Both the NRI seller and the Indian buyer have specific obligations under the Income Tax Act 2025. Getting these wrong can result in massive over-deduction of TDS, blocked funds, or penalties on the buyer. This guide explains everything clearly.
Who Must Deduct TDS — The Buyer’s Obligation
When a resident Indian buys property from an NRI, the buyer is legally required to deduct TDS at source under Section 195 of the Income Tax Act. This is not optional. The buyer must deduct TDS before making payment to the NRI seller and deposit it to the government. Failure to do so makes the buyer a defaulter — attracting interest, penalty, and even prosecution.
The standard TDS rate on NRI property sale is 20% on long-term capital gains (property held over 2 years) and 30% on short-term capital gains. Crucially, these rates apply on the full sale consideration, not just the profit — unless the NRI obtains a Lower TDS Certificate.
The Lower TDS Certificate — Form 128 (Erstwhile Form 13)
The biggest financial mistake NRI sellers make is not applying for a Lower TDS Certificate (now Form 128 under the Income Tax Act 2025, previously Form 13 under the old Act). Without this certificate, the buyer deducts 20–22% TDS on the entire sale value — say ₹1 crore on a ₹5 crore property — even if the actual taxable gain after exemptions is only ₹30 lakhs.
With a Lower TDS Certificate, the Income Tax Officer determines the exact taxable gain after accounting for indexed cost of acquisition, improvement costs, and exemptions under Section 54/54EC. TDS is then deducted only on the actual taxable amount — potentially reducing TDS from ₹1 crore to ₹6 lakhs in the above example.
At NRI Tax CA, we handle Form 128 applications starting at ₹7,999. The process involves computing capital gains, preparing the application, liaising with the Income Tax Officer, and obtaining the certificate — typically within 2–4 weeks of filing.
Form 144 — TDS Return Filing by the Buyer (Erstwhile Form 27Q)
After deducting TDS, the buyer must file a quarterly TDS return in Form 144 (renamed from Form 27Q under the Income Tax Act 2025). This return reports the TDS deducted on payments to non-residents. The buyer must also issue a TDS certificate (Form 16A) to the NRI seller, which the seller uses to claim TDS credit when filing their ITR.
Due dates for Form 144 filing are quarterly — 31 July, 31 October, 31 January, and 31 May. Late filing attracts a penalty of ₹200 per day. At NRI Tax CA, we handle complete Form 144 filing for buyers at ₹3,999 per transaction.
Capital Gains Tax Computation for NRI Sellers
NRI sellers are taxed on capital gains from Indian property under the same rules as residents, but with additional DTAA considerations. Key points:
- Long-term capital gains (property held 24+ months): Taxed at 12.5% without indexation from FY 2024-25 onwards, or 20% with indexation for properties acquired before 23 July 2024 (taxpayer’s choice).
- Short-term capital gains (held less than 24 months): Taxed at applicable income tax slab rates.
- DTAA benefit: NRIs residing in countries with DTAA (USA, UK, UAE, Canada, Australia, etc.) may be entitled to preferential tax treatment or credit for taxes paid in the country of residence.
- Section 54 exemption: Long-term capital gains reinvested in another residential property within specified timelines are exempt.
- Section 54EC exemption: Gains up to ₹50 lakhs invested in NHAI/REC bonds within 6 months are exempt.
Repatriation After Property Sale
After the sale and TDS payment, the NRI seller can repatriate the net proceeds abroad subject to RBI guidelines. Repatriation from NRO account is permitted up to USD 1 million per financial year for NRIs, after payment of applicable taxes. You will need Form 145 and Form 146 (erstwhile 15CA/15CB) for the bank to process the overseas transfer.
Step-by-Step Timeline for NRI Property Sale
- Pre-sale: NRI seller applies for Lower TDS Certificate (Form 128) — takes 2–4 weeks.
- At sale: Buyer deducts reduced TDS as per certificate. Sale deed registered.
- Within 30 days: Buyer deposits TDS to government via challan.
- Within the quarter: Buyer files Form 144 (erstwhile 27Q) and issues Form 16A to seller.
- ITR filing: NRI seller files ITR, claims TDS credit, and claims applicable exemptions.
- Repatriation: With tax clearance and Form 145/146, seller repatriates funds.
Get Expert Help
NRI property transactions involve multiple interdependent compliance steps. A mistake by the buyer or seller can result in penalties, blocked accounts, or excess tax deduction that takes years to refund. At NRI Tax CA, we handle the entire chain — Form 128 application, Form 144 filing, ITR, and repatriation documentation — so your transaction is fully protected.
Compute TDS on your NRI property sale accurately with our free NRI tax calculator. For Form 15CA/15CB filing and Lower TDS Certificate application, get CA assistance here.
Submit your case here and receive a complete fixed-fee quote within 2 hours.
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