TDS framework for NRI sellers
Under Section 195 of the Income Tax Act, buyers purchasing property from NRIs must deduct tax at source before making payment. This contrasts with resident transactions, where TDS is typically 1% above ₹50 lakh.
For NRIs, the deduction rate is linked to capital gains classification and can be substantially higher. Importantly, tax is withheld at the point of transaction, reducing the immediate payout to the seller.
Capital gains classification and tax rates
Tax treatment depends on the holding period. Properties held for more than 24 months qualify as long-term capital assets.
For such assets, gains on properties acquired on or after July 23, 2024, are taxed at 12.5% without indexation, while older properties may fall under 20% taxation with indexation benefits, depending on applicability.
If sold within 24 months, the gains are treated as short-term and taxed at slab rates applicable to the individual, which can be significantly higher depending on income level. Surcharge and a 4% cess may further increase the effective liability.
TDS calculation and cash-flow effect
In practice, TDS is often computed on the gross sale value rather than net gains. This can create a mismatch between tax deducted and actual liability, with excess amounts recoverable only through refund claims during filing.
This structure can temporarily restrict liquidity for sellers, particularly in high-value transactions.
E Lakshminarayana Reddy, Founder & CEO of EARA Group, a real estate development firm, notes that while the system may appear front-loaded in its tax impact, it is designed to improve compliance visibility.
He observes that “the framework strengthens documentation standards and aligns taxation with evolving regulatory expectations, even if it increases short-term tax outflow.”
Lower TDS mechanism
NRIs can apply for a lower or nil TDS certificate using Form 13. This allows deduction to be aligned with estimated capital gains instead of the entire transaction value, reducing upfront withholding pressure.
Exemptions on reinvestment
Capital gains exemptions are available under Sections 54, 54F, and 54EC, subject to conditions. These typically apply when gains are reinvested in residential property or specified bonds within prescribed timelines. The benefit depends on timing, asset type, and compliance with reinvestment rules.
Repatriation requirements
Sale proceeds are generally credited to an NRO account. Transfers abroad require documentation, including Forms 15CA and 15CB, along with chartered accountant certification. Banks typically verify tax compliance before processing remittances.
DTAA impact
Where applicable, Double Taxation Avoidance Agreements (DTAA) allow NRIs to claim credit or relief in their country of residence, reducing the risk of being taxed twice on the same income.
Investor perspective
Ravikant, Co-Founder of Elegance Enterprises & Elegance Infra, affiliated real estate entities, notes that tax rules now play a larger role in exit decisions.
He highlights that higher withholding and changes in capital gains treatment have made timing and structuring more relevant, with investors factoring in tax efficiency alongside price appreciation.
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