TDS on Sale of Property by NRI: A Complete Guide with Rustomjee Developers
1. Who is Liable to Deduct TDS?
When an NRI sells immovable property in India, the buyer (resident or NRI) must deduct TDS at 20% on the capital gains arising from the sale. This is applicable to both short‑term and long‑term gains.
2. Understanding Short-Term vs. Long-Term Gains
Short-Term Capital Gains (STCG): If the property is held for 3 years or less, gains are taxed at normal slab rates, and TDS must be deducted accordingly.
Long-Term Capital Gains (LTCG): For properties held over 3 years, gains are taxed at a flat 20%, plus applicable surcharge and cess — and this is exactly the TDS rate the buyer must deduct.
3. How to Compute Capital Gains
Sale Price minus Indexed Cost of Acquisition = LTCG
Sale Price minus Purchase Price = STCG Depreciation is not allowed as it’s an immovable asset. Add cess and surcharge on top of the 20% LTCG tax.
4. TDS Compliance by the Buyer
Deduct TDS at the time of payment or credit, whichever comes earlier.
Deposit TDS using Form 26QB, within 7 days of the end of the month in which sale consideration is paid.
Provide the seller with TDS certificate Form 16B to help them claim the tax credit when filing their income tax return.
5. Repatriation of Sale Proceeds
For properties acquired with foreign exchange, up to two properties can be repatriated freely, provided the sale happens at least 3 years after purchase.
Repatriable limit is the original foreign exchange amount paid, via NRE/FCNR funds.
Additional proceeds must be credited to an NRO account, from where up to USD 1 million per financial year can be remitted, post-tax and CA certification.
Sale of property held before 26 May 1993 has different rules; repatriation is restricted, and excess proceeds must remain in the NRO account.
6. Reporting & Tax Return Filing
NRIs must file Indian income tax returns to report capital gains and claim any TDS credit.
Use Form 26AS to verify TDS deposited and ensure accurate income reporting.
✅ Quick Checklist for NRI Sellers Task Timing Determine holding period Before sale Inform buyer of NRI status At agreement stage Monitor TDS deduction & deposit Within 7 days post-month Obtain Form 16B Post-deposit File income tax return Before due date Apply for repatriation With Form IPI–8 (within 90 days of sale)
💡 Why This Matters
Non-compliance can prompt penalties: interest @1.5% per month, plus fines under Sections 234A/234B/234C.
TDS deduction, certificate issuance, and timely return filing ensure a smooth repatriation process and accurate tax & credit treatment.
Final Takeaway:
NRIs selling property in India must ensure TDS is correctly deducted — 20% for LTCG, higher slab rates for STCG — by buyers. They should file returns, claim TDS, and follow RBI rules for repatriation. With sound planning and compliance, capital gains can be optimally managed and repatriated hassle-free.