By Arosh John | Founder – John Real Estate (MahaRERA Reg. No. A51700001835) | Editor-in-Chief – Thane Real Estate News
When you purchase property from a Non-Resident Indian (NRI), TDS compliance works very differently compared to buying from a resident. Instead of 1% under Section 194-IA, buyers must deduct tax under Section 195. This involves obtaining a TAN, deducting the correct rate seller-wise, paying through Challan ITNS-281, filing Form 27Q, and issuing Form 16A. Mistakes can result in penalties, refund delays, and even being treated as an assessee-in-default.
Here is a practical step-by-step guide to help buyers comply with the law.
1. Verify the Seller’s Status and Collect Prerequisites
- Confirm the seller’s residential status under Section 6 of the Income-tax Act.
- Obtain the seller’s PAN, passport, and proof of overseas address.
- Apply for a TAN (Tax Deduction Account Number) if you don’t already have one. TAN is mandatory under Section 195.
- If the seller provides a Lower/Nil Deduction Certificate (Form 13), verify the certificate number, rate, validity, and PAN details. Note: this applies only from the date of issue.
2. Determine the Correct Rate and Base
- For transfers on or after 23 July 2024, long-term capital gains (LTCG) are taxed at 12.5% (without indexation).
- Short-term capital gains (STCG) are taxed at the seller’s slab rates.
- Deduct TDS per seller, based on their ownership share of the property. Section 194-IA thresholds for residents do not apply here.
3. Deduct at the Right Time
Under Section 195(1), TDS must be deducted at the earlier of credit or payment. You cannot delay deduction until registration if money has already been paid.
4. Be Careful with Token or Advance Payments
Any advance or token payment made before the certificate is issued is taxable at the full applicable rate. The reduced rate under a lower/nil certificate applies only to instalments made after its approval date. To avoid excess deductions, apply for the certificate early and avoid token payments until it is issued.
5. Deposit the TDS on Time
- Deposit TDS using the e-Pay Tax portal with Challan ITNS-281.
- Due dates:
- For April–February deductions: 7th of the following month
- For March deductions: 30 April
6. File the Quarterly TDS Statement (Form 27Q)
- Q1 (Apr–Jun): 31 July
- Q2 (Jul–Sep): 31 October
- Q3 (Oct–Dec): 31 January
- Q4 (Jan–Mar): 31 May
Form 27Q is mandatory for all NRI property transactions and must be filed on time.
7. Issue the TDS Certificate (Form 16A)
Issue Form 16A to each seller within 15 days from the due date of Form 27Q. This provides proof that tax has been deducted and deposited against the seller’s PAN.
8. Maintain Records and Coordinate with the Bank
Keep copies of:
- Sale agreement
- PAN & TAN details
- Challan receipts
- Form 13 (if applicable)
- Form 27Q acknowledgements
- Form 16A certificates
If the seller wishes to repatriate funds abroad, banks will require Form 15CA/15CB (CA-certified). Keep all documentation ready to avoid delays.
Quick Buyer’s Checklist
- Confirm the seller’s NRI status and collect PAN.
- Obtain TAN (buyer’s responsibility).
- Verify any lower/nil deduction certificate.
- Deduct TDS seller-wise at the correct rate.
- Deposit via ITNS-281 within the due dates.
- File Form 27Q quarterly.
- Issue Form 16A promptly.
- Maintain complete documentation and assist with 15CA/15CB as required.
Related Guides:
- [NRI Property Sale in India (2025): Updated TDS Rates & How to Reduce Deductions]
- [Documents You Need for a Lower or Nil TDS Certificate (Form 13)]
- [Penalties & Issues If You Don’t Disclose NRI Status or Follow TDS Rules]
Frequently Asked Questions
1. Do buyers need a TAN when purchasing property from an NRI?
Yes. A TAN (Tax Deduction Account Number) is mandatory under Section 195. Buyers cannot use just their PAN for TDS deduction in NRI property transactions.
2. When should TDS be deducted in NRI property sales?
TDS must be deducted at the earlier of payment or credit. This includes advance or token payments made before registration.
3. What rate of TDS applies to NRI property transactions?
For transfers on or after 23 July 2024, long-term capital gains are taxed at 12.5% without indexation, while short-term gains are taxed at the seller’s slab rate. The deduction is calculated seller-wise.
4. Which forms must the buyer file for TDS compliance?
Buyers must deposit TDS through Challan ITNS-281, file quarterly Form 27Q, and issue Form 16A to the NRI seller.
5. What are the due dates for filing Form 27Q?
Form 27Q must be filed quarterly:
- Q1 (Apr–Jun): 31 July
- Q2 (Jul–Sep): 31 October
- Q3 (Oct–Dec): 31 January
- Q4 (Jan–Mar): 31 May
6. What happens if the buyer fails to deduct or deposit TDS correctly?
The buyer may be treated as an assessee-in-default. Interest, late fees, and penalties can apply under Sections 201, 234E, and 271H of the Income-tax Act.
About the Author
Arosh John is a Thane-based real estate consultant and the Founder of John Real Estate (MahaRERA Reg. No. A51700001835). With more than a decade of expertise in property transactions, he is recognised for guiding NRIs and investors through resale, luxury villa projects, and compliance-heavy transactions. As Editor-in-Chief of Thane Real Estate News, he provides research-backed insights on property markets, taxation, and investment strategies across MMR.
Disclaimer
This article is based on provisions of the Income-tax Act, 1961, Finance Act 2024, and official Income Tax Department guidelines. It is intended for general information only and should not be considered professional advice. Tax laws are subject to amendments, circulars, and judicial rulings. Readers are strongly advised to consult a qualified Chartered Accountant for case-specific guidance. Neither the author nor Thane Real Estate News accepts liability for consequences arising from reliance on this article.
