By Arosh John | Founder – John Real Estate (MahaRERA Reg. No. A51700001835) | Editor-in-Chief – Thane Real Estate News
When buying property from an NRI, many buyers mistakenly deduct only 1% TDS under Section 194-IA using Form 26QB. That provision applies only to resident sellers. For NRIs, the correct section is 195, which requires a higher deduction and a different compliance process.
Failure to follow this can result in penalties, interest, refund delays, and compliance issues for both parties.
Penalties Explained
Interest (Sec. 201(1A))
- 1% per month for failure to deduct
- 1.5% per month for failure to deposit after deduction
Late Filing Fee (Sec. 234E)
- ₹200 per day until return is filed (capped at TDS amount)
Penalty (Sec. 271H)
- ₹10,000–₹1,00,000 for wrong or late filing of Form 27Q
Delay in Issuing Form 16A
- ₹100 per day of default
TAN Lapses (Sec. 272BB)
- ₹10,000 for not obtaining/quoting TAN
Quick Snapshot: Correct TDS Process for NRI Property Sales
| Stage | Law | Form/Challan | Buyer’s Responsibility |
|---|---|---|---|
| Deduction | Section 195 | TAN mandatory | Deduct at 12.5% (LTCG post 23-07-2024) or slab rate (STCG) |
| Deposit | ITNS-281 | By the 7th of next month | Pay tax online |
| Return | Form 27Q | Quarterly (31 Jul, 31 Oct, 31 Jan, 31 May) | File statement |
| Certificate | Form 16A | Within 15 days of return filing | Issue to seller |
Important Compliance Note: Token or Advance Payments
Any advance or token payment made before obtaining a lower/nil deduction certificate must be taxed at the full rate. The reduced rate applies only to subsequent instalments.
Professional Advisory: Always ensure that payments under the transaction commence only after the certificate has been issued.
Practical Fallout of Non-Compliance
- Buyer may be treated as an assessee-in-default and face recovery of tax, interest, and penalties.
- Seller may suffer refund delays and mismatched TDS credits.
- Banks and registrar offices may raise compliance red flags during remittance or registration.
Related Guide: Documents You Need for a Lower or Nil TDS Certificate (Form 13) When Selling Property as an NRI
Need support in managing an NRI property transaction in Thane? Connect with John Real Estate for seamless execution and compliance management.
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Frequently Asked Questions
1. What happens if TDS is not deducted on NRI property sales?
If TDS is not deducted, the buyer may be treated as an assessee-in-default under Section 201 of the Income-tax Act. This makes the buyer liable to pay the tax amount along with interest and penalties.
2. What are the penalties for late or incorrect filing of TDS returns?
A late fee of ₹200 per day is levied under Section 234E until the return is filed, subject to a cap at the TDS amount. Additionally, a penalty ranging from ₹10,000 to ₹1,00,000 may be imposed under Section 271H for incorrect or delayed filings.
3. Which section applies for TDS on NRI property sales?
TDS on NRI property sales is governed by Section 195 of the Income-tax Act. Section 194-IA (1% deduction) applies only to resident sellers, not NRIs.
4. Can buyers face penalties if they deduct TDS under the wrong section?
Yes. If the buyer deducts only 1% under Section 194-IA instead of Section 195, they may face interest, penalties, and compliance issues because the deduction was not made correctly.
5. Is TAN mandatory for buyers in NRI property transactions?
Yes. The buyer must obtain a TAN (Tax Deduction Account Number) to deduct and deposit TDS correctly in case of an NRI property transaction. Using only PAN is not sufficient.
6. Can token or advance payments be made before a lower/nil deduction certificate is issued?
No. Any advance or token payment made before the certificate is issued will be subject to TDS at the full applicable rate. The reduced rate applies only to payments made after the certificate date.
About the Author
Arosh John is a Thane-based real estate consultant, NRI transaction specialist, and Editor-in-Chief of Thane Real Estate News. With more than 10 years of experience, he is recognised for delivering data-driven insights and practical guidance in resale, luxury villa projects, and compliance-heavy transactions for NRIs and investors.
Disclaimer
This article reflects current provisions under the Income-tax Act and Finance Act 2024. It is prepared for informational purposes only and should not be construed as legal, financial, or tax advice. Tax provisions are subject to amendments, notifications, and judicial rulings. Readers are strongly advised to consult a qualified Chartered Accountant for personalised guidance. Neither the author nor Thane Real Estate News accepts any liability for direct or indirect loss arising from reliance on this content.
