When a Non-Resident Indian (NRI) or any other Non-Resident sells immovable property situated in India, the transaction attracts specific income-tax and TDS provisions. Unlike sales by resident taxpayers, the compliance burden in such cases largely shifts to the buyer, making it critical to understand the applicable law to avoid errors, penalties, or future disputes.
The sale of immovable property in India by a Non-Resident is governed by the Income-tax Act, 1961. While the seller earns the income, the law places the primary responsibility of tax deduction and compliance on the buyer. Any oversight can lead to interest, penalties, and litigation for both parties.
Under Section 9(1)(i) of the Income-tax Act, income arising from the transfer of a capital asset located in India is deemed to accrue or arise in India. Accordingly, capital gains from the sale of property situated in India by a Non-Resident are fully taxable in India, irrespective of:
The residential status of the buyer
The location where sale consideration is received
The nature of capital gains depends on the holding period of the property:
Short-Term Capital Gains (STCG): Property held for 24 months or less
Long-Term Capital Gains (LTCG): Property held for more than 24 months
This classification directly impacts the applicable tax and TDS rate.
As per Section 195, any person making payment to a Non-Resident of a sum chargeable to tax in India is required to deduct tax at source.
In the case of sale of property by a Non-Resident:
The buyer is responsible for deducting TDS
The buyer’s residential status is irrelevant
Failure to deduct or deposit TDS can expose the buyer to disallowance, interest, and penalty proceedings.
Tax must be deducted at the earlier of:
Credit of the amount to the account of the Non-Resident seller, or
Actual payment, including advance or instalment payments
Section 195 mandates deduction of tax at the “rates in force.” As defined under Section 2(37A), this refers to:
Rates specified in the Finance Act of the relevant year, or
Rates prescribed under the applicable Double Taxation Avoidance Agreement (DTAA), if more beneficial to the assessee
| Type of Capital Gain | Base TDS Rate | Surcharge | Health & Education Cess |
|---|---|---|---|
| Long-Term Capital Gains | 20% | As applicable | 4% |
| Short-Term Capital Gains | 30% | As applicable | 4% |
In the absence of a lower deduction certificate, TDS is generally deducted on the gross sale consideration, which often results in excess tax deduction.
To prevent excessive TDS, the Non-Resident seller can apply for a Lower or Nil Deduction Certificate under Section 197 by filing Form 13.
Based on the computation of actual capital gains, the Assessing Officer may issue a certificate specifying a reduced rate or nil rate of TDS. Once issued, the buyer is legally bound to deduct tax strictly as per the certificate.
Unlike transactions involving resident sellers, buyers purchasing property from a Non-Resident must comply with full TDS formalities, including:
Obtaining a Tax Deduction and Collection Account Number (TAN)
Depositing TDS within prescribed timelines
Filing quarterly TDS returns in Form 27Q
Issuing Form 16A to the Non-Resident seller
| Particulars | Resident Seller | Non-Resident Seller |
|---|---|---|
| Applicable Section | Section 194-IA | Section 195 |
| TDS Rate | 1% of consideration | 20% (LTCG) / 30% (STCG) + surcharge & cess |
| TAN Requirement | Not required | Mandatory |
| Lower / Nil TDS Certificate | Not applicable | Available under Section 197 |
| Basis of TDS | Sale consideration | Taxable capital gains (subject to determination) |
The sale of property in India by a Non-Resident involves significantly higher TDS rates and far stricter compliance requirements compared to a resident seller. Since the buyer bears the statutory responsibility under Section 195, careful planning, timely application for a lower TDS certificate, and accurate compliance are essential.
Proper understanding and execution of these provisions not only prevent excess tax deduction but also help avoid prolonged disputes with the tax authorities.
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