Resident's Guide to Buying NRI Property in India

India sees a high volume of property transactions involving Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). While such deals are legally permitted, they come with added compliance requirements—especially for resident Indians purchasing property from non-residents. Even minor procedural lapses can trigger heavy penalties or tax demands. This guide outlines the key legal, tax, and procedural aspects that resident buyers must understand before entering into a property transaction with an NRI/OCI seller.

1. Payment Guidelines: Only Through Indian Banking Channels

When buying property from a non-resident, all payments must be made through legal banking channels—via direct bank transfer, crossed cheque, or crossed demand draft. Cash transactions are strictly prohibited.

Buyers must ensure:

The payment is made from a resident Indian bank account.
Funds are not sent from any foreign bank account.
If a relative is contributing funds, they must be routed through an Indian bank account.

Any deviation from this can lead to scrutiny under FEMA and Income Tax laws.

2. TDS Obligations under Income Tax Act

A. When Buying from a Resident Seller

Under Section 194-IA, 1% TDS is to be deducted on the total sale consideration if it exceeds ₹50 lakhs. This must be:

Deposited using Challan-cum-Statement Form 26QB
Paid within 30 days from the end of the month in which the deduction is made (typically the date of registration or payment)
Also applicable on advance payments.

B. When Buying from an NRI Seller

Section 195 of the Income Tax Act governs TDS for payments to non-residents. Key provisions:

TDS must be deducted at 20% (plus applicable surcharge and cess) on the total sale consideration.
TDS applies on every advance payment as well.
The buyer must:
- Obtain a TAN (Tax Deduction Account Number)
- Deposit TDS via Challan ITNS 281
- File Form 27Q, the quarterly TDS return for payments to non-residents.

Due Dates for Form 27Q Filing:

Q1 (Apr–Jun): 31st July
Q2 (Jul–Sep): 31st October
Q3 (Oct–Dec): 31st January
Q4 (Jan–Mar): 31st May

⚠️ Common Pitfall: Many resident buyers wrongly deduct 1% TDS under Form 26QB instead of 20% under Form 27Q—leading to serious complications for the NRI seller.

3. Capital Gains Tax Implications for NRI Sellers

An NRI or OCI seller is liable to pay capital gains tax in India on property sales:

Long-term capital gains (property held >2 years): Taxed at 20% with indexation
Short-term capital gains: Taxed at applicable slab rates (may go up to 30%)

The seller is required to file an Income Tax Return (ITR) in India.

Lower/Nil TDS Certificate

The seller can apply to the Income Tax Department under Section 197 for a certificate of lower or nil deduction of TDS, based on projected capital gains. This helps avoid excess TDS deduction.

4. Case Law: Parag Keshav Bopardikar v. ITO (2025)

In this landmark case, the buyer correctly deducted ₹18.68 lakhs in TDS but mistakenly used Form 26QB (meant for resident sellers) instead of Form 27Q. As a result, only 1% TDS was reflected in the seller’s Form 26AS, and the Income Tax Department raised a huge tax demand of ₹46 lakhs on the NRI seller.

Court Ruling:

The Delhi High Court held that substance must override procedural formality.
The actual TDS payment was made; hence denying credit due to the buyer’s error was unjust.
The Court directed the authorities to:
- Grant full TDS credit
- Rectify the AIS records
- Reprocess the seller’s ITR
- Issue refund promptly

Takeaway: Buyers must ensure correct form-filing and timely TDS payment—any lapse can harm both parties.

5. Key Compliance Checklist for Resident Buyers

Step	Compliance
✅	Ensure full payment is made via Indian bank account
✅	Deduct TDS @ 20% (plus surcharge) on entire sale value
✅	Obtain TAN
✅	Deposit TDS via Challan ITNS 281
✅	File quarterly TDS return in Form 27Q
✅	Obtain lower/nil TDS certificate from seller if applicable
❌	Avoid using Form 26QB for NRI transactions

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Purchasing property from an NRI or OCI can be a smooth transaction if the buyer follows proper tax and legal procedures. Incorrect TDS deduction, missed filings, or payment through unauthorized channels can lead to serious complications. Given the high stakes involved—both financially and legally—it is strongly advised that buyers consult experienced tax and legal professionals before finalizing the deal.

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Resident's Guide to Buying NRI Property in India