TDS Obligations for NRIs Buying Property in India

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India’s real estate market continues to attract Non-Resident Indians (NRIs) looking to invest in their homeland. But with opportunity comes responsibility—especially when it comes to taxes. One of the most overlooked aspects of property transactions by NRIs is Tax Deducted at Source (TDS). Whether you're an NRI buyer or a resident seller dealing with an NRI, understanding TDS rules is crucial to avoid penalties and ensure compliance. What Is TDS and Why Does It Matter?

TDS is a mechanism under the Income Tax Act, 1961, where tax is deducted at the source of income. In property transactions involving NRIs, Section 195 governs the TDS obligations. Unlike resident-to-resident property deals (where TDS is 1% under Section 194-IA), transactions involving NRIs attract higher TDS rates and stricter compliance.

When Is TDS Applicable?

TDS is applicable when:

• An NRI      purchases property in India.
• An NRI      sells property in India.
• A resident      purchases property from an NRI.

In this blog, we focus on the NRI as the buyer.

TDS on Property Purchase by an NRI

If you're an NRI purchasing property in India, you are not required to deduct TDS on the purchase itself. However, if the seller is also an NRI, then you, as the buyer, must deduct TDS on the payment made to the seller.

Compliance Checklist for NRI Buyers

1. Obtain      TAN     (Tax Deduction Account Number).
2. Deduct      TDS at      the applicable rate on each payment to the seller.
3. Deposit      TDS     using Challan ITNS 281 within 7 days of the following month.
4. File      TDS Return     (Form 27Q) quarterly.
5. Issue      Form 16A to      the seller as proof of deduction.
6. File      Form 15CA and 15CB before remitting funds abroad.

How to Reduce TDS Burden?

The NRI seller can apply for a Lower/Nil Deduction Certificate under Section 197 by submitting Form 13 to the Income Tax Department. If approved, the buyer must deduct TDS at the rate specified in the certificate.

Consequences of Non-Compliance

• Interest: 1% per month for late deduction;      1.5% for late deposit.
• Penalty: ₹200/day for late filing      of Form 27Q.
• Legal      Action:      Buyer may be treated as defaulter under Section 201.

Expert Tip from Your CA

Always verify the tax residency status of the seller before initiating the transaction. If the seller is an NRI, TDS under Section 195 is mandatory, regardless of the property value. Consult a chartered accountant to ensure proper documentation and avoid costly errors.

Want help navigating your NRI property transaction? Reach out to our office for personalized tax planning and compliance support.

Key Points:

• Section      195     applies when the seller is a non-resident.
• TDS      must be deducted on the entire sale consideration, not just the      capital gains.
• The      applicable rate depends on whether the gain is short-term or long-term:
• Long-Term      Capital Gains (LTCG): 12.5% (plus surcharge and cess) if sold      after July 23, 2024.
• Short-Term      Capital Gains (STCG): Taxed at slab rates applicable to the NRI.