Zerolev
Tax · Compliance · Insight
Regulatory Update · July 2024

TDS on Property Purchase from NRI — Post–July 2024

A practical Zerolev analysis explaining withholding obligations, rates, buyer responsibilities, and the revised process for Lower TDS Certificates after the July 2024 reforms.

TDS NRI Property Section 195

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1. Introduction
Why this matters
A concise primer

Purchasing immovable property from a Non-Resident Indian (NRI) involves distinctive withholding obligations that are significantly different from resident-to-resident transfers. The July 2024 updates formalised the approach to TDS on NRI property sales, making it more documentation-driven and compliance-intensive. This analysis unpacks the legal basis, operational steps, practical pitfalls, and the role of the Lower TDS certificate in preventing excessive withholding.

2. Legal & Practical Mechanics
How TDS operates post–July 2024

Legal basis

TDS on payments to non-residents is governed principally by Section 195 of the Income Tax Act. Capital gains on immovable property are chargeable under Sections 45 and 48, with relief sections such as 54, 54EC, and 54F available where applicable.

When TDS applies

If the transferor is an NRI, the buyer (as deductor) must withhold tax at source on the amount payable, based on whether the gain is long-term or short-term. If the buyer cannot ascertain the gain, withholding on the full consideration becomes necessary.

Why buyers bear the burden

Because NRIs are outside India, the law ensures tax collection at source to protect revenue. Consequently, buyers must manage TAN, filings, and TDS deposits even though the tax legally belongs to the seller.

3. Rates & Scenarios
What rates apply and when

Long-term capital gains (LTCG)

Where property is held for more than 24 months, LTCG rules apply and the default TDS rate is 20% with indexation, plus applicable surcharge and cess. Exact effective rate depends on the seller’s tax profile.

Short-term capital gains (STCG)

For property held 24 months or less, STCG is taxed at slab rates applicable to the NRI seller. In practice, this can approach or exceed 30% with surcharge and cess.

If gain cannot be ascertained

When the buyer lacks reliable documentation, TDS must be deducted on the entire sale consideration — often 20%–30% — which can be substantially higher than the true tax on gain.

4. Lower / NIL TDS Certificate
Avoiding excessive withholding

An NRI seller may apply for a lower or nil TDS certificate under Section 197. The post–July 2024 process is electronic and requires robust documentation: acquisition cost evidence, improvement invoices, proof of indexation, and bank records. The Assessing Officer verifies the claim and issues an electronic certificate specifying the lower withholding rate for the buyer to apply.

5. Buyer Responsibilities
Checklist for purchasers

Actions buyers must take

  • Verify seller’s tax residency status (NRI vs resident).
  • Obtain seller’s cost and improvement records to compute gain.
  • Secure TAN and deposit TDS timely.
  • File Form 27Q where applicable and issue Form 16A to seller.

Consequences of non-compliance

  • Interest and penalties for late or incorrect withholding.
  • Possible disallowance of expense in buyer's accounts.
  • Reputational and transactional risk leading to closing delays.
6. Step-by-step Procedure
How buyers should proceed
  1. Confirm NRI status: based on residential criteria of the Income Tax Act.
  2. Compute nature of gain: request documentation from seller; advise seller to apply for lower certificate where appropriate.
  3. Obtain TAN: required before TDS deduction.
  4. Deduct TDS on payment: applicable on each instalment when paid/credited.
  5. Deposit TDS & file returns: follow Form 27Q procedures and e-payment channels.
  6. Issue Form 16A: provide proof of deduction to the seller for their ITR.
7. Post–July 2024 Changes
Practical upgrades to compliance
  • AIS/TIS integration: property transactions reflect automatically across systems, enabling cross-verification.
  • PAN–Aadhaar activation: buyers should ensure PAN validity to avoid mismatches.
  • State registration reporting: many states now submit property transfer metadata to tax platforms.
8. Impact
On buyers and NRI sellers

Buyers

  • Face higher upfront TDS without documentation or certificate.
  • Must manage additional compliance and cash-flow implications.
  • Bear risk of penalties if TDS is incorrectly deducted.

NRI Sellers

  • See immediate tax deduction at source with right to refund via ITR.
  • Require thorough documentation to justify indexed cost and deductions.
  • May face delays in repatriation until banks verify tax clearance.
9. Common Practical Issues
Operational pitfalls
  • Misapplication of STCG vs LTCG rates.
  • Inactive PANs delaying refunds and reconciliation.
  • AO delays in lower TDS certificates can stall registrations.
  • Buyers withholding on entire sale value when gain is undocumented.
10. Best Practices
Recommendations for smooth closing

For buyers

  • Start Section 197 application early.
  • Get tax professional help for gain computation.
  • Deduct TDS correctly on each instalment.
  • Keep full documentation for audit readiness.

For NRI sellers

  • Maintain acquisition & improvement records; ensure PAN active.
  • Apply early for lower TDS certificates where applicable.
  • File Indian ITR timely to claim refunds if TDS > actual tax.
11. Illustrative Example
Conceptual numbers

Sale value: ₹1.5 crore

Indexed cost: ₹80 lakh

Capital gain: ₹70 lakh

Tax on gain (20%): ₹14,00,000 (plus surcharge/cess). Without a lower certificate, buyer may be forced to deduct 20%–30% of full sale value — far exceeding the actual tax liability and creating significant liquidity issues.

12. Conclusion
Summary points

Post–July 2024 changes have increased structure and documentation requirements for TDS on property purchases from NRIs. The law bolsters revenue protection and transparency but shifts practical burdens to buyers and requires NRIs to be proactive in maintaining records and seeking lower certificates. Early planning, tax counsel, and strict record-keeping will reduce the risk of excessive withholding and ensure smoother property transfers.