TDS on NRI Property Sales
When an NRI sells property in India, the buyer is legally required to deduct TDS (Tax Deducted at Source) at the time of payment. For long-term capital gains (property held over 24 months), TDS is deducted at 12.5% of the sale consideration plus applicable surcharge and cess. For short-term capital gains, TDS is deducted at applicable slab rates. Note that TDS is calculated on the entire sale price, not just the capital gain — this often results in excess tax being withheld upfront.
Form 13 — Lower TDS Certificate
Since TDS on the full sale amount can be significantly higher than the actual tax liability (which is calculated only on the profit), NRIs can apply for a lower TDS certificate under Section 197. File Form 13 with the Income Tax department showing: the purchase price, improvement costs, indexation benefit, and the actual capital gain. If approved, the department issues a certificate specifying a lower TDS rate or amount, which the buyer can then follow. This process takes 15-30 days and is strongly recommended for reducing the cash flow impact.
Capital Gains Exemptions
NRIs can avail the same capital gains exemptions as resident Indians: Section 54 — invest long-term capital gains in a new residential property in India within 2 years (purchase) or 3 years (construction). Section 54EC — invest up to ₹50 lakh in specified bonds (NHAI, REC) within 6 months of sale. Capital Gains Account Scheme — if you can't immediately invest, deposit the gains in a designated bank account to preserve the exemption while you find a suitable reinvestment.
Filing Requirements
NRIs who sell property in India must file an Indian income tax return for the relevant financial year, regardless of whether tax was fully covered by TDS. The return should declare the capital gain, claim applicable exemptions, and if excess TDS was deducted, claim a refund. Filing deadline is typically July 31 of the following financial year. Engaging a CA who specialises in NRI taxation is advisable for ensuring compliance and maximising tax efficiency.
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