NRI Sold Property Below ₹50 Lakh Without TDS: What Happens Next?
When an NRI sells property in India, the ₹50 lakh TDS exemption under Section 194-IA does not apply — Section 195 has zero threshold. Here is what the buyer and seller each owe, and how to fix it.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
The ₹50 Lakh Rule Does Not Apply to NRI Sales
When a resident Indian sells property, the buyer deducts TDS under Section 194-IA only if the sale consideration exceeds ₹50 lakh. Below that threshold, no TDS is required.
That exemption does not exist when the seller is a Non-Resident Indian.
The applicable section for NRI sellers is Section 195 of the Income-tax Act, 1961. Section 195 carries no consideration threshold. TDS applies on every rupee paid to an NRI seller — whether the property sells for ₹30 lakh, ₹48 lakh, or ₹5 crore.
The buyer who assumed the ₹50 lakh rule applied is now in a compliance gap. So is the NRI seller who received full consideration without deduction.
Who Owes What
Under Section 195, the buyer is the deductor. The liability to deduct, deposit, and report TDS sits entirely with the buyer. The NRI seller's obligation is to file their return and pay any balance tax — but the TDS default belongs to the buyer.
Consequences for the Buyer
1. Deemed Assessee in Default — Section 201(1)
Once TDS was not deducted, the buyer becomes an assessee in default under Section 201(1). The Income Tax Department can raise a demand for the entire undeducted TDS amount, recoverable from the buyer directly.
2. Interest Under Section 201(1A)
Two interest legs run simultaneously:
3. Penalty Under Section 271C
A penalty equal to the amount of TDS not deducted is leviable under Section 271C. Non-deduction of ₹X exposes the buyer to a ₹X penalty — mirror-image, not a percentage.
Courts have held this penalty is mandatory unless the buyer demonstrates reasonable cause. A genuine belief that the ₹50 lakh threshold applied may constitute reasonable cause — it must be argued before the assessing officer on the facts.
4. Prosecution Under Section 276B
Where TDS is deducted but not deposited, prosecution with imprisonment of 3 months to 7 years is possible under Section 276B. In practice, pursued in cases of repeated default or large sums, not one-off genuine mistakes — but the exposure exists in law.
5. Disallowance — Section 40(a)(i)
If the buyer is a business entity purchasing the property in the course of business, the expenditure may be disallowed under Section 40(a)(i) for failure to deduct TDS on a payment to a non-resident.
What the TDS Rate Actually Was
The common error is assuming the 1% Section 194-IA rate applies to NRI sellers. It does not.
Under Section 195, TDS is computed on the chargeable capital gain (not the gross sale consideration) at the rate applicable to that income under the Finance Act or the DTAA, whichever the seller is entitled to claim.
Long-term capital gain (property held more than 24 months):
The Finance (No. 2) Act, 2024 amended Section 112(1)(c) effective 23 July 2024. For NRIs, the LTCG rate on immovable property is now 12.5% — flat, without indexation, no choice. The option to choose between 12.5% (no indexation) and 20% (with indexation) under the proviso to Section 112 is available only to resident individuals and HUFs. NRIs are not eligible for the indexation option.
Surcharge is capped at 15% for all long-term capital gains (Finance Act 2023). At income levels below ₹50 lakh, no surcharge applies.
For a property sold below ₹50 lakh where the NRI's total India income does not cross ₹50 lakh, the applicable effective rate is 13% on the long-term capital gain.
Short-term capital gain (held 24 months or less):
Taxed at the NRI's applicable slab rate under the Finance Act. Typically 30% at higher income levels, plus applicable surcharge and 4% cess.
DTAA: If the NRI is tax-resident in a DTAA country (UAE, USA, UK, Canada, Australia, Singapore), the treaty's immovable property article may provide a lower rate or sole-taxation right to the source country. The buyer must check the applicable DTAA before computing TDS.
Consequences for the NRI Seller
1. Tax on Capital Gain Remains Payable
The NRI must compute the capital gain (sale consideration minus cost of acquisition minus eligible exemptions — note: indexation is not available for NRIs post-July 23, 2024), pay the tax due, and file ITR-2 for the relevant assessment year.
Late filing attracts interest under Sections 234A, 234B, and 234C.
2. Repatriation Is Blocked Without Tax Clearance
Under FEMA (Remittance of Assets) Regulations 2016, remittance of sale proceeds from the NRO account requires:
- Form 15CA (self-declaration by the remitter, filed online before remittance)
- Form 15CB (CA certificate verifying tax compliance — signed with UDIN)
A bank will not process the outward remittance without both documents. Since the buyer did not deduct TDS, the seller must pay the tax directly and obtain the CA certificate before any funds leave India.
3. Form 13 Is No Longer Available
Form 13 (application for nil or lower deduction under Section 197) must be filed before the payment. Once the sale consideration has been paid, Form 13 is of no use. The path forward is direct tax payment and ITR filing.
Exemptions Still Available to the NRI
The TDS default does not extinguish exemptions. Two main routes remain:
Section 54 — Reinvest the net consideration in a new residential property in India within 2 years of sale (or construct within 3 years). Long-term capital gain to the extent reinvested is exempt.
Section 54EC — Invest the long-term capital gain (up to ₹50 lakh per financial year) in REC, PFC, or IRFC capital gains bonds within 6 months of the date of transfer. Bonds must be held for 5 years. (NHAI discontinued issuance of Section 54EC bonds in FY 2022-23 — do not rely on NHAI for this exemption.)
These exemptions reduce the tax payable and correspondingly reduce the TDS shortfall and associated interest.
The DTAA Angle
If the NRI is tax-resident in a country with which India has a DTAA (UAE, USA, UK, Canada, Australia, Singapore, among others), the treaty may provide a lower rate or a specific article on immovable property gains.
To claim treaty benefit, the seller needs:
- Tax Residency Certificate (TRC) from the foreign country's tax authority
- Form 10F filed with Indian tax authorities
- Confirmation of no Permanent Establishment in India
DTAA benefit is claimed in the seller's ITR — not through the buyer's TDS return — and produces a refund of excess tax paid. The DTAA position is jurisdiction-specific and should be confirmed with a CA before relying on it.
What to Do Now — Step by Step
For the buyer:
- Obtain a TAN (Tax Deduction Account Number) if not already held.
- Compute the capital gain correctly — sale consideration minus cost of acquisition (without indexation for NRI seller post-July 23, 2024).
- Apply the correct rate: 12.5% + applicable surcharge + 4% cess on the gain (13% effective if total India income ≤ ₹50 lakh).
- Deposit the TDS via Challan 281 (for Section 195 payments to non-residents).
- Pay Section 201(1A) interest along with the principal TDS.
- File Form 27Q (quarterly TDS return for non-resident deductees).
- Issue Form 16A to the NRI seller.
- If a notice under Section 201 has already been received, respond with a representation on reasonable cause to mitigate the Section 271C penalty.
For the NRI seller:
- Compute capital gains — sale consideration minus cost of acquisition, without indexation (indexation is not available to NRIs post-July 23, 2024).
- Check eligibility for Section 54 or Section 54EC exemptions.
- File ITR-2 for the assessment year covering the sale financial year.
- Pay any balance tax due with interest under Sections 234A/B/C.
- Engage a CA to issue Form 15CB (requires UDIN, cannot be self-certified).
- File Form 15CA Part C online before instructing the bank to remit.
FEMA Compliance Note
The sale of property by an NRI is generally permissible under FEMA — NRIs may sell immovable property in India (agricultural land, farmhouse, and plantation property require RBI permission separately). Proceeds must flow through the NRI's NRO account before repatriation.
Repatriation from NRO to NRE or foreign bank is subject to:
- The $1 million per financial year limit (Regulation 4, FEMA (Remittance of Assets) Regulations 2016)
- Form 15CB from a CA and Form 15CA Part C filed online before the bank transfer
Summary Table
Legal Basis
- Section 195 — TDS on payments to non-residents
- Section 194-IA — TDS on property from resident seller (does NOT apply to NRI seller)
- Section 112(1)(c) — LTCG rate for non-residents: 12.5% without indexation (as amended by Finance (No. 2) Act 2024, effective 23 July 2024)
- Section 201(1) and 201(1A) — assessee in default; interest at 1%/1.5% per month
- Section 271C — penalty equal to TDS not deducted
- Section 276B — prosecution for non-deposit
- Section 40(a)(i) — disallowance in business cases
- Section 45 — chargeability of capital gains
- Section 54 — exemption on reinvestment in residential property
- Section 54EC — exemption on investment in specified bonds (REC/NHAI)
- Form 13 — application for nil/lower deduction certificate (Section 197)
- Form 15CA and Form 15CB — pre-remittance tax compliance declaration and certificate
- Form 27Q — quarterly TDS return for payments to non-residents
- FEMA (Remittance of Assets) Regulations 2016, Notification No. FEMA 13(R)/2016-RB
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See Also
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Statute-cited, section-by-section guides covering the same ground this article does.
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