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NRI Property TDS — Form 26QB (Section 194-IA) & Section 195 TDS Compliance

TDS compliance for NRI property transactions — Form 26QB filing under Section 194-IA when NRI buys from a resident seller (1% TDS on property value above ₹50 lakh), Section 195 TDS computation when an Indian buyer purchases from an NRI seller (20% LTCG + surcharge/cess), Lower Deduction Certificate (LDC) under Section 197 for NRI sellers, and Form 15CA/15CB for remittance of sale proceeds.

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STARTING FROM₹4,999
TYPICAL TIMELINE7 days
DOCS REQUIRED3 documents
APPLICABLE TOCompany, LLP, Individual

Regulatory Framework

Income Tax Act, 1961: Section 194-IA — TDS on transfer of certain immovable property (other than agricultural land): buyer must deduct 1% TDS when consideration is Rs 50 lakh or more; due date for Form 26QB = 30 days from end of month of deduction; Form 16B (TDS certificate) to seller within 15 days from due date of 26QB. Section 195 — TDS on payments to non-residents: any person making a payment to a non-resident (which is chargeable to tax) must deduct TDS at applicable rates; for LTCG on property held more than 24 months: 20% + surcharge + 4% cess (effective rate 20.8% to 23.92% depending on income bracket); for STCG (24 months or less): 30% + surcharge + cess. Section 197 — Lower Deduction Certificate (LDC): non-resident seller applies on Form 13 to the jurisdictional AO for a certificate authorising deduction at a lower rate (reflecting actual tax on capital gains rather than on gross consideration). Section 48 — computation of capital gains: full value of consideration minus (i) expenditure incurred wholly in connection with transfer; (ii) cost of acquisition; (iii) cost of improvement. Section 48 (Proviso) — Indexed Cost of Acquisition: Cost x (CII of year of sale / CII of year of purchase) for LTCG. Section 112 — tax on LTCG at 20% (with indexation) for non-residents. Finance Act 2024 amendment: Section 112 LTCG rate for resident individuals reduced to 12.5% without indexation from AY 2025-26 — this change does NOT apply to non-residents (NRIs still taxed at 20% with indexation per Section 112 as applicable). Income Tax Rules, 1962: Rule 30 — due date for TDS deposit (Section 195: within 7 days from end of month of deduction); Rule 31 — Form 16A (TDS certificate for 195/27Q); Rule 31A — Form 27Q (quarterly return for TDS on non-resident payments). FEMA (Foreign Exchange Management Act, 1999): FEMA (Permissible Capital Account Transactions) (Amendment) Regulations — NRI repatriation of sale proceeds of immovable property from NRO account: up to USD 1 million per financial year, subject to tax clearance and applicable FEMA conditions. Master Direction — Non-Resident Indian (NRI) and Person of Indian Origin (PIO) Facilities (RBI, updated periodically): NRI immovable property acquisition and repatriation provisions.

Overview

Property transactions involving Non-Resident Indians (NRIs) trigger TDS obligations under two distinct provisions of the Income Tax Act, 1961 — and most buyers and NRI sellers get these obligations wrong, resulting in penalties, demand notices, and delayed property registration.

Scenario 1: NRI Buys Property FROM a Resident Indian Seller

Under Section 194-IA (inserted by Finance Act 2013): when any buyer (including an NRI buyer) purchases immovable property (other than agricultural land) from a resident seller for consideration of Rs 50 lakh or more, the buyer must deduct TDS at 1% of the consideration. The NRI buyer must:
(i) Deduct TDS at 1% from the payment to the resident seller;
(ii) File Form 26QB (challan-cum-statement) online on the TIN-NSDL portal within 30 days from the end of the month in which the deduction was made;
(iii) No TAN required — Form 26QB uses the PAN of buyer and seller;
(iv) Issue Form 16B (TDS certificate) to the seller within 15 days of the due date for furnishing Form 26QB;
(v) The TDS is deposited directly to the Income Tax Department through Form 26QB (combined challan + return).

Scenario 2: Indian Resident Buyer Purchases FROM an NRI Seller

This is the more complex and higher-stakes scenario. Under Section 195 of the Income Tax Act: when any person (including a resident individual buyer) pays any sum to a non-resident (NRI seller) that is chargeable to tax in India, TDS must be deducted at the applicable rates. For NRI seller of property:

  • Long-Term Capital Gains (property held >24 months): 20% + applicable surcharge + 4% Health and Education Cess

- Surcharge: 10% if LTCG > Rs 50 lakh; 15% if LTCG > Rs 1 crore; 25% if LTCG > Rs 2 crore (for individuals); 37% if LTCG > Rs 5 crore
  • Short-Term Capital Gains (property held 24 months or less): taxed at slab rates applicable to the non-resident (typically 30% + surcharge + cess)

Critically: unlike Section 194-IA (where TDS is on sale consideration), Section 195 TDS is technically applicable on the entire sale consideration (not just the gain), unless the buyer obtains a Nil/Lower Deduction Certificate (LDC) under Section 197 for the NRI seller — the NRI must apply for LDC from their jurisdictional Assessing Officer (AO) before the sale, and the LDC specifies the exact TDS rate to be deducted.

The Lower Deduction Certificate (LDC) Under Section 197 — Why It Is Critical for NRI Sellers:

Without an LDC, the buyer must deduct TDS at 20% (LTCG rate) on the ENTIRE sale consideration — even though the actual taxable gain (after indexation and cost of acquisition) may be much lower. Example: NRI sells property for Rs 1 crore, cost of acquisition Rs 60 lakh (indexed). Actual LTCG = Rs 40 lakh. Tax = Rs 8 lakh. But without LDC, buyer deducts TDS at 20% on Rs 1 crore = Rs 20 lakh — NRI's net receipt is reduced by Rs 12 lakh excess. The NRI must file an ITR to claim the Rs 12 lakh refund, which takes 1-2 years. An LDC issued under Section 197 allows TDS at Rs 8 lakh (actual tax liability), preserving cash flow for the NRI seller.

How It Works

  1. 1

    Transaction Structure Analysis — Buyer/Seller Residency & Property Type

    Determine residency status of buyer and seller and identify the applicable TDS provision: (i) Both buyer and seller are residents: Section 194-IA applies if consideration is Rs 50 lakh or above — not an NRI transaction; (ii) NRI buyer, resident seller: Section 194-IA applies — 1% TDS on consideration, Form 26QB; (iii) Resident buyer, NRI seller: Section 195 applies — TDS at 20%+ LTCG rate (or slab rate for STCG), no Form 26QB; (iv) NRI buyer, NRI seller (both non-resident): Section 195 applies on the payment to the NRI seller; (v) Exemptions: agricultural land is exempt from Section 194-IA. Identify property type: residential plot, apartment, commercial property, or agricultural land. Determine holding period: more than 24 months from date of purchase = Long-Term Capital Asset (LTCG); 24 months or less = Short-Term Capital Asset (STCG). Calculate the indexed cost of acquisition (for LTCG): Cost of Acquisition x (CII for year of sale / CII for year of purchase) — CII as notified by CBDT each year. This determines the actual capital gains and, consequently, the correct TDS amount.

    Government1-2 days
  2. 2

    Section 194-IA — Form 26QB Filing (NRI Buyer from Resident Seller)

    When an NRI buys immovable property from a resident seller for Rs 50 lakh or more: (i) Compute TDS: 1% of the total sale consideration (not just the taxable gain). If the property is bought for Rs 80 lakh, TDS = Rs 80,000; (ii) File Form 26QB online on the TIN-NSDL portal or IT e-filing portal: enter PAN of buyer (deductor), PAN of seller (deductee), property details (address, city, State, PIN), total consideration amount, TDS deducted amount, and transaction date; (iii) Pay TDS via net banking at the time of Form 26QB filing — the system generates a Challan Identification Number (CIN) confirming payment; (iv) Form 26QB must be filed and TDS deposited within 30 days from the end of the month in which the TDS was deducted (e.g., if property registered on 15 July, TDS must be deposited by 31 August); (v) Generate Form 16B (TDS certificate) from the TRACES portal (traces.gov.in) and issue to the resident seller within 15 days from the due date of Form 26QB. No TAN is required — only buyer's PAN and seller's PAN. Common error: some NRI buyers think 194-IA does not apply to them — it does, since the provision applies to 'any buyer' (not just residents).

    Government1-2 days
  3. 3

    Section 195 TDS Computation (Resident Buyer from NRI Seller)

    When a resident buyer purchases property from an NRI seller, Section 195 applies. The buyer must deduct TDS from every payment (advance, part payment, full payment) made to the NRI seller: (i) TAN mandatory: the buyer must have a Tax Deduction Account Number (TAN — obtained via Form 49B); (ii) TDS rate: 20% + applicable surcharge + 4% cess for LTCG. Effective rates: 20.8% (no surcharge — LTCG up to Rs 50 lakh); 22.88% (10% surcharge — LTCG Rs 50 lakh to Rs 1 crore); 23.92% (15% surcharge — LTCG Rs 1 crore to Rs 2 crore); higher rates for LTCG above Rs 2 crore. For STCG (property held 24 months or less by NRI): TDS at slab rate applicable to the NRI (typically 30% + surcharge + cess = 31.2% to 35.88%); (iii) TDS is deducted on the ENTIRE consideration paid to the NRI (unless LDC obtained — Step 4); (iv) TDS deposit: within 7 days from the end of the month of deduction (Challan ITNS 281 — for TDS/TCS payments); (v) Quarterly TDS return: Form 27Q (quarterly statement for TDS on payments to non-residents) — due dates: Q1 (April-June) by 15 July; Q2 (July-Sept) by 15 October; Q3 (Oct-Dec) by 15 January; Q4 (Jan-Mar) by 15 May; (vi) Form 16A (TDS certificate) issued to the NRI seller within 15 days from the due date of Form 27Q.

    Government2-3 days
  4. 4

    Lower Deduction Certificate (LDC) Application Under Section 197

    To avoid excess TDS deduction (TDS on full consideration vs. actual taxable gain), the NRI seller should apply for a Lower Deduction Certificate (LDC) under Section 197 before the property sale. LDC Application process: (i) File an application to the jurisdictional Assessing Officer (AO) of the NRI seller in India (typically the AO for the district where the property is located or the NRI's last Indian address — International Taxation jurisdiction for NRIs); (ii) Application form: Form 13 (application for certificate for deduction of tax at lower rate); (iii) Documents required: proof of NRI status (passport, overseas visa/PR), property details (sale deed draft or agreement), cost of acquisition with evidence (original purchase deed, stamp duty receipts), computation of capital gains (after indexation if LTCG), bank statements, PAN card; (iv) AO reviews the application and issues the LDC specifying the exact TDS rate (typically the effective tax rate on the actual capital gains); (v) The NRI provides the LDC to the buyer — the buyer deducts TDS at the LDC-specified rate (e.g., 8% instead of 20%) and files Form 27Q; (vi) Timeline: LDC applications can take 2-8 weeks — apply well before the scheduled sale date. Benefits: avoids excess TDS being locked up with the Income Tax Department for 1-2 years pending ITR refund.

    Government3-7 days (to prepare and file LDC application)
  5. 5

    Form 15CA / 15CB — Repatriation of NRI Property Sale Proceeds

    After the property sale and TDS compliance, the NRI seller typically wants to repatriate the net sale proceeds (after TDS) from India to their NRI bank account abroad. Under FEMA (Foreign Exchange Management Act, 1999) and the RBI Master Circular on Non-Resident Accounts: NRIs may repatriate up to USD 1 million per financial year from the balances in NRO account (for sale proceeds of immovable property received in India), provided: (i) Property held for minimum period as per FEMA NRI regulations (varies — check current RBI guidelines); (ii) TDS deducted and paid (Tax Clearance); (iii) Form 15CA (self-certification) and Form 15CB (CA certificate) are obtained: Form 15CB certifies: the nature of the remittance (sale proceeds of immovable property), TDS deducted under Section 195 (or LDC rate), capital gains computation, applicable DTAA provisions, and FEMA compliance; (iv) AD bank submits Form 15CA + 15CB to process the outward remittance; (v) The NRI must also file an ITR in India for the year of sale — reporting capital gains and claiming credit for TDS deducted. If TDS was higher than actual tax liability (no LDC was obtained), the excess TDS refund is processed after ITR verification.

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Frequently Asked Questions

What TDS applies when I, as an NRI, buy property in India from a resident Indian?
When you (an NRI) buy property from a resident Indian seller for Rs 50 lakh or more, Section 194-IA applies — even though you are an NRI buyer. You must: (i) deduct TDS at 1% of the total sale consideration (e.g., property for Rs 80 lakh — TDS of Rs 80,000); (ii) file Form 26QB online on the TIN-NSDL portal within 30 days from the end of the month in which TDS was deducted; (iii) pay the TDS simultaneously via net banking through Form 26QB (no separate challan required — Form 26QB is the combined challan-cum-return); (iv) issue Form 16B (TDS certificate) to the resident seller within 15 days from the Form 26QB due date — generated via TRACES portal. No TAN (Tax Deduction Account Number) is required — just your PAN and the seller's PAN. The 1% TDS applies regardless of the source of funds (NRE/NRO/FCNR bank account or overseas transfer) and regardless of whether you are an NRI. Failure to deduct TDS makes you a 'defaulter' under Section 201 — demand for TDS amount + interest at 1.5% per month from the date of default to the date of deposit.
How much TDS must a resident Indian buyer deduct when buying property from an NRI?
When a resident Indian buyer purchases property from an NRI seller, Section 195 applies — not the simpler Section 194-IA (which applies only when the seller is a resident). Under Section 195: TDS must be deducted on the entire sale consideration paid to the NRI seller at the rate applicable to the NRI's capital gains. For Long-Term Capital Gains (property held more than 24 months): 20% + surcharge + 4% H&E Cess. Effective rates: (i) LTCG up to Rs 50 lakh: 20.8%; (ii) LTCG Rs 50 lakh to Rs 1 crore: 22.88%; (iii) LTCG Rs 1 crore to Rs 2 crore: 23.92%. For Short-Term Capital Gains (property held 24 months or less by NRI): TDS at 30% + surcharge + 4% cess (effective: 31.2% to 35.88%). Example: NRI sells property for Rs 1 crore. Without LDC: buyer must deduct TDS of approximately Rs 20.8 lakh (at 20.8% of Rs 1 crore) — even though the NRI's actual capital gain (after indexation of cost) may be only Rs 30 lakh, and actual tax may be only Rs 6.24 lakh. The excess TDS of Rs 14.56 lakh must be claimed as a refund by the NRI by filing an ITR in India. To avoid this: the NRI should obtain a Lower Deduction Certificate (LDC) under Section 197 before the sale.
What is a Lower Deduction Certificate and how does an NRI apply for it?
A Lower Deduction Certificate (LDC) under Section 197 of the Income Tax Act is issued by the Income Tax Department to an NRI seller, authorising the buyer to deduct TDS at a lower rate (reflecting the actual tax on capital gains) instead of the full 20%+ rate on gross consideration. Why it matters: without LDC, the buyer deducts TDS at 20% on Rs 1 crore = Rs 20 lakh. With LDC: buyer deducts TDS at, say, 8% on Rs 1 crore = Rs 8 lakh (matching actual LTCG tax after indexation). How to apply: (i) Form 13 — filed online on the Income Tax e-filing portal under the International Taxation jurisdiction of the NRI's Assessing Officer (AO); (ii) Documents: property details (sale agreement, valuation), cost of acquisition (original purchase deed, stamp duty receipts, improvement costs), capital gains computation (with indexation), NRI status proof (passport, visa, foreign bank account), PAN; (iii) The AO reviews and issues the LDC within 30 days (typically) — specifying the exact TDS rate; (iv) The NRI provides the LDC to the buyer; the buyer deducts TDS at the LDC rate and files Form 27Q quarterly. Timeline: apply for LDC at least 4-6 weeks before the expected sale date. LDC applications should be filed well in advance because processing by the AO can take 2-8 weeks, and property registration cannot proceed without resolved TDS.
Can an NRI repatriate the sale proceeds of property sold in India to their overseas bank account?
Yes — under FEMA and RBI guidelines, NRIs can repatriate property sale proceeds from India. The key conditions: (i) Property acquired by the NRI in accordance with FEMA regulations (either as a resident or as an NRI under the applicable rules for the time of acquisition); (ii) Repatriation limit: up to USD 1 million per financial year from NRO account (subject to tax compliance); (iii) Tax clearance: TDS under Section 195 must have been properly deducted by the buyer, and the NRI's income tax liability for the year must be satisfied. The NRI files an ITR in India reporting the capital gains; (iv) Form 15CA + 15CB: the AD bank requires Form 15CA (self-declaration by the NRI) and Form 15CB (CA certificate certifying the nature of payment, TDS deducted, capital gains computation, and FEMA compliance) before processing the outward remittance; (v) The repatriation is done from the NRI's NRO account in India — the buyer's payment (net of TDS) is credited to the NRO account, and then the NRI instructs the bank to wire the amount overseas. Note: funds in an NRE account are fully repatriable without limit — but sale proceeds of Indian property go into NRO first, and the USD 1 million cap applies to repatriation from NRO.
What happens if the buyer fails to deduct TDS when purchasing property from an NRI?
Failure to deduct TDS (or deducting less than required) under Section 195 when buying from an NRI has serious consequences for the buyer: (i) Section 201(1) — deemed assessee in default: the buyer is treated as if they are in default for the entire TDS amount that should have been deducted; (ii) Section 201(1A) — interest: interest at 1.5% per month (compounded) from the date on which TDS should have been deducted to the date it is actually paid — this interest is not deductible in the buyer's income tax return; (iii) Section 271C — penalty: penalty equal to the amount of TDS that was not deducted — i.e., 100% of the TDS shortfall; (iv) Property registration risk: in some states, the sub-registrar requires proof of TDS compliance (Form 26QB or 27Q receipt) before registering the property — without TDS deposit, registration may be refused; (v) Practical impact on the NRI: without TDS being deposited, the NRI cannot get credit for TDS in their ITR and cannot claim refund. The NRI's sale proceeds may be held in an NRO account but repatriation is complicated without tax clearance. Remedy: if TDS was not deducted, the buyer can still voluntarily deposit the TDS at any time (though interest and penalty exposure remains) — better late than never to avoid escalating consequences.

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