How to Avoid TDS on Sale of Property by NRI: A Complete Guide (FY 2025–26)

When a Non-Resident Indian (NRI) sells property in India, TDS (Tax Deducted at Source) is deducted by the buyer before making the payment. However, most NRIs aren’t aware that this TDS can be significantly higher than the actual tax liability, causing undue financial stress.

This detailed guide will help you understand how TDS works on NRI property sales, how to reduce or avoid it legally, and how to ensure full compliance with Indian tax laws.

TDS is deducted when an NRI sells a property in India as per Section 195 of the Income Tax Act. It ensures tax compliance but often results in excess deduction due to flat-rate calculations.

Proper planning can help you legally avoid overpayment and simplify the repatriation of funds.

Taxation depends on how long the property was held:

• Short-Term Capital Gains (STCG): If property held for < 2 years. Taxed at slab rates.
• Long-Term Capital Gains (LTCG): If held for ≥ 2 years. Taxed at 20% with indexation.
  

TDS is deducted by the buyer and deposited with the Income Tax Department before transferring the remaining amount to the NRI.

As per Section 195 of the Income Tax Act, any payment made to an NRI that is taxable in India is subject to TDS. Unlike residents (Section 194-IA, 1%), NRIs are subject to higher and variable rates.

TDS isn’t just a flat percentage. It includes:

• Surcharge: Based on total income (10%-15%)
• Health & Education Cess: 4% on (TDS + surcharge)

Example:

If LTCG = ₹1 crore: TDS = 20% = ₹20L + 15% Surcharge (₹3L) + 4% Cess (₹1.04L) = ₹24.04L

The buyer is legally responsible for deducting and depositing TDS when buying property from an NRI. Failure results in penalties for the buyer.

Steps:

1. Buyer obtains TAN
2. Calculate and deduct TDS
3. Fill Form 26QB
4. Pay TDS and download Challan
5. Provide Form 16B to NRI

• PAN Cards (Buyer & Seller)
• TAN (Buyer)
• Sale Agreement/Deed
• Passport (to prove NRI status)
• Form 13 (if applied)
• TRC & Form 10F (for DTAA benefits)

NRIs can repatriate funds up to USD 1 million per financial year post-sale, after providing:

• Form 15CA/CB
  
• Tax clearance certificate
  
• Proof of tax paid
  

TDS is calculated on:

• Entire sale value (by default, if Form 13 not used)
• Net capital gains (if lower TDS certificate is obtained)

This often leads to excess deduction, so proactive tax planning is essential.

• Invest in another property (Section 54 exemption)
• Invest in Capital Gain Bonds (Section 54EC)
• Use indexation benefit to reduce LTCG

India has DTAAs with 90+ countries. By submitting a Tax Residency Certificate (TRC) and Form 10F, NRIs can avoid paying tax twice on the same income.

• Penalty on buyer: Equal to TDS amount
• Interest @1-1.5% per month on late TDS
• Disallowance of purchase expenses
  

• Apply for Form 13 for lower TDS
• Calculate accurate capital gains
• Handle Form 15CA/CB for repatriation
• File your ITR & claim refunds

Selling property in India as an NRI involves complex taxation and TDS implications. But with the right knowledge, planning, and expert assistance, you can reduce or eliminate excess TDS, ensure timely refunds, and smoothly repatriate your funds.