Purchasing Immovable Property from an NRI in India
A complete tax & compliance guide for buyers and NRI sellers — covering TDS obligations, capital gains, exemptions, FEMA repatriation, and real-world worked examples under the new Income Tax Act 2025.
Why Does Buying from an NRI Change Everything?
Purchasing a flat, plot, or commercial space in India is already a multi-step process. But when the seller is a Non-Resident Indian (NRI), the tax and compliance obligations change dramatically — for both parties.
The key difference: under a regular resident-to-resident deal, the buyer simply deducts 1% TDS above ₹50 lakh. With an NRI seller, the buyer must deduct TDS at significantly higher rates — on the entire sale consideration, with no minimum threshold — and file different returns. The NRI seller, meanwhile, faces capital gains tax, potential double taxation, and repatriation regulations under FEMA.
Income Tax Act 2025 (effective 1 April 2026) — Section 393(2) governs TDS on NRI property sellers, replacing the earlier Section 195. Section 84 provides capital gains exemption (replaces Section 54). Buyer files Form 27Q (TDS return for non-residents). Post-Budget 2026, TDS deposited using buyer’s PAN instead of TAN.
Official Source: incometaxindia.gov.in — TDS on Purchase of Immovable Property
Who Qualifies as an NRI Under Indian Tax Law?
Under Section 6 of the Income Tax Act, an individual is a Non-Resident Indian (NRI) if they do not satisfy the resident conditions — broadly, anyone who has spent fewer than 182 days in India during the financial year.
If a seller is an NRI but represents themselves as a resident, and you deduct TDS at only 1%, you can receive an assessee-in-default notice from the Income Tax Department, with interest and penalties on the shortfall. Always obtain a written declaration of residential status from the seller before any payment.
Obligations of the Buyer (Indian Resident)
The governing provision under the Income Tax Act 2025 is Section 393(2) [Table: Sl. No. 17] — equivalent to the earlier Section 195 of the 1961 Act. When you buy from an NRI, the full compliance burden falls on you.
TDS Rates — What to Deduct
| Holding Period | Gain Type | Base TDS Rate | Effective Rate (approx.) |
|---|---|---|---|
| More than 24 months | LTCG | 12.5% | ~14.95% (max) |
| 24 months or less | STCG | Slab rates | Up to ~34.32% |
| No PAN furnished | Higher Rate | 20% or treaty rate | 20% or more |
Unlike the ₹50 lakh threshold for resident sellers, there is no minimum threshold when the seller is an NRI. TDS must be deducted on every rupee of consideration, regardless of the property value. As confirmed by the Income Tax Department (incometaxindia.gov.in): “If the seller is a non-resident, TDS is applicable under Section 195 [now Section 393(2)].”
Step-by-Step: Buyer’s Compliance Process
Get a written declaration from the NRI seller confirming non-resident status, supported by passport copy, visa, and overseas address proof.
If the NRI does not furnish their Indian PAN, TDS is deducted at 20% or the applicable rate — whichever is higher — under Section 206AA.
If the NRI holds a Lower Deduction Certificate, deduct TDS at the reduced rate shown on the certificate.
Deduct on each installment — advance, intermediate, and final. Budget 2026 (effective 1 Oct 2026): use your PAN for deposit; TAN is no longer required.
Deposit the deducted TDS within 7 days from end of the month of deduction (for March: by 30 April).
File Form 27Q (NRI payment TDS return) within 31 days from the end of the quarter. Different from Form 26QB used for resident sellers.
Generate and provide the TDS Certificate (Form 16A) from TRACES within 15 days of the TDS return due date.
Mr. Arjun (Hyderabad) buys flat from Mr. Raj Mehta (NRI – USA)
Property held by NRI for 4 years → LTCG applies. Sale consideration: ₹1,20,00,000
Tax Obligations of the NRI Seller
As an NRI seller, you are taxed in India on the capital gains arising from the sale. The buyer deducts TDS from the gross consideration, but your actual tax liability is only on the net capital gain — meaning you are often entitled to a significant refund.
| Holding Period | Classification | Tax Rate (FY 2025-26) |
|---|---|---|
| More than 24 months | LTCG | 12.5% + surcharge + cess |
| 24 months or less | STCG | Applicable slab rates + surcharge + cess |
Ms. Priya Sharma (NRI – UK) sells her Mumbai apartment
Bought 2018 @ ₹60 lakh. Sold 2025 @ ₹1,20,00,000. Held 7 years → LTCG.
NRI sellers can apply in Form 13 under Section 197 at the Income Tax portal before the sale is concluded. The Assessing Officer evaluates the actual capital gain and issues a certificate for TDS at a lower or nil rate, which the seller shares with the buyer.
Capital Gains Exemptions Available to NRI Sellers
NRI sellers are entitled to the same exemptions as resident Indians under the Income Tax Act 2025:
| Section (ITA 2025) | Earlier Section | Asset Sold | Reinvestment | Cap |
|---|---|---|---|---|
| Section 84 | Section 54 | Residential house | Buy/construct 1 house in India (1 yr before or 2 yrs after) | ₹10 crore |
| Section 84F | Section 54F | Any long-term asset (not house) | Net consideration → new house in India | ₹10 crore |
| Section 54EC | Section 54EC | Any long-term property | LTCG → NHAI/REC bonds within 6 months, 5-yr lock-in | ₹50 lakh |
Exemptions under Section 84 / 84F require reinvestment in residential property located in India only. Investment in foreign property does not qualify. The ₹10 crore cap (introduced Finance Act 2023) applies equally to NRIs.
Mr. Vikram Nair (NRI – Singapore) reinvests LTCG to claim exemption
Sells Chennai flat (held 8 yrs) for ₹1.5 Cr. LTCG = ₹80 lakh. Buys Pune flat within 1 year for ₹85 lakh.
Note: New Pune flat must be held for at least 3 years; selling earlier revokes the exemption.
Repatriation of Sale Proceeds — FEMA Rules
| Route | Limit | Conditions |
|---|---|---|
| NRO Account | USD 1 million / financial year | All taxes paid; Form 145 + Form 146 required |
| NRE Account | Up to 2 residential properties | Property purchased with inward foreign remittance / NRE funds |
| Inherited Property | USD 1 million / year | Inheritance must be documented; FEMA declaration required |
Under Income Tax Rules 2026, Form 15CA → Form 145 (self-declaration by NRI confirming taxes paid) and Form 15CB → Form 146 (CA’s certificate certifying tax and FEMA compliance). Your bank will not process the international wire transfer without both for remittances above ₹5 lakh.
Consequences of Non-Compliance
Failure to deduct or deposit TDS renders the buyer an assessee-in-default as per the Income Tax Department’s official guidance.
Buyer vs NRI Seller — Obligations at a Glance
- Deduct TDS at LTCG/STCG rate on entire consideration
- No minimum threshold — applies on even ₹1
- Deposit via Challan ITNS 281 (PAN after Oct 2026)
- File Form 27Q quarterly TDS return
- Issue Form 16A TDS certificate to NRI seller
- Verify NRI status in writing before any payment
- Tax is on net capital gain, not gross sale price
- Apply for Lower Deduction Certificate (Form 13)
- Claim exemptions under Section 84 / 54EC
- File ITR in India to claim TDS refund
- Submit Form 145 + 146 for repatriation
- Repatriation capped at USD 1 million/year (NRO)
Double Taxation Relief — DTAA Benefits
India has DTAAs with over 90 countries. NRI sellers taxed both in India and in their country of residence can claim relief under the applicable treaty to avoid double taxation.
If Mr. Raj Mehta (NRI – USA) pays capital gains tax of ₹9 lakh in India, he may claim a foreign tax credit on his US federal return for the Indian tax paid. NRIs should provide a Tax Residency Certificate (TRC) from their country of residence to the buyer/bank to claim DTAA benefit.
2. Income Tax Department — TDS from Sum Paid to Buy Immovable Property
3. Income Tax Act 1961 — Section 195; replaced by Section 393(2) of Income Tax Act 2025 w.e.f. 1 April 2026
4. Income Tax Act 2025 — Section 84 (erstwhile Section 54); Section 393(1) & 393(2)
5. FEMA 1999 — RBI Master Directions on Remittance of Assets from NRO Accounts
6. Finance Act 2026 — TAN removal for NRI property TDS; Form renaming (15CA→145, 15CB→146)
7. Income Tax Rules 2026 — Rule 218 & 219 (TDS deadlines), Forms 141 & 27Q