NRI Selling Property in Kolkata: The TDS Rule That Costs Buyers and Sellers Lakhs If Ignored

When an NRI sells property in Kolkata, TDS is not 1 % as in the case of a sale by a resident seller and the ignorance of the provision leads to losses on either side, be it a buyer or a seller. Things to know about tax deducted at source when purchasing land or property from a Non-Resident Indian seller Property transactions, especially those that take place between an NRI Seller and a Resident Buyer, are subject to a number of special considerations that are entirely distinct from the standard norms of a sale between residents or between two NRIs. The most frequent misunderstanding revolves around the topic of Tax Deducted at Source (TDS), with the majority of buyers erroneously thinking that the standard 1 percent TDS rule (for transactions where the seller is a taxpaying resident) also applies to purchases from a non-resident seller. This is not the case, as applying the 1 percent TDS results in a potentially steep loss for the buyer in addition to the seller.

Sneha Das

7/29/20264 min read

Why is the rate different for TDS on property sales by NRI?

According to the Income Tax Act, TDS is governed by Sections 194-IA and 195. When purchasing property from a taxpaying (resident) seller, the applicable TDS is 1% of the sale consideration that exceeds Rs 50 lakh under Section 194-IA.

In contrast, for a transaction with an NRI seller, the tax withholding provisions of Section 195 apply.

A practical and reliable solution to know the tax regulations is that unlike the Rs 50-lakh threshold for TDS under Section 194-IA, Section 195 does not have any minimum value of consideration for which tax with holding applies.

What is the current tax rate and TDS structure for purchasing property from an NRI?

In accordance with the Union Budget 2021, the Union Government made substantial changes to the capital gains tax rules for the sale of long-dated assets including property.

For Long Term Capital Gains (LTCG): LTCG for properties held for a period of 24 months or more continues to be taxed at 12.5 percent – with the option of indexation. With applicable surcharge and 4 percent health and education cess, the effective TDS rate works out to be anywhere between 13 and 15 percent.
For Short Term Capital Gains (STCG): For properties held for a period of less than 24 months, these are taxed at slab rates applicable for the seller in the given tax year, which could be substantially higher.

Where buyers tend to go wrong?

When it comes to buying property from an NRI seller, buyers often find themselves facing steep Where Buyers Get Caught Out

Property buyers frequently encounter severe penalties due to common procedural oversights:

Applying the 1% Resident Rule: Deducting only 1% TDS assuming standard resident rules apply to an NRI seller, leaving the buyer personally liable for the massive shortfall, plus statutory interest and penalties.
Failing to Verify Residency Status: Relying solely on an Indian PAN card or Aadhaar without checking actual tax residency status under the Income Tax Act.
Ignoring TAN and Return Filing Obligations: Assuming TDS obligations end at simple deduction. A Tax Deduction Account Number (TAN) and quarterly TDS return filings (Form 27Q) are legally required.

Where NRI Sellers Get Caught Out?

Sellers frequently face cash flow blocks and repatriation delays due to poor timing:

Skipping Lower Deduction Certificates: Failing to apply in advance for a Lower or Nil TDS Certificate under Section 197, resulting in massive upfront tax deductions on the total consideration that take months to recover via refunds.
Repatriation Bottlenecks: Attempting to transfer sale proceeds abroad without completing mandatory chartered accountant certifications (Form 15CA and 15CB), leading to severe banking delays.

A strategic guide to TDS compliance in property purchases from an NRI

To ensure a seamless transaction for both parties in Kolkata, follow a disciplined framework:

Confirm Tax Status Early: Establish residential status prior to executing the agreement for sale.
File Form 13 Proactively: Sellers should apply for a Lower Deduction Certificate well before closing to protect working capital liquidity.
Maintain Strict Paper Trails: Archive all original purchase deeds, improvement cost receipts, and bank remittance records to support capital gain calculations.

Frequently asked questions (FAQs)

Q1. What is the applicable TDS rate for a property purchase from an NRI?

A. For long term capital gains (LTCG), tax rate is 12.5 percent (without indexation) which makes the effective TDS rate range between 13-15 percent when taking into account surcharge and cess. LTCG is applicable for property held for more than 24 months. Short term capital gains (STCG) are taxed at slab rates.

Q2. Is there a minimum value of consideration for which TDS is applicable under Section 195?

A.There is no minimum threshold consideration specified under Section 195 unlike in the case of Section 194-IA where tax is applicable only when the value of property sold exceeds 50 lakhs.

Q3. Can an NRI seller reduce the TDS withheld at the time of sale?

A.Yes, an NRI seller can apply to the Income Tax Department for a Lower deduction certificate under Section 197 of the Income Tax Act so as to reduce the TDS withheld at the time of sale by taking into account their actual capital gains. This would release a substantial amount of the consideration paid by the buyer in the form of TDS.

Q4. What are the documents required to repatriate the amount received for property sold in India?

A. An NRI seller needs to give Form 15CA to their bank and a Chartered Accountant certificate in Form 15CB certifying that the tax on capital gains has been paid or reserved.

Q5. What are the interest penalties in case of failure to deduct or deposit NRI TDS?

A. The interest at the rate of 1 percent per month is applicable in case of failure to withhold or deduct NRI TDS. Additionally, if the deductor is not able to deposit the TDS withheld with the Government within the due period, the interest is levied at the rate of 1.5 percent per month in addition to penalties under Section 271C.

Conclusion

Buying property from an NRI seller comes with a compliance step that's easy to miss but expensive to get wrong. The buyer is responsible for confirming the seller's residential status and applying the correct TDS rate under Section 195, not the standard 1 percent rule that applies to resident sellers. Get this wrong, and any shortfall, along with interest and penalties, becomes the buyer's liability, not the seller's.

If you're buying property from an NRI seller in Kolkata, verify residential status before finalizing terms and apply Section 195 correctly from the outset. If you're an NRI seller, apply for a Lower Deduction Certificate well before the sale closes, so your funds aren't tied up in a lengthy refund process afterward.

Let Filing4U handle this for you. Our team verifies residential status, calculates the correct TDS liability, and helps NRI sellers secure Lower Deduction Certificates in advance, so both sides of the transaction close smoothly and without unexpected tax exposure.