When a resident Indian enters into an immovable property transaction with a Non-Resident Indian (NRI) — such as buying property from or selling property to an NRI — the tax implications are significantly different from regular resident-to-resident transactions. Here’s what resident Indians should definitely know:
🧾 Key Tax Implications for Resident Indians in Transactions with NRIs
1. TDS (Tax Deducted at Source) Obligations
🔻 If you are buying property from an NRI:
- You must deduct TDS under Section 195 of the Income Tax Act.
- TDS is not a flat 1% (like in transactions with residents). Instead:
- If LTCG (Long-Term Capital Gain): TDS = 20% (plus surcharge and cess).
- If STCG (Short-Term Capital Gain): TDS as per slab rate applicable to the NRI.
- Higher TDS rate applies on total sale consideration, not just on the gain.
Note: You need to obtain a TAN (Tax Deduction and Collection Account Number) before deducting and depositing TDS.
🔻 Form 15CA & 15CB compliance:
- Form 15CA is mandatory for any payment to an NRI.
- Form 15CB (from a Chartered Accountant) is needed in most cases unless exempt.
- These forms ensure proper tax deduction and reporting before remitting funds abroad.
2. Capital Gains Tax in the Hands of the NRI
- The NRI seller is liable for capital gains tax:
- LTCG (property held > 2 years): Taxed @ 20% with indexation.
- STCG (held ≤ 2 years): Taxed at slab rates applicable to the NRI.
3. Application for Lower/Nil TDS Certificate [Form 13]
- The NRI seller may apply to the Assessing Officer for a lower/Nil TDS certificate.
- If granted, you as buyer can deduct tax at reduced rate or not at all, as per the certificate.
4. Repatriation of Sale Proceeds
- An NRI can repatriate sale proceeds only up to $1 million per year, subject to certain conditions.
- You should confirm if RBI/FEMA norms are being followed.
5. Reporting in ITR
- If you, the resident Indian, fail to deduct TDS properly, you may be treated as assessee-in-default, attracting:
- Interest under Section 201(1A)
- Penalty under Section 271C
- Disallowance of expense under Section 40(a)(ia)
✅ Checklist for Resident Buyer:
| Task | Details |
|---|---|
| TAN Registration | Mandatory before deducting TDS |
| TDS Deduction | At appropriate rate under Sec 195 |
| TDS Payment | Within 7 days of end of the month of deduction |
| Form 26QB | Not applicable; use Form 27Q for NRI transactions |
| File Form 15CA/15CB | Before remitting funds to NRI |
| TDS Certificate | Form 16A to be issued to NRI |
| Report in ITR | Show TDS deducted and ensure proper disclosure |
⚠️ Common Mistakes to Avoid
- Assuming 1% TDS applies (it doesn’t for NRIs).
- Not obtaining Form 15CB or misreporting remittances.
- Not applying for lower TDS certificate when applicable.
- Not depositing TDS on time — leads to interest and penalty.
🔚 Conclusion
If you’re a resident Indian transacting in property with an NRI, you’re stepping into a highly regulated zone involving TDS, capital gains, and foreign exchange laws. Ensure compliance with Section 195, use proper documentation, and consult a CA for the right tax computation and remittance processes.