21/07/2025
Buying property from an NRI? Here's what resident Indians should know about their tax liability
When a resident Indian buys property from an NRI, they must deduct 20% TDS on the total sale value and deposit it with the Income Tax Department
Vikram Patel, a Mumbai resident, was thrilled to find a luxurious apartment listed by Neha Kapoor, an NRI in Singapore, for ₹1.8 crore. The property was perfect, but Patel soon learned that buying from an NRI involved complex tax rules under the Income Tax Act, 1961 (IT Act). If he sold his own property to an NRI, the tax implications would differ.
When an Indian resident buys a property from an NRI, the resident buyer should deduct 20% as TDS from the total sale value, say experts. (Representational Image)(Unsplash)
TDS obligations when buying from an NRI
As a resident Indian buying from an NRI, Vikram faced strict Tax Deducted at Source (TDS) rules under Section 195 of the IT Act. Says Kunal Savani, Partner, Cyril Amarchand Mangaldas, a law firm, “Where the seller is a Non-Resident Indian (NRI), the provisions of section 195 of the IT Act apply instead of section 194-IA.”
Unlike resident-to-resident deals, where TDS is 1% for properties over ₹50 lakh under Section 194-IA, Vikram had to deduct TDS at 12.5% (plus surcharge and cess) for Long-Term Capital Gains (LTCG) or 30% for Short-Term Capital Gains (STCG) on the entire sale amount, regardless of value.
Says Suresh Surana, a Mumbai-based chartered accountant, “There is no monetary cap on sale consideration for deduction of tax in case where a transaction of purchase takes place between a resident transferee and a non-resident transferor.”
For Neha’s apartment, an LTCG transaction (held over 24 months), Vikram calculated TDS at 12.5% of ₹1.8 crore, totaling ₹22.5 lakh, plus cess. He needed a Tax Deduction and Collection Account Number (TAN) and had to file Form 27Q, unlike the simpler Form 26QB for resident deals.
“When an Indian resident buys a property from an NRI, the resident buyer should deduct 20% as TDS from the total sale value and deposit with the Department of Income Tax and File Form 27Q as TDS Return and share Form 16A. TDS certificate to NRI,” said Deepak Kumar Jain, founder of TaxManager.in, a tax advisory and e-filing portal platform.
