Buying Property from an NRI in India: Tax & Legal Guide

Purchase of Property in India by a Resident from a Non-Resident: Key Legal and Tax Considerations

1. Introduction

Several transactions of purchase and sale of properties by Non Residents take place in India. There are a few additional statutory issues which need to be carefully considered when a resident in India is buying from a Non Resident or Selling to a Non Resident. The procedures are simple but any deviation or omission may result in payment of substantial interest and penalties. This article outlines the key legal, procedural, and tax aspects a resident buyer must be aware of when purchasing property from a non-resident.

2. Mode of Payment

• The full sale consideration must be paid through banking channels, ie Direct Bank Transfer or through a Crossed Demand Draft or even a Crossed Cheque.
• Cash transactions are prohibited.
• The resident buyer must ensure that payment is made from a resident bank account, and not from any foreign source. No direct transfer of funds from a Foreign Bank Account. If any close relatives are financing, the amount has to be routed through Indian Bank only.

3. TDS Obligations under Section 195 of the Income Tax Act

4. Resident selling immovable property to another Resident or Non Resident.

TDS is applicable at 1% on the Total Consideration as per the Sale Deed, should be deducted by the Buyer and only balance amount to be paid to Seller.  The buyer will deposit the amount of TDS by way of a Challan No.26QB, (Challan cum statement) should be paid within 30 days from the end of the month of date of deduction, ie date of registration of property.  TDS @ 1%  should be made and paid by Seller to Buyer on Advance amounts paid from time to time.

5. Non Resident selling to another Resident or Non Resident.

TDS is applicable at 20% on the Total Consideration (incl applicable surcharge) as per the sale deed should be deducted by the Buyer and only balance amount to be paid to Non Resident Seller.  The Buyer needs to pay the TDS amount by way of Challan within 7 days from the end of the month in which the deduction is made, typically the date of registration or payment TDS @ 20% (along with applicable surcharge) should be paid by the Buyer on each Advance amount paid from time to time. Along with the same, the buyer must file Form 27Q, being the quarterly TDS return for payments made to non-residents, by the due dates prescribed: 31st July (for April–June), 31st October (for July–September), 31st January (for October–December), and 31st May (for January–March).”

This is a critical area often overlooked:

• When purchasing property from a non-resident, TDS must be deducted under Section 195, since the property is located in India.
• The buyer is responsible for deducting TDS on the capital gains component at rates applicable to non-residents. This could range from 20% to 30% + surcharge and cess, depending on whether it is a long-term or short-term capital gain.
• TAN (Tax Deduction Account Number) is mandatory for the buyer.
• Form 27Q has to be filed by the Buyer furnishing all the required details.
• The TDS amount must be deposited with the government within the specified time and
• Non-deduction or incorrect deduction can make the buyer a defaulter under tax laws.

6. Capital Gains Tax for the Seller

• The NRI/OCI seller is liable to pay Capital Gains Tax in India. He/She has to file Income Tax Return mandatorily.
• The cost of acquisition, holding period, and indexation (for long-term capital gains) determine the tax liability.
• The seller can apply for a lower or nil TDS certificate from the Income Tax Department (under Section 197) to avoid higher TDS deduction by the buyer.

In a particular case, the Buyer has duly deducted TDS at 20% + applicable surcharge and remitted the amount to the Govt through Challan.  Buyer has failed to obtain TAN and also incorrectly filed 26QB instead of Form 27Q.

The Seller while filing his ITR, noticed that TDS calculated at 1% on the Sale Consideration is only reflected in his 26AS. Due to the procedural lapse on the part of the Buyer, the Seller’s 26AS reflected only 1% instead of the actual TDS amount.

The Seller has filed his ITR claiming the full TDS. However, his ITR was processed giving credit of TDS as per 26AS and a huge demand was raised.  The actual TDS credit was not granted to the seller due to the default of Buyer.

The matter went up the Appeallate Channels, and recently the Hon’ble Delhi High Court in the case .

Parag Keshav Bopardikar v. ITO and Others [W.P.(C) 6475/2025 & CMAPPL No.29510/2025] in which it was held that an NRI seller cannot be denied full TDS credit merely because the buyer used the incorrect TDS form (Form 26QB instead of Form 27Q), despite having deposited ₹18.68 lakhs correctly. The error resulted in the TDS not reflecting in the seller’s AIS and triggered a ₹46 lakh tax demand. The Court held this denial to be an unreasonable technicality and described the reassessment notice and penalty proceedings as lacking “proper legal grounds” and a “clear case of non‑application of mind”. Furthermore, the Bench directed the tax authorities to immediately correct their records, grant Parag Bopardikar full TDS credit from the original deposit date, recompute any refundable amount, and issue the refund without delay. This decision sets a significant precedent, reinforcing the principle that substance—actual tax payment—must prevail over procedural formality, particularly in cases where genuine tax compliance is unquestioned.

A similar case filed by me is currently pending before the first Appellate Authority.

Conclusion

Purchasing a property from an NRI or OCI can be smooth and rewarding if done with proper planning and legal diligence. However, tax implications and correct compliances are crucial, and professional legal and tax advice is strongly recommended.

****

Author: Mohan Koduru, Advocate, Visakhapatnam & CA Lakshmi Narasimham Koduru