Sale of Property in India by a Non-Resident – Tax and TDS Provisions

When a Non-Resident or NRI sells immovable property in India, capital gains arising from the sale are taxable in India under Section 9(1)(i) of the Income-tax Act, 1961, regardless of the buyer’s status or location of payment. The classification of gains depends on holding period: short-term (≤24 months) and long-term (>24 months). Under Section 195, the buyer is responsible for deducting TDS at rates “in force”: 20% for LTCG and 30% for STCG, plus applicable surcharge and cess. The TDS must be deducted at the earlier of credit or payment. Non-Residents can apply under Section 197 for a lower or nil TDS certificate to avoid excess deduction. Buyers must obtain TAN, deposit TDS, file Form 27Q quarterly, and issue Form 16A. Compared to residents, Non-Resident sellers face higher TDS rates and stricter compliance. Timely planning and adherence to Section 195 are essential to prevent disputes and ensure correct tax deduction.

1. Background

When a Non-Resident (including NRI) sells an immovable property situated in India, the transaction is subject to Indian income-tax provisions. Both taxability of capital gains and TDS compliance need careful attention, as the responsibility largely shifts to the buyer.

2. Taxability in India

As per Section 9(1)(i) of the Income-tax Act, 1961, income arising from the transfer of a capital asset located in India is deemed to accrue or arise in India.

Accordingly, capital gains arising on sale of property located in India by a Non-Resident are taxable in India, irrespective of the residential status of the buyer or the place of receipt of consideration.

3. Nature of Capital Gains

The classification of capital gains depends upon the period of holding of the property:

Short-Term Capital Gain (STCG) : Property held for 24 months or less

Long-Term Capital Gain (LTCG) : Property held for more than 24 months

4. Obligation to Deduct TDS – Section 195

Under Section 195, any person responsible for making payment to a Non-Resident of any sum chargeable to tax in India is required to deduct tax at source.

Therefore, in case of sale of property by a Non-Resident:

Buyer of the property is responsible for deduction of TDS The residential status of the buyer is irrelevant.

5. Time of Deduction

Tax is required to be deducted at the earlier of:

• Credit of the amount to the account of the seller, or
• Actual payment (including advance payments)

6. Rate of TDS – “Rates in Force”

Section 195 requires deduction of tax at rates in force.

As per Section 2(37A), rates in force mean:

• Rates specified in the Finance Act of the relevant year, or
• Rates prescribed under the applicable Double Taxation Avoidance Agreement (DTAA), if beneficial to the assessee.

7. Applicable TDS Rates

In the absence of a lower deduction certificate, TDS is required to be deducted on the gross sale consideration.

8. Lower or Nil Deduction of TDS – Section 197

To avoid excess deduction of tax, the Non-Resident seller may apply for a Lower / Nil TDS Certificate under Section 197 by filing Form 13.

Based on the computation of actual capital gains, the Assessing Officer may issue a certificate specifying the reduced rate of TDS, which the buyer must comply with.

9. Requirement of TAN

As per Section 203A, the buyer is required to:

• Obtain TAN
• Deposit TDS
• File quarterly TDS return in Form 27Q
• Issue Form 16A to the Non-Resident seller

10. Distinction between Resident and Non-Resident Seller

11. Conclusion

Sale of property by a Non-Resident involves higher TDS rates and stricter compliance as compared to a resident seller. Proper planning, timely application for lower TDS certificate, and correct application of Section 195 are essential to avoid excess tax deduction and future disputes.

This article is intended for academic and professional discussion and should be read in conjunction with the relevant statutory provisions.