TDS on Purchase of Property from Joint Sellers Where One Co-owner Is NRI

TDS on Purchase of Property from Joint Sellers Where One Co-owner Is NRI (Resident Buyers, Multiple Legal Heirs)

Introduction – brief background + why it matters

Resale property transactions frequently involve multiple legal heirs as joint owners, especially where the original owner is deceased. The compliance becomes sensitive when one of the co-owners is a Non-Resident Indian (NRI), even if a Power of Attorney is used for execution. Buyers often assume that the “property TDS” is uniformly 1%, but that assumption can become costly when any seller is non-resident.

The core issue is simple: TDS provisions differ based on the residential status of the seller and can operate co-owner wise, not merely transaction wise. A wrong rate or wrong compliance (like missing TAN) can expose the buyer to demand, interest and procedural notices, even when payment was made bona fide.

Main Discussion

1) Two separate TDS tracks: resident seller vs NRI seller

In prevailing practice:

Section 194-IA applies when the seller is a resident and the transaction crosses the specified threshold. The common market understanding is “1% TDS on consideration”.

Section 195 applies when payment is made to a non-resident (including NRI). In such cases, TDS is deducted at rates applicable to non-resident taxation and is generally much higher in effective terms.

Therefore, where a property is sold by joint owners including residents and an NRI, the buyer cannot apply a single uniform rate across the entire consideration. The correct approach is seller-wise.

2) Co-owner wise deduction: split the consideration

When sellers are co-owners (e.g., legal heirs), the practical approach is to treat each co-owner’s share separately:

On the portion payable to resident co-owners, TDS is as per Section 194-IA (commonly 1%).

On the portion payable to the NRI co-owner, TDS is as per Section 195 (commonly treated at “more than 20%” effective withholding; expert responses in the discussion refer to an effective rate like ~20.8% on consideration).

The expert discussion also reflects a conservative view some professionals take: apply the higher NRI-rate to the whole transaction to avoid risk where shares are unclear. However, where shares are clearly identifiable and payments are made distinctly, the more precise approach is deducting as per each co-owner’s status.

3) “Power of Attorney” does not change seller’s residential status

If the NRI co-owner has granted Power of Attorney, it is only an execution mechanism. It does not convert the NRI seller into a resident seller for TDS purposes. The deduction obligation remains based on the actual beneficial owner/seller.

4) TAN requirement and “joint TAN” confusion

A major practical difference between the two sections:

Under Section 194-IA, buyers generally comply through the specified challan-cum-statement mechanism, and TAN is typically not the focal requirement.

Under Section 195, compliance is through the regular TDS mechanism, and TAN becomes relevant/required for the deductor.

The expert discussion clearly states:

Each buyer who is liable to deduct may need to obtain a separate TAN.

Joint TAN is not allowed.

So, if the purchase is in joint names (e.g., husband and wife as co-buyers) and both are making payments / are treated as deductors, the practical expectation is separate TAN for each buyer for the Section 195 portion.

5) Timing, deposit and downstream exposure

TDS must be deducted at the time of credit or payment (whichever is earlier), and deposited within the applicable timelines. If the buyer deducts short or does not deduct:

The buyer can be treated as assessee-in-default, with interest and compliance consequences.

The seller’s later tax payment does not automatically cure the buyer’s procedural default in every case; documentation and reconciliation become necessary.

Practical Impact / Expert View – practical timeline, common mistakes, compliance steps, and real-world cost/effort implications

Suggested compliance steps (clean and defensible)

Obtain a clear ownership/share declaration (legal heir document / succession clarity) and ensure the sale deed reflects shares.

Split the payment co-owner wise (separate payee-wise amounts).

Apply resident TDS on resident co-owners’ portion and Section 195 TDS on NRI co-owner’s portion.

If Section 195 applies, arrange TAN early; for joint buyers, plan for two TANs (no joint TAN).

Keep a neat file: PANs, residential status confirmation, share working, payment proofs, and TDS proofs.

Common mistakes

Applying 1% on the entire transaction despite an NRI co-owner.

Deducting “some higher rate” but not splitting seller-wise, leading to mismatch and questions.

Ignoring TAN planning for Section 195 and rushing at the time of registration.

Assuming POA execution changes the TDS rate (it doesn’t).

Real-world effort implications
Getting this right upfront saves significant effort later: rectifications, notices, repeated visits to professionals, and delays in registry/loan disbursement can all follow from incorrect withholding.

Conclusion – key takeaways

In joint sale where one co-owner is NRI, TDS is generally co-owner wise: resident sellers under 194-IA (1%) and NRI seller under 195 (higher withholding).

Power of Attorney does not change the NRI’s TDS treatment.

For Section 195 compliance, TAN is typically required, and joint TAN is not permitted; joint buyers may need separate TANs.

Split payments and keep documentation clean to avoid future tax queries.

For further professional assistance, you may reach out at casgpj@gmail.com