TDS rules for resident buyer buying property from NRI seller


A resident Indian buyer has to comply with a particular set of TDS rules when he is buying property from NRI. The rules are prescribed as per the Indian Income Tax Law. 

It is advised to take the assistance of an expert in calculation and filing of TDS return to avoid legal hassles. 

It would be easier to understand the nuances of buying property from NRI if we are aware of the correct information.

Read More: Tax implications on a gifted property

First and foremost you should know:

Who is an NRI seller?

NRI seller of the immovable property for TDS is the one who conforms to the status of NRI as per the Income Tax Law in India. The residential status must be mentioned in the sale deed.

Who is liable to pay TDS?

It is the buyer who pays the TDS. 

How is TDS calculated when buying the property?

TDS is calculated on capital gains. 

Capital Gains – it is income from profits earned by sale of a property in India.

  • Short term Capital Gains: profit from the sale of the property within two years of its purchase.
  • Long term Capital Gains: profit earned from the sale of property held for more than two years.

TDS is deducted at the rate of 20% on long term capital gains and 30% on short term capital gains plus surcharge, health and education cess.

In case there is any doubt about the capital gain income, an application can be filed with the income tax authority to know the correct amount. As a precaution, the buyer can ask the seller to bring a certificate from the authorities showing the ascertained amount of capital gain. The buyer must include the details of the same in the sale deed. The residential status must be mentioned in the sale deed. There is a penalty for the buyer if he does not comply with the TDS rules.

Read More: Tax rules for investment in real estate by non-resident Indians

For any exemption available to NRI seller for payment of tax, he has to bring evidence of the same and show it to the buyer.

The amount of tax deducted and the rate applied must be mentioned in the sale deed.

What is TAN? 

A buyer has to get TAN (tax deduction account number) as he has to deposit tax. The buyer must have his PAN number as well as PAN of the seller also before applying for TAN.

There is a penalty if he TDS is deposited without TAN. In the case of joint purchase, all the buyers must obtain separate TAN.

How to Deposit TDS?

TDS is deducted and deposited by the buyer with the Taxation Department or through an authorized bank. After depositing, the buyer files return by submitting form 27Q and then issues a certificate to the seller.

Read More: Tax on capital gains for non-resident of India

Deposit of sale proceeds?

The buyer must deposit the amount in the NRO/NCR/FCNR account of NRI. 

It is better to execute the sale deed when the NRI is physically present in India. It should be done with a PoA holder in unavoidable circumstances. The buyer is responsible for deducting TDS and depositing the same. He must be careful while buying the property and comply with TDS rules. 

Saving yourself from fraud while buying or selling a property

Saving Yourself From Fraud While Buying or Selling A Property

It is a bitter fact that there is an occurrence of frauds while buying or selling the property. Misinformation or Ignorance or lack of information on procedures and documentation is the main cause.  However, one can easily avoid these complications. 

Some of such common frauds are:

Imperfect Title – For a buyer, it is significant to ensure that the seller has a clean title and can transfer the ownership rights in the property to the buyer. The title should be free from defects. The imperfect title means there is any encumbrance on the property or the property is disputed.

Multiple mortgages: The seller has mortgaged the house to different banks before selling the same.

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Delayed possession by developers – In case of buying house/flat constructed by a builder, possession of the flat is often delayed. The buyer’s money gets blocked.   

Building not as per the approved plan– The builder does not construct the building as per the sanctioned plan. Necessary approvals from the Government are not taken. The property is not as per the description/advertisement. Sometimes the location of the property may also differ.

Fake Documents– There is also a practice of preparing fake title deeds. Either the signatures are forged or the document (property document) is not valid i.e. proper stamp duty not paid or document not registered as required.

Fraud by Impersonation: The person presenting himself as the owner of the property is not the actual owner. The documents are signed forging the signatures of the actual owner.

Home equity frauds– In simple words, home equity frauds means a fraud where the fraudster hacks the information about the true owner and reroutes the loan amount to his account by forging the signatures of the actual owner.

Read More: Transfer of Property on the basis of Registered or Unregistered Will

Misuse of power of attorney: A POA granted to execute a sale deed can be misused. It is better to get the same verified from a lawyer to avoid any dispute later.

How to avoid them:

Information and knowledge is the key to avoid any property related frauds. Some steps can be:

To verify the Credentials of the developer/builder:

If the builder/company is reputed, it can help to ensure that necessary approvals have been taken and promises made are not fake. Possession will not be delayed as the developer has maintained a good track record.

Checking the revenue records:

There is a mention of the lien/mortgage over the property in the revenue records. The same can be verified to ensure that property is free from encumbrances and title is clear.

Buying a resale property:

Collect the encumbrance certificate from the office of the Sub Registrar as it helps to verify that the title is clear. EC also contains the name of the previous owner. Also, check the tax payslips. Try to verify that all dues have been paid.

Read More: How to file a partition suit for a property in India

Buying a house in a society:

Check that the society is registered and there is a resident welfare association in place.

Buying a house from a builder:  

It is better to check that the project is registered with RERA. It helps to ascertain that all necessary approvals are in place and construction is as per norms. Moreover, possession will be granted as per promise.

From Seller’s point of view certain precautions are:

  • Buyers generally ask for original ownership documents. Sellers must possess the same
  • Seller must have Approved building plan or occupation certificate from the local authorities
  • Sellers must ascertain the identity of the buyers especially if the buyer is executing the conveyance deed using a power of attorney
  • Proper valuation of the property to quote the correct price

Taking legal advice:

Property transactions are complex. To avoid the occurrence of fraud, the parties must take legal advice and ensure proper documentation.

 Investment in the property must be taken seriously. The casual approach may land you in trouble.