Navigating Withholding Taxes: Guide for NRI Selling Property in India

Hey NRIs! Picture this — you own a nice property back in India, and now you are planning to sell it. Exciting, right? But hold on. There is a tax twist you need to master. We are talking about Tax Deducted at Source (‘TDS’), which can feel like a sneaky speed bump on your financial highway. This guide breaks it down into simple pieces with examples to keep more cash in your pocket. Whether you are in Dubai, the US, Singapore, or anywhere else, let’s make sense of it all.

Your Residential Status is the Game-Changer

Picture your tax status as a VIP pass: It decides how much tax gets “withheld” (deducted) when you sell property. Under India’s Income Tax Act, 1961, you are classified as:

• Resident and Ordinarily Resident (‘ROR’): Fully taxed on global income.

• Resident but Not Ordinarily Resident (‘RNOR’): Taxed typically only on Indian income with some exceptions.

• Non-Resident (‘NR’): Taxed only on Indian income, subject to benefit under the relevant Double Taxation Avoidance Agreement

  
  

Your tax status picks the TDS rulebook. Residents (including RNORs) get a lighter touch, while NRIs face a heftier TDS rate. Let us talk more about it.

TDS Basics: Who is Deducting What?

TDS is merely an interim measure for deduction of taxes on income, which is eligible for credit and can be offset against the taxpayer’s final tax liability. When you sell property, the buyer is required to deduct TDS from the sale consideration before making payment to the seller and deposit it with the Government. The rules are determined based on the residential status of the seller:

(i) If you are a Resident (ROR or RNOR): Section 194-IA kicks in. The buyer must deduct 1% TDS on the higher of the sale consideration of the immovable property (not being agricultural land) or the stamp duty value of such property, if either value is INR 50 lakh or more.

(ii) If you are a Non-Resident (NR): Section 195 applies. Here, TDS must be deducted at 12.5% on the capital gains (profit from the sale) and not on the entire sale value where the property is held for more than 2 years. This rate increases to 30% where property is held for 2 years or less.

The base tax rate will also be topped up with the applicable surcharge and cess.

Spotlight on Section 195: For Non-Residents

If the seller is Non-Resident, the buyer must deduct TDS under section 195 at 12.5%/ 30% (plus surcharge and cess, as applicable) on capital gains (actual profit on sale), not the full sale consideration. But buyers might play it safe and insist on applying TDS on the entire sale value. To ensure correct TDS, the seller should ideally get a Lower Deduction Certificate (LDC) from the tax department using Form 13 before the property sale transaction. It tells the buyer exactly how much to deduct tax based on real capital gains.

Quick checklist for NR sellers:

• Apply for a Lower Deduction Certificate in advance (processing may take 5-6 weeks).

• Share the lower deduction certificate with the buyer before payment.

• Ensure the buyer deducts and deposits TDS to the government under your PAN.

• File your return of income to claim any refund or adjustment.

Section 194-IA: The Easier Path for ROR and RNORs

If the seller is a Resident or RNOR, TDS provisions under Section 194-IA apply. The buyer deducts 1% TDS (plus applicable surcharge and cess) provided either the sale consideration or stamp duty valuation is INR 50 lakh or more. This TDS is much lower because the seller is considered a resident taxpayer. Thus, determining residential status correctly before the sale is essential.

Level Up to RNOR: Two Scenarios That Could Save You Big

Sometimes, NRIs become RNORs, unlocking that sweet 1% TDS rate. Here is how:

1. Living in a Country without Personal Income Tax (Like the UAE): If you are an Indian citizen residing in a country that does not levy tax on individuals, and your Indian-sourced income exceeds INR 15 lakh in a financial year, you may be “deemed” a RNOR in India regardless of number of days stay in India. This is known as the “deemed residency rule.”

In such cases:

• You will be treated as RNOR, not NR.

• TDS on property sale will be 1% under Section 194 IA, not 12.5% under Section 195.

2. Quick Visits to India (120-181 Days): Indian citizens or Persons of Indian Origin (PIOs) based outside India with India-sourced income exceeding INR 15 lakh in a financial year, and visiting India with stay between 120 - 181 days, are treated as RNOR. In this scenario too, Section 194- IA applies (that is, 1% TDS) since the person is a RNOR.

RNOR Status: Examples to Prove It

For property transactions, being an RNOR can provide significant cash flow benefits.

Example 1:

Rajiv lives in Dubai (no personal taxes there) and earns INR 20 lakh from India by way of rent and interest. He visits India for 30 days in Financial Year 2025-26.

• Status: Deemed RNOR (income > INR 15 lakh plus country with no-personal-tax).

• Sells flat for INR 1 crore (bought for INR 60 lakh, so profit INR 40 lakh). TDS: 1% of sale value (INR 1 lakh) under Section 194-IA. If he were a Non-

• Resident? A whopping INR 5 lakh (12.5% on capital gains). RNOR saves him INR 4 lakh upfront which is mainly a cash flow issue.

Example 2:

Sanjana lives in the US and earns INR 21 lakh from Indian sources and visits India for 97 days.

• Status: NR (stay < 120 days).

• Sells flat for INR 2 crore (bought for INR 1.25 crore, profit INR 75 lakh).

• TDS: 12.5% on capital gains or 12.5% on sale price under Section 195. No RNOR perks here — liquidity takes a hit. However, if her stay was 120 days, the TDS rate would be 1% under Section 194-IA.

RNOR status is like finding a hidden discount code for TDS.

NRIs’ Secret Weapon: The Lower Deduction Certificate

To get a lower tax rate on capital gains, it is advisable that NRIs apply for a Lower Deduction Certificate (LDC) online from their Assessing Officer on TRACES portal. The application is filed online using Form 13 on the TRACES portal.

Supporting documents typically include:

• Agreement to sell and purchase agreement

• Stamp duty value of the property being sold

• Computation of taxable income

• Proof of residential status

• Last 4 years tax returns

Summary Table: TDS at a glance

Practical Takeaway

• Check your residential status carefully each financial year before entering into a transaction for property sale.

• If you qualify as RNOR, inform the buyer to apply Section 194-IA (1%) instead of Section 195 (12.5%/30%).

• Apply for an LDC if you expect capital gains to be lower.

• Ensure TDS compliance — buyer must deduct, deposit, and file Form 27Q for NRIs or Form 26QB for residents.

• File your return of income to report the sale transaction, claim refund (if excess TDS), and maintain compliance.

Wrapping It Up: Sell Smart, Tax Smarter

Selling property as an NRI does not have to be a headache. It all boils down to your residential status; Non-Resident means 12.5% TDS on capital gains or 12.5% on sale consideration (get that LDC), while RNOR unlocks a breezy 1% TDS on sale consideration. Additionally, RNORs get the option to choose their final long term capital gains tax rate (where property held for more than 2 years and acquired before July 23, 2024) at 20% with indexation benefit or 12.5% without indexation, whichever is beneficial.

By understanding these rules, you can boost your cash flow and avoid refund hassles.