{"id":1089165,"date":"2026-07-08T13:35:50","date_gmt":"2026-07-08T08:05:50","guid":{"rendered":"https:\/\/www.squareyards.com\/blog\/?p=1089165"},"modified":"2026-07-08T13:35:50","modified_gmt":"2026-07-08T08:05:50","slug":"nri-property-tax-rules","status":"publish","type":"post","link":"https:\/\/www.squareyards.com\/blog\/nri-property-tax-rules","title":{"rendered":"NRI Property Tax Rules in India: TDS, Rental Income and Capital Gains (2026)"},"content":{"rendered":"

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Tax obligations for NRIs in Indian property transactions run in both directions: NRI buyers face TDS deduction when purchasing from another NRI, and NRI sellers face TDS at source that is substantially higher than what resident sellers pay. Knowing the NRI property tax rules<\/strong> before a transaction closes avoids the two most common outcomes: a buyer deducting the wrong TDS amount and facing a penalty notice, or an NRI seller receiving far less than expected because the buyer applied the maximum withholding rate to the gross sale value.<\/p>\n

What are the key income tax rules if property is purchased from an NRI?<\/h2>\n

When a buyer purchases property from an NRI seller, Section 195 of the Income Tax Act applies. This places the responsibility on the buyer to deduct Tax Deducted at Source (TDS) at the point of payment, regardless of whether the buyer is a resident Indian or another NRI.<\/p>\n\n\n\n\n\n\n
Scenario<\/th>\nApplicable TDS rate<\/th>\nBasis<\/th>\n<\/tr>\n
Sale results in long-term capital gain (property held 24+ months by NRI)<\/td>\n12.5% of the gain (per post-Budget 2024 LTCG rate)<\/td>\nApplicable on the capital gain, not the gross sale price, but see note below<\/td>\n<\/tr>\n
Sale results in short-term capital gain (property held under 24 months by NRI)<\/td>\nApplicable income tax slab rate on the short-term gain<\/td>\nBased on the NRI’s taxable income in India<\/td>\n<\/tr>\n
Standard practice where gain is not separately determined<\/td>\n20% (or higher after applicable surcharge and cess) on the gross sale value<\/td>\nBuyers default to gross-value TDS under Section 195 when no certificate is obtained<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The practical issue is the last row. Because verifying the NRI seller’s actual capital gain requires detailed documentation and the buyer’s accountant is usually conservative, buyers default to deducting TDS at the standard rate on the entire sale consideration rather than the gain alone. An NRI seller whose actual tax liability is far lower than the TDS deducted must then file a return and claim a refund, which can take months. The correct solution is for the NRI seller to apply for a lower or nil deduction certificate from the Income Tax department before the transaction closes.<\/p>\n

What is TDS for NRI rental income in India?<\/h2>\n

NRI rental income is also subject to Indian tax, and the rules differ from a resident landlord’s treatment. When a tenant in India pays rent to an NRI landlord, the tenant is required to deduct TDS at 31.2 percent (30% plus applicable surcharge and cess) on the gross rent paid, regardless of the amount, and deposit it with the government under Section 195.<\/p>\n

Tenants who fail to deduct and deposit TDS on rent paid to an NRI landlord are liable for the TDS amount themselves, plus interest and penalty. This is a commonly overlooked obligation, particularly among individual residential tenants who assume TDS on rent applies only to commercial property or high-value leases.<\/p>\n

NRI landlords can claim credit for TDS deducted on their rental income when filing their Indian income tax return and can claim the standard deductions available for rental income, including 30 percent of the annual rent as a standard deduction and the actual property tax paid.<\/p>\n

What are the implications of selling a flat to an NRI in terms of tax?<\/h2>\n

Selling flat to NRI tax implications differ depending on whether the seller is a resident Indian or another NRI.<\/p>\n