Buying property from an NRI is easier, but don't make this 12.5% TDS mistake

Summary

While an administrative step has been removed, it does not dilute the buyer's responsibility for TDS, which is higher when the seller is an NRI.

Buying a house from a non-resident Indian (NRI) involves more tax compliance than buying one from a resident. One part of that process gets simpler from today.

A resident individual or Hindu undivided family (HUF) buying immovable property from an NRI will no longer need a TAN or tax account number just to deduct tax at source on the transaction. Now, the buyer can use PAN and deposit the tax deducted at source (TDS) through Form 141. The form will have a new Schedule E for such transactions.

"Form 141 is not a new form introduced by this notification. It is a consolidated challan-cum-statement that was introduced under the new Income-Tax Act, 2025, for specific TDS transactions. It is already used for depositing TDS on payments by individuals and HUFs to residents, including TDS on purchase of immovable property from a resident. The recent notification has expanded its scope to also cover TDS under Section 393 (2), where a resident individual or HUF purchases immovable property from a non-resident, with a new Schedule E specifically prescribed for such transactions," said Neeraj Agarwala, senior partner at Nangia & Co LLP.

While this removes an administrative step, it does not dilute the buyer's responsibility for TDS, which is higher when the seller is an NRI.

What changes from 1 October

Until now, an individual or HUF buying a property from an NRI had to mandatorily get a TAN, which could add a few days to the process. A TAN application can be made online, but allotment typically takes about 2 to 10 days, according to Agarwala.

From 1 October, this requirement has gone away. The buyer will have to file Schedule E of Form 141 and deposit the TDS within 30 days from the end of the month in which it was deducted. A TDS certificate in Form 132 must then be issued to the NRI seller within the prescribed timeline.

Schedule E asks for details such as the property address, sale consideration, stamp duty value, payment date and information about the buyers and sellers. For an NRI seller, the buyer may also need details such as the overseas address, residential status, PAN or specified foreign tax information.

Higher TDS rules

When the seller is a resident, TDS to be deducted is 1%. However, for an NRI seller, the TDS rate is higher at 12.5% (surcharge and cess extra) - the same as the long-term capital gains tax rate. The NRI seller can obtain a lower or nil deduction certificate, but it has to be done before the sale is finalized so that the buyer can deduct lower TDS at the rate specified in the certificate.

The key point is that the responsibility to deduct the correct TDS rests with the buyer. So, before making a payment, the buyer should establish the seller's residential status because deducting only 1% can leave a large TDS shortfall and the tax department can treat the buyer as an assessee in default.

Interest of 1% interest per month (or part of a month) will be charged on the shortfall amount and it is calculated until the date the shortfall is actually deducted and paid. In extreme cases, the assessing officer may slap a penalty equal to the shortfall amount. This typically happens if the NRI seller did not pay the remaining tax due and a scrutiny is opened by the tax department.