Last Updated on 7th January 2026

When purchasing property from a Non-Resident Indian (NRI) seller, the buyer is required to deduct Tax Deducted at Source (TDS) on the sale amount. The TDS rate and procedures are different compared to transactions involving resident sellers. Here’s a breakdown of the process:

1. TDS Rate for NRI Seller

• Standard Rate: TDS is typically deducted at a rate of 12.5% plus applicable surcharge and cess on the total sale consideration if the property is classified as a long-term capital asset (held for more than 2 years). Please note that indexation benefit is not available to NRI Sellers of the property.
• Short-Term Capital Gains: If the property is held for less than 2 years, the TDS rate is 30% plus applicable surcharge and cess.
• Important Note: These rates are subject to change as per the Finance Act. Ensure you verify the latest rates.

2. Procedure for Deducting TDS

• Obtain TAN: The buyer must obtain a Tax Deduction and Collection Account Number (TAN) before deducting TDS.
• Deduction of TDS: TDS should be deducted at the time of making the payment to the NRI seller, whether in advance or in installments.
• Deposit of TDS: The deducted TDS should be deposited to the government account using Form 26QB within 30 days from the end of the month in which TDS was deducted.
• Issue of TDS Certificate: The buyer must issue Form 16A (TDS Certificate) to the NRI seller within 15 days from the due date of furnishing the challan-cum-statement in Form 27Q.

3. Lower TDS Certificate Process

An NRI seller may apply for a lower or nil deduction certificate under Section 197 of the Income Tax Act if the actual tax liability is expected to be lower than the standard TDS rate.

• Application by NRI Seller: The NRI seller can apply for a lower TDS certificate from the jurisdictional Assessing Officer in India. The application is made using Form 13.
• Processing Time: The issuance of a lower TDS certificate can take a few weeks to a few months, depending on the assessment and verification process.
• Issuance of Certificate: Once approved, the Assessing Officer issues the lower or nil TDS certificate specifying the reduced rate of TDS.
• Furnishing to Buyer: The NRI seller must furnish this certificate to the buyer, who will then deduct TDS at the rate mentioned in the certificate instead of the standard rate.

4. Filing of TDS Return

• The buyer needs to file TDS returns on Form 27Q quarterly.
• The return should include details of the NRI seller, the property transaction, the amount paid, and the TDS deducted.

5. Non-Compliance Penalties

• Failure to deduct or deposit TDS may result in interest and penalties. The buyer may also be deemed an “assessee in default,” making them liable to pay the TDS amount along with interest.

When Should an NRI Apply for Lower TDS Certificate?

An NRI should consider applying if:

• Actual tax liability is lower than standard TDS

• There is long-term capital gain with indexation benefit

• Property was purchased long ago at high cost

• There are eligible deductions or carried-forward losses

• DTAA benefits are applicable

• Large sale transaction is involved and cash flow matters

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Practical Example 1: Property Sale by NRI

Mr. Arjun, an NRI living in the USA:

• Property purchase price (2011): ₹55 lakh

• Sale price (2025): ₹85 lakh

• Long-term capital gain: ₹30 lakh

Without Lower TDS Certificate

Buyer deducts TDS on full sale value:

• TDS @15%  (Approx.) on ₹85 lakh ≈ ₹12.75 lakh

Actual tax liability:

• Capital gains tax ≈ 30*15% (12.5%+ Surcharge+Cess) = ₹3.75 lakh

Refund wait: 6–12 months

With Lower TDS Certificate

• TDS restricted to actual tax payable

• Buyer deducts only ₹3.75 lakh

Immediate saving in cash flow: ~₹9 lakh

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Practical Example 2: NRO Fixed Deposit Interest

Ms. Ritu, NRI in UAE:

• NRO interest income: ₹4 lakh

• Bank deducts TDS @30% = ₹1.2 lakh

After deductions and slab benefit:

• Actual tax payable: ₹40,000

By applying for a Lower TDS Certificate, future interest TDS can be reduced substantially instead of claiming refund every year.

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Who Can Apply for Lower TDS Certificate?

Eligible applicants:

• NRIs earning income taxable in India

• Individuals, companies, LLPs, trusts (NRIs included)

• Persons with PAN and Indian income source

Not applicable for:

• Salary income

• Fully exempt income

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Types of Income Covered under Section 197

Lower TDS certificate can be applied for:

• Sale of property by NRI

• Rent from Indian property

• NRO interest

• Capital gains on shares or mutual funds

• Contractual or professional income

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How to Apply for Lower TDS Certificate (Step-by-Step)

Step 1: Online Application

Application is filed online in Form 13 on the income tax portal.

Step 2: Submit Supporting Documents

Key documents include:

• PAN card

• Passport and visa

• Sale agreement / rent agreement

• Cost of acquisition proof

• Working of capital gains

• Previous ITRs

• Bank statements

Step 3: Assessment by Income Tax Officer

The officer verifies:

• Past tax compliance

• Estimated income

• Tax liability calculation

Step 4: Certificate Issuance

If satisfied, the officer issues a certificate specifying:

• Applicable TDS rate

• Validity period

• Nature of income

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Validity of Lower TDS Certificate

• Valid for specific financial year

• Valid only for specified payer and income

• Cannot be reused across years automatically

Fresh application required each year.

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What Happens After Certificate is Issued?

Once issued:

• Share certificate copy with buyer / bank / tenant

• Payer deducts TDS strictly as per certificate

• No excess deduction

• Less refund dependency

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Common Mistakes NRIs Make

• Applying after transaction is completed

• Not providing proper cost proof

• Ignoring indexation benefit

• Assuming refund is the only option

• Buyer deducting TDS before certificate receipt

Timing is critical. Application should be made before payment or registration, wherever possible.

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Is ITR Filing Still Required After Lower TDS?

Yes.
Lower TDS certificate does not replace return filing.

ITR is required to:

• Report income

• Confirm tax computation

• Close the tax cycle

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FAQs on Lower TDS Certificate for NRIs

Is lower TDS certificate guaranteed?
No. It depends on facts, documentation, and tax history.

How long does approval take?
Typically 2–6 weeks, depending on case complexity.

Can buyer refuse to accept certificate?
No. Once valid, buyer is legally bound to follow it.

Can NRIs apply from outside India?
Yes. Entire process is online.

Is DTAA benefit linked to Section 197?
Yes, DTAA relief can be considered while determining lower rate.

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Final Takeaway

For NRIs, high TDS is a procedural safeguard, not the final tax.
With proper planning and timely application, Lower TDS Deduction Certificate can save lakhs and prevent long refund delays.

For assistance with:

• Lower TDS Certificate

• Property sale taxation

• Capital gains computation

• NRI income tax filing

N C Agrawal & Associates provides complete India-focused NRI tax support.

 

 

Paying rent to a Non-Resident Indian (NRI) involves specific tax deduction requirements under Indian tax laws. This article details the TDS obligations on rent payments to NRIs and explains the process for obtaining a lower TDS deduction certificate.

TDS on Rent Payment to NRIs

Deductor:
Any individual paying rent to an NRI must deduct tax at source under Section 195 of the Income Tax Act, 1961.

Deductee:
Tax must be deducted if the recipient is an NRI and the rental income is chargeable to tax in India, irrespective of any Double Taxation Avoidance Agreement (DTAA) between India and the country of residence of the NRI. Since the property is located in India, the rental income is taxable in India.

Rate of TDS:

1. Standard Rate: As per the Finance Act 2022, the standard rate is 30% plus applicable Surcharge and Health & Education Cess, amounting to 31.20%.
2. DTAA Rate: If a DTAA is in force, tax should be deducted at the rate specified in the Finance Act or the DTAA, whichever is more beneficial to the assessee.

Time of Deduction:
TDS must be deducted at the time of payment or credit of income, whichever is earlier. This rule applies even if the amount is credited to a ‘Suspense Account.’

Deposit of Tax Deducted at Source:
TDS is required to be deposited to the credit of the central government through Challan ITNS 281 within 7 days from the end of the month in which the tax was deducted. For deductions made in March, the deposit deadline is 30th April of the relevant assessment year.

Statement for Tax Deducted at Source:
The deductor must file a quarterly statement of tax deducted at source in Form 27Q by the due dates specified under Rule 31A.

Certificate of TDS:
The deductor shall issue a certificate of tax deducted at source in Form 16A within 15 days from the due date of furnishing the statement of tax deducted at source under Rule 31.

How to Obtain a Lower TDS Deduction Certificate

In some cases, the NRI landlord may be eligible for a lower TDS rate than the standard 31.20%. To avail of this benefit, the NRI must obtain a certificate for lower TDS deduction from the Income Tax Department.

Steps to Obtain a Lower TDS Deduction Certificate:

1. Application Form:

• The NRI must file an application in Form 13 to the Assessing Officer (International Taxation) under whose jurisdiction their case falls. The form should include details such as the name and address of the applicant, PAN, status (resident/non-resident), and nature and amount of income.

1. Supporting Documents:

• The NRI must submit supporting documents along with the application form, including:
  • Proof of income (such as rental agreements)
  • Computation of income
  • Past tax returns (if applicable)
  • Details of investments or other deductions claimed

1. Submission:

• The completed application form, along with the supporting documents, must be submitted to the Assessing Officer. This can be done online through the Income Tax Department’s website or physically at the respective office.

1. Assessment:

• The Assessing Officer will review the application and documents to determine the appropriate TDS rate. If the officer is satisfied with the evidence provided, a certificate specifying the lower TDS rate will be issued.

1. Issuance of Certificate:

• Upon approval, the Assessing Officer will issue a certificate under Section 197 of the Income Tax Act, specifying the lower TDS rate applicable to the NRI. This certificate must be presented to the tenant (deductor) to apply the reduced TDS rate on future rent payments.

1. Validity:

• The lower TDS deduction certificate is usually valid for the financial year in which it is issued. The NRI may need to reapply for subsequent years if they continue to qualify for the reduced rate.

Example:

Ms. Singh, an NRI, receives ₹50,000 per month as rent from her property in India. The standard TDS rate applicable is 31.20%, amounting to ₹15,600 per month. Ms. Singh applies for a lower TDS deduction certificate, providing necessary documents to the Assessing Officer. Upon review, the officer issues a certificate allowing a reduced TDS rate of 20%. The tenant must then deduct TDS at 20% instead of 31.20%, reducing the monthly TDS to ₹10,000.

Conclusion

Understanding the TDS obligations and the process for obtaining a lower TDS deduction certificate is crucial for NRIs receiving rental income from properties in India. Compliance with the stipulated rates, timely deductions, and proper documentation ensures smooth transactions and avoids penalties.

The above article has been written by CA Neeraj Bansal and he can be reach out at +91-971804655.