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Which are the important points to keep in mind when buying a house from an NRI seller?

Posted on 11 Aug 2024
Author: Sayan Sircar

Tags: House Purchase ; Tax

15 mins read
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The article lists out the important points and steps that a resident Indian buyer should keep in mind when purchasing property from an NRI seller.

Which are the important points to keep in mind when buying a house from an NRI seller?

This article is a part of our detailed article series on property deals between an NRI seller and a resident Indian buyer. Ensure you have read the other parts here:

Complete Tax Guide for NRIs Selling Land in India

This article simplifies the process of selling land in India for NRIs, offering clear insights on how to manage TDS deductions, understand the differences between urban and rural agricultural land, and calculate capital gains tax.

FAQs for NRIs for applying for Power of Attorney (PoA) for selling a house in India

This article lists out the processes and frequently asked questions for NRIs looking to create a Power of Attorney for selling their house in India.

How should NRIs sell property in India?

The article lists out the important points and steps an NRI property seller must keep in mind while selling property in India.

FAQs for NRIs for applying for Lower Deduction Certificate by filling Form 13

This article lists out the processes and frequently asked questions for NRIs looking to fill Form 13 for applying for Lower Deduction Certificate.

📚 Topics covered:

Which are the main points resident Indian buyers must keep in mind when buying a property from an NRI in India?
What should the buyer know regarding TDS if the seller is an NRI?
How does the TDS computation work for the NRI property sale?
What causes delays when the property seller is an NRI?
How should the buyer safeguard themselves if a Power of Attorney (PoA) is used by the seller?
How to fund the down-payment amount that will be larger than if the seller was not an NRI?

Which are the main points resident Indian buyers must keep in mind when buying a property from an NRI in India?

We will cover the following points:

What is the buyer’s liability regarding deducting and depositing TDS
Understand what causes delays in case the seller is an NRI
How to be sure about the signing authority since Power of Attorney (PoA) might be involved
How to fund the down-payment amount that will be larger than if the seller was not an NRI

What should the buyer know regarding TDS if the seller is an NRI?

Tax Deducted at Source (TDS) is the income tax deducted before the money is paid.

All property deals by NRI sellers, without exception, fall under the TDS rules specified in Section 195 of the Income Tax Act. The TDS and payment rules are:

The buyer pays TDS, at 20% or a higher rate, to the income tax department and the rest of the sale amount to the NRI seller’s NRO account.
The NRI seller receives only the post-TDS amount in their NRO account.
There is no role of the NRE account in the property sale transaction.
The TDS is adjusted against capital gains and tax on other income once the NRI seller files their income tax return in India.
The buyer will deposit the TDS and give the seller Form 16A from the income tax website.
TDS is not capital gains tax. That gets calculated separately.

Warning: TDS payment is not optional for the buyer and will 100% result in an income tax notice if not paid on time (interest gets added) or not paid at the current rate (the seller will not refund the amount and you will pay extra from your pocket).

TDS must be deducted for every instalment paid to the seller and then deposited via the IncomeTax website by the 7th of the following month.

The buyer needs to apply for a Tax Deduction and Collection Account Number (TAN) from the TRACES website for TDS payments.

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How does the TDS computation work for the NRI property sale?

Effective TDS Rate = Base TDS Rate * (1 + Surcharge %) * (1 + Cess %)

where Base TDS Rate = 12.5% (long-term), Cess = 4%, Surcharge = 0, 10% or 15% (for property sold after 2 years of purchase)

and where Base TDS Rate = 30% (short-term), Cess = 4%, Surcharge = 0, 10% or 15% (for property sold before 2 years of purchase)

This effective TDS rate applies to the registration value of the property:

Less than ₹50 lakhs: TDS Rate = 12.5% * (1 + 0%) * (1 + 4%) = 13.00%
₹50 lakhs to ₹1 crore: TDS Rate = 12.5% * (1 + 10%) * (1 + 4%) = 14.30%
₹1 crore or more: TDS Rate = 12.5% * (1 + 15%) * (1 + 4%) = 14.95%
₹2-5 crore: TDS Rate = 12.5% * (1 + 25%) * (1 + 4%) = 16.25%
₹5 crore or more: TDS Rate = 12.5% * (1 + 37%) * (1 + 4%) = 17.81%

Warning: For NRI sellers, their PAN must be marked as NRI (to get around the Aadhaar-PAN linkage rule). Otherwise TDS will not get refunded even after Income tax return filing.

For deals after 23-Jul-2024 (as per Union Budget 2024)

Here are some sample TDS numbers for various sale values for deals after 23-July-2024 (using base TDS rate of 12.5% for properties held for more than 2 years)

Registration value	TDS Rate	Buyer Pays to IT	Buyer Pays to Seller	Seller gets in NRO
₹25 lakhs	13.00%	₹3.25 lakhs	₹21.75 lakhs	₹21.75 lakhs
₹50 lakhs	13.00%	₹6.50 lakhs	₹43.50 lakhs	₹43.50 lakhs
₹75 lakhs	13.00%	₹9.75 lakhs	₹65.25 lakhs	₹65.25 lakhs
₹1 crore	14.30%	₹14.30 lakhs	₹85.70 lakhs	₹85.70 lakhs
₹1.5 crores	14.95%	₹22.43 lakhs	₹127.58 lakhs	₹127.58 lakhs
₹2 crores	14.95%	₹29.90 lakhs	₹170.10 lakhs	₹170.10 lakhs
₹3.5 crores	16.25%	₹56.88 lakhs	₹293.13 lakhs	₹293.13 lakhs
₹5 crores	17.81%	₹89.05 lakhs	₹410.95 lakhs	₹410.95 lakhs

For deals before 23-Jul-2024

Here are some sample TDS numbers for various sale values for deals prior to 23-July-2024 (using base TDS rate of 20%)

Registration value	TDS Rate	Buyer Pays to IT	Buyer Pays to Seller	Seller gets in NRO
₹25 lakhs	20.80%	₹5.20 lakhs	₹19.80 lakhs	₹19.80 lakhs
₹50 lakhs	22.88%	₹11.44 lakhs	₹38.56 lakhs	₹38.56 lakhs
₹75 lakhs	22.88%	₹17.16 lakhs	₹57.84 lakhs	₹57.84 lakhs
₹1 crore	23.92%	₹23.92 lakhs	₹76.08 lakhs	₹76.08 lakhs
₹1.25 crores	23.92%	₹29.90 lakhs	₹95.10 lakhs	₹95.10 lakhs
₹1.50 crores	23.92%	₹35.88 lakhs	₹114.12 lakhs	₹114.12 lakhs
₹1.75 crores	23.92%	₹41.86 lakhs	₹133.14 lakhs	₹133.14 lakhs
₹2 crores	23.92%	₹47.84 lakhs	₹152.16 lakhs	₹152.16 lakhs

Note: If the buyer is applying for a home loan, the bank will not fund the TDS portion of the loan. That has to be a part of the buyer’s own funds. If the bank funds up to 75% of the non-TDS portion, the down-payment amount will be:

Registration value	TDS Rate	TDS Amount	Loan Eligible Amount	Maximum loan	Downpayment	Downpayment %
₹25 lakhs	13.00%	₹ 3.25	₹ 21.75	₹ 16.31	₹ 8.69	34.75%
₹50 lakhs	13.00%	₹ 6.50	₹ 43.50	₹ 32.63	₹ 17.38	34.75%
₹75 lakhs	13.00%	₹ 9.75	₹ 65.25	₹ 48.94	₹ 26.06	34.75%
₹1 crore	14.30%	₹ 14.30	₹ 85.70	₹ 64.28	₹ 35.73	35.73%
₹1.5 crores	14.95%	₹ 22.43	₹ 127.58	₹ 95.68	₹ 54.32	36.21%
₹2 crores	14.95%	₹ 29.90	₹ 170.10	₹ 127.58	₹ 72.43	36.21%
₹3.5 crores	16.25%	₹ 56.88	₹ 293.13	₹ 219.84	₹ 130.16	37.19%
₹5 crores	17.81%	₹ 89.05	₹ 410.95	₹ 308.21	₹ 191.79	38.36%

Many potential buyers might face challenges in arranging such a large down payment amount.

Also read
Frequently asked questions (FAQs) on Tax Collected at Source (TCS) when you buy a car

What causes delays when the property seller is an NRI?

The buyer should deduct TDS at a lower rate only if they receive the LDC from the seller.

The NRI seller has the option of applying for a Lower Deduction Certificate (LDC) to lower the TDS amount. Depending on the competency of the CA engaged by the seller and the quality of the documentation provided, LDC might take two months or more to get approved.

Again, the buyer needs to safeguard themselves properly in the case of TDS by using the lower TDS rate as per the LDC only if they have the actual LDC with them.

How should the buyer safeguard themselves if a Power of Attorney (PoA) is used by the seller?

Here are some thumb rules to follow in case the NRI seller is utilising a Power of Attorney (PoA):

The PoA must be registered in India as per a 2022 Supreme Court ruling to prevent fraudulent property deals.
The PoA is only for signing. The sale amount still goes to the NRO account of the seller. The PoA holder does not receive the sale amount.
The PoA must be a Specific PoA for only the property in question and not a General Power of Attorney (GPA). GPA for property sales is a red flag and illegal in India.
The PoA holder cannot sell the property on the seller’s behalf. They can only sign the deal registration document once the seller consents to the sale.

To understand the steps to purchase a property from an NRI:

How to fund the down-payment amount that will be larger than if the seller was not an NRI?

This section applies only to buyers looking for a home loan.

Even if you don't need a home loan, the document verification process used by PSU Banks like SBI is fairly rigorous and will act as a vote of confidence to your own property lawyer's due diligence regarding the genuiness and completeness of the property papers.
You may not need to loan at the end of the day but don't buy the house if SBI refuses to give the loan.

Banks generally do not offer home loan funding for the TDS since that amount does not get paid to the seller. LTV for NRI seller deals is therefore much lower.

Loan to Value (LTV) = Value of Home Loan Approved / Registration Value of House

The down payment amount varies based on different LTV rates offered by banks, as shown in the table below:

Registration value	TDS Rate	60% LTV	75% LTV	90% LTV	90% LTV
₹25 lakhs	13.00%	47.80%	34.75%	30.40%	21.70%
₹50 lakhs	13.00%	47.80%	34.75%	30.40%	21.70%
₹75 lakhs	13.00%	47.80%	34.75%	30.40%	21.70%
₹1 crore	14.30%	48.58%	35.73%	31.44%	22.87%
₹1.5 crores	14.95%	48.97%	36.21%	31.96%	23.46%
₹2 crores	14.95%	48.97%	36.21%	31.96%	23.46%
₹3.5 crores	16.25%	49.75%	37.19%	33.00%	24.63%
₹5 crores	17.81%	50.69%	38.36%	34.25%	26.03%

Depending on the value of the house and the bank’s Loan-to-Value (LTV) policy, your down payment requirement may vary between 30% and 55%.

As a buyer, you can fund the higher down payment in many ways.

If you have time on your side, you can always save for it: SMART goals: investing step-by-step for buying your dream home.

However, likely, you have already shortlisted a property and the seller is incidentally an NRI. Thankfully at this point, you can sell your shares and mutual funds (long-term holdings only) to take advantage of Section 54F and not pay any capital gains tax. This way, you can get the money for the down payment without paying any tax on the shares/MF sold: Sec 54F: a hack that can save lakhs in taxes when you buy a house.

Of course, if you are selling one property to buy another, then Section 54 applies and the capital gains tax on the previous property can be made tax-free. Personal and gold loans can also be an option.

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