The Income Tax Act mandates a 1% tax‑deducted‑at‑source (TDS) on property purchases from resident sellers, but the rule shifts sharply for non‑resident Indians (NRIs). When an NRI sells a residential or commercial asset, the buyer must withhold tax at the rate applicable to the seller’s capital gains—typically 20% for long‑term gains on indexed cost or 30% for short‑term gains—rather than the flat 1%. This distinction matters because it directly impacts the net proceeds an NRI receives.
Many sellers underestimate the higher deduction, leading to unexpected cash‑flow gaps and the need to file for TDS refunds later. For resident sellers, the 1% TDS is largely a procedural step, as the final capital gains tax is settled when filing the annual return. The differential treatment also influences buyer behaviour.
Some buyers, wary of a larger upfront deduction, may negotiate lower purchase prices or request additional documentation to confirm the seller’s tax residency. While the overall property market remains buoyant, reflected in the Nifty’s recent modest gains, the nuanced TDS rule adds a layer of complexity for cross‑border investors and could temper demand from NRIs seeking to liquidate assets. Retail investors planning to buy or sell property should therefore verify the seller’s residency status, factor the appropriate TDS into transaction budgeting, and consider consulting a tax advisor to avoid surprises and ensure compliance with Indian tax law.