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What Legal Checks Are Needed When Buying a Property From an NRI Seller in Bangalore? By the Property Law Team | Legal Brigade | Bar Council of Karnataka Buying property from an NRI seller in Bangalore creates specific obligations for the resident buyer — including deducting a higher TDS from the sale consideration than applies…
What Legal Checks Are Needed When Buying a Property From an NRI Seller in Bangalore?
By the Property Law Team | Legal Brigade | Bar Council of Karnataka
Buying property from an NRI seller in Bangalore creates specific obligations for the resident buyer — including deducting a higher TDS from the sale consideration than applies for resident sellers, verifying any POA the NRI has given, and confirming the FEMA repatriation structure does not create complications in the payment and documentation trail.
What Makes Buying From an NRI Seller Different From Buying From a Resident Seller?
When a resident seller sells property in Bangalore, the buyer deducts TDS at a relatively modest rate under Section 194IA of the Income Tax Act — currently 1% on sale consideration of Rs. 50 lakh or more. When an NRI sells, the applicable TDS provision changes entirely. The transaction falls under Section 393(2) of the Income Tax Act, 2025 (earlier Section 195), and the TDS rate is significantly higher — calculated on the capital gains rather than the full sale consideration, with effective rates reaching up to 14.95% depending on the sale value and surcharge applicability. The process is more complex, the forms are different, and the compliance burden sits squarely with the buyer.
Beyond TDS, an NRI seller frequently sells through a POA holder rather than attending in person — making POA verification a critical pre-purchase check. The payment trail must also be documented correctly to enable the NRI to repatriate the proceeds under FEMA. A resident buyer who treats an NRI sale like a standard resident transaction risks income tax department notices, interest and penalties long after the transaction is complete.
NRI property sales in Bangalore have increased significantly as the NRI community that purchased property in the 2000s and 2010s moves into selling mode — often triggered by resettlement abroad, estate planning or portfolio rebalancing. Resident buyers who do not know the NRI-specific TDS rules risk income tax department notices long after the transaction is complete. This is a pattern Legal Brigade encounters regularly in its Bangalore verification practice.
What TDS Does a Buyer Deduct When Purchasing From an NRI Seller?
When buying from an NRI, the buyer is responsible for deducting TDS at the capital gains tax rate applicable to the NRI — not at the flat 1% that applies under Section 194IA for resident sellers. Under the current Income Tax Act, 2025, the base TDS rate for long-term capital assets sold by NRIs is 12.50%, with surcharge and health and education cess applied on top. For properties sold between Rs. 50 lakh and Rs. 1 crore, the effective rate is approximately 14.30%; for properties above Rs. 1 crore, the effective rate reaches 14.95%. For short-term capital assets, the applicable slab rates plus surcharge and cess apply, which can be even higher.
The buyer must deposit this TDS through Challan 281 and file Form 144 (earlier Form 27Q) — not Form 26QB which is used for resident sellers — within the prescribed timeline. The buyer must also issue Form 131 (earlier Form 16A) to the NRI seller as the TDS certificate.
Unless the NRI has obtained a lower withholding certificate from the income tax department, the buyer must deduct at these higher rates. Many buyers are unaware of this distinction and deduct only 1% under Section 194IA, exposing themselves to interest and penalty for short deduction.
See Legal Brigade’s complete TDS guide for resident sellers at /tds-property-purchase-resident-seller/
What Is a Lower TDS Certificate and When Should the NRI Seller Obtain One?
Aspect | Without lower certificate | With lower certificate | How to obtain |
|---|---|---|---|
TDS rate applied | Full rate on entire consideration or capital gains — effective rate up to 14.95% | Reduced rate matching actual tax liability | NRI applies via Form 128 on the TRACES portal before sale |
Who bears the burden | Buyer must deduct and deposit the full rate | Buyer deducts at the reduced rate | NRI must apply well in advance of the transaction |
Risk if wrong rate | Buyer faces interest and penalty for short deduction | Protected if rate in certificate is applied | Certificate is binding on both buyer and tax department |
Refund process for NRI | NRI must file Indian tax return and claim refund — takes time | No excess deduction to refund | Lower certificate avoids the refund process entirely |
Recommended | No — creates complexity and excess deduction | Yes — strongly recommended for NRI sellers | CA advice essential for the NRI before listing the property |
An NRI seller can apply for a lower or nil deduction certificate under Section 197 of the Income Tax Act (now processed via Form 128 on the TRACES portal, replacing earlier Form 13). The application is examined by the Income Tax Department based on the NRI’s estimated tax liability, capital gains computation, past compliance history and supporting documents. The certificate typically takes 15 to 45 days to process, so the NRI should begin the application at least 30 to 60 days before the expected sale date.
The certificate is valid for the specific financial year and is buyer-TAN-specific — if the sale falls through with one buyer, a fresh application is needed for a new buyer. Once issued, the buyer must deduct TDS strictly at the certified rate. This is often the difference between a smooth transaction and lakhs getting blocked in tax refunds.
How Do I Verify a POA Given by an NRI Seller in Bangalore?
- Confirm the POA is registered at the Indian sub-registrar office — an NRI POA executed abroad must be attested at the Indian consulate or notarised and apostilled, then registered in India. An unregistered POA is weak and may not be accepted by the sub-registrar for executing the sale deed.
- Search Kaveri 2.0 for the POA’s registration details — confirm it appears in the sub-registrar records with the correct document number, date and parties named.
- Confirm the POA explicitly authorises the agent to execute the sale deed for the specific property — a general POA without specific property authority is weaker and may be challenged. The POA should name the survey number, property address and the specific transaction.
- Contact the NRI principal independently — through their email or phone number — to confirm they are aware of and have authorised the specific sale to the specific buyer. This step prevents fraud where a POA holder acts without the principal’s knowledge.
- Check the sub-registrar records for any revocation deed filed after the POA was executed — a revocation the POA holder concealed renders their authority void, and any sale executed under a revoked POA is legally defective.
See Legal Brigade’s complete POA fraud guide at /power-of-attorney-property-fraud-india/
What Are the Buyer’s Payment Obligations When Purchasing From an NRI?
Obligation | What the buyer must do | Timeline | Consequence of non-compliance |
|---|---|---|---|
Deduct TDS at correct rate | Deduct capital gains TDS under Section 393(2) — not Section 194IA | At time of each payment | Interest and penalty on buyer for short deduction |
File Form 144 | File the NRI TDS return online (earlier Form 27Q) | Within 30 days of end of quarter of deduction | Late filing penalty |
Issue TDS certificate to NRI seller | Provide Form 131 (earlier Form 16A) to the NRI | Within 15 days of due date of Form 144 | Penalty for non-issue |
Document payment through banking channels | All payments through bank transfer — no cash | At each payment | FEMA violation risk for the NRI’s repatriation |
Obtain CA confirmation on TDS rate | Confirm the rate before deducting | Before first payment | Risk of wrong rate deduction — interest and penalty |
The buyer must obtain a TAN (Tax Deduction Account Number) before deducting TDS in most NRI property purchase cases. TDS is deducted at the payment stage, including advances and instalments. The tax is deposited via Challan 281, and the buyer must file the TDS return and issue the TDS certificate to the seller. Common mistakes include computing the wrong TDS amount, using incorrect forms, and failing to file the TDS return — all of which expose the buyer to penalties.
What Should a Buyer Check About the NRI Seller’s FEMA Position?
An NRI seller’s ability to repatriate the sale proceeds depends on their FEMA compliance history — specifically whether they have evidence of original payment through NRE or NRO accounts or through foreign exchange inward remittance, confirmed by e-FIRCs. As a buyer, this is primarily the seller’s concern — but a buyer who pays cash or in a way that cannot be documented may inadvertently damage the NRI’s repatriation trail.
All payments must go through the NRI’s NRE or NRO account or to their designated attorney’s account with a clear audit trail. The proceeds of sale must be received in an NRO account in India. If the NRI wishes to remit money from the NRO account to an NRE or foreign account, a CA certificate (Form 146, earlier Form 15CB) and Form 145 (earlier Form 15CA) filing with the Income Tax Department is required.
See Legal Brigade’s complete NRI property services guide at /nri-property-purchase-checklist-india/
Frequently Asked Questions
Q1. What TDS must a buyer deduct when buying from an NRI seller in India?
The buyer must deduct TDS under Section 393(2) (earlier Section 195) at the capital gains tax rate applicable to the NRI — not the 1% under Section 194IA that applies to resident sellers. For long-term capital assets, the effective rate ranges from 13% to 14.95% depending on the sale value, surcharge and cess. The buyer must deposit the TDS via Challan 281 and file Form 144 (earlier Form 27Q).
Q2. What is the difference between Form 26QB and Form 27Q for NRI sellers?
Form 26QB is used by buyers when purchasing from resident sellers under Section 194IA. Form 27Q (now Form 144 under the 2025 Act) is used when the seller is an NRI under Section 393(2). The forms, rates, timelines and compliance requirements are entirely different. Using the wrong form is a common and costly mistake.
Q3. What is a lower TDS certificate and should the NRI seller obtain one?
A lower TDS certificate (applied via Form 128 on the TRACES portal) allows the NRI seller to have TDS deducted at a rate matching their actual tax liability rather than the maximum statutory rate. It is strongly recommended because it prevents excess deduction, avoids refund dependency and simplifies the transaction for both parties.
Q4. How do I verify a POA given by an NRI seller?
Verify that the POA is registered at the Indian sub-registrar, search Kaveri 2.0 for registration details, confirm it specifically authorises sale of the property, contact the NRI principal independently to confirm authorisation, and check for any revocation deed filed after the POA was executed.
Q5. Can an NRI seller attend the registration in person or must they use a POA?
An NRI seller can attend registration in person if they are in India, but most NRIs sell through a registered POA holder for convenience. If using a POA, the POA must be properly attested (at an Indian consulate if executed abroad, or notarised and apostilled) and registered in India.
Q6. What are the payment documentation requirements when buying from an NRI?
All payments must be through banking channels — bank transfer to the NRI’s NRE or NRO account or their designated attorney’s account. No cash payments. The payment trail must be documented to support the NRI’s FEMA repatriation requirements and the buyer’s TDS compliance.
Q7. What happens if the buyer deducts the wrong TDS rate from an NRI seller?
The buyer faces interest and penalty for short deduction from the Income Tax Department. The NRI seller may also face complications in claiming credit. If excess TDS is deducted, the NRI must file an Indian tax return to claim a refund — a process that takes months.
Q8. Can the NRI seller repatriate the full sale proceeds?
Yes, provided the NRI can demonstrate that the original purchase was funded through foreign exchange inward remittance or NRE/NRO accounts, supported by e-FIRCs. Repatriation up to the original investment amount is generally permitted under FEMA. Capital gains can also be repatriated subject to tax compliance.
Q9. What documents should the buyer collect from the NRI seller?
The buyer should collect: the NRI’s PAN and passport copies, the sale deed, the lower TDS certificate (if obtained), the registered POA (if applicable), proof of the NRI’s NRE/NRO account details, and confirmation that the original purchase was compliant with FEMA. The buyer should also retain the TDS challan and filing records.
Q10. How does Legal Brigade assist in transactions where the seller is an NRI?
Legal Brigade provides end-to-end verification for NRI seller transactions in Bangalore: confirming the correct TDS rate and form, verifying POA genuineness and registration, reviewing FEMA compliance documentation, coordinating with the NRI seller’s CA on lower TDS certificate matters, and ensuring the buyer’s compliance documentation is complete and defensible.
Buying property in Bangalore from a seller who lives abroad? The TDS rate for NRI sellers is different — and the buyer bears the compliance risk. Request WhatsApp → wa.me/916360266840
Frequently Asked Questions
What is the TDS rate for buying property from an NRI in Bangalore? ▾
Unlike the 1% TDS for resident sellers, buyers must deduct TDS on NRI sales at capital gains rates ranging from 14.30% to 14.95% including surcharge and cess. These deductions fall under Section 393(2) of the Income Tax Act 2025 and require the buyer to have a TAN.
What is a Lower TDS Certificate and why is it recommended? ▾
A Lower TDS Certificate is issued by the Income Tax Department allowing the buyer to deduct tax at a reduced rate matching the NRI's actual liability. It prevents large sums of the NRI's money from being blocked in the refund process and protects the buyer from short-deduction penalties.
How do I verify a Power of Attorney (POA) for an NRI property sale? ▾
You must confirm the POA is registered at the Indian sub-registrar office via Kaveri 2.0 and ensure it was correctly apostilled or attested by the consulate if executed abroad. It is also critical to verify the POA explicitly authorizes the sale of the specific property and has not been revoked.
What forms must a buyer file when purchasing from an NRI? ▾
The buyer must deposit tax using Challan 281, file the TDS return via Form 144 (formerly Form 27Q) within 30 days of the quarter's end, and issue the TDS certificate through Form 131 (formerly Form 16A) to the seller. Using resident-specific forms like 26QB is a common compliance error.
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