NRI property guide: Everything you need to know before investing in real estate back home
Rajesh Desai, an NRI, purchased an apartment in Bengaluru for ₹1.5 crore. He complied with Foreign Exchange Management Act (FEMA) rules by making payments through his Non-Resident External (NRE) account. Since the transaction involved a resident seller and exceeded ₹50 lakh, 1% Tax Deducted at Source (TDS) was deducted. RBI approval was not required, as NRIs are allowed to freely buy residential property in India. Desai also completed the property registration and paid the applicable stamp duty.
How NRIs should manage stamp duty, TDS, and documentation when buying property
When an NRI invests in Indian real estate, their tax obligations are largely similar to those of resident buyers, but with additional layers of compliance under the Income Tax Act and FEMA. “The primary liabilities include stamp duty (typically five to seven per cent depending on the state), registration fees (about 1%), and TDS implications, which vary based on whether the seller is a resident or non-resident,” says Sanjay Daga, CEO and Managing Director at Anex Advisory.
In the case of a resident seller, the NRI buyer should deduct 1% TDS u/s 194IA of the IT Act (if the property value exceeds ₹50 lakh). Additionally, Form 26QB must be filed, and Form 16B must be issued to the seller. No TAN is required for the NRI buyer; the PAN is sufficient.
“However, in the case of a non-resident seller, a higher TDS of 20% (if the seller doesn’t have a PAN and it’s an LTCG asset) or 30% shall be applicable u/s 195 of the IT Act on the entire sale proceeds. The NRI buyer must obtain a TAN of the seller, file Form 27Q, and issue Form 16A to the seller,” says Deepashree Shetty, Partner, Global Employer Services, Tax & Regulatory Services, BDO India.
“As TDS is applied on the gross sale consideration, sellers expecting a lower actual tax liability may obtain a nil or lower deduction certificate from the tax authorities,” says Amit Baid, head of tax at BTG Advaya.
Tax benefits for NRIs on home loans
NRIs enjoy the same tax benefits as residents when it comes to home loans. Under Section 24(b), they can claim a deduction of up to ₹2 lakh on interest paid toward a self-occupied property. Under Section 80C, they can claim up to ₹1.5 lakh toward the principal repayment, stamp duty, and registration fees.
“These deductions are allowed only against income taxable in India—so if an NRI has no Indian income (like rent or capital gains), the benefit might not translate into actual tax savings,” says Daga.
All payments must be made in India through normal banking channels directly from the buyer’s bank account to the seller’s bank account, maintaining a clear audit trail in line with KYC and anti-money laundering (AML) norms.
“Funds can be routed from the NRI’s NRE, NRO, or FCNR accounts. Repatriable purchases can be made from NRE/FCNR accounts or via inward remittance, while NRO funds are used for non-repatriable investments,” says Baid.
“NRIs should also ensure that their residential status under the Income Tax Act aligns with FEMA classification, as inconsistencies can trigger notices or mismatches during income tax assessments,” says Daga.
Tax documentation: PAN, TAN, TDS challans, and income tax returns
NRIs should maintain documentation related to the property purchase and any associated tax transactions.
Essential documents typically include a valid passport and Overseas Citizen of India (OCI) card to prove identity and citizenship status. The registered property sale deed, along with the stamp duty receipts and other relevant paperwork related to the transaction, must be retained for legal and tax purposes.
Also Read: Built a new house on inherited land? Here’s how you’ll be taxed if you decide to sell
Payment proofs, such as bank statements, that evidence transactions through NRE or NRO accounts, are crucial for compliance with RBI and FEMA regulations. “Additionally, tax-related documents like PAN cards of both buyer and seller, TAN (where applicable), TDS challans, tax returns, certificates, and income tax returns showing proper disclosure and reporting of the transaction are necessary to ensure smooth tax compliance and record-keeping,” says Shetty.
Also Read: Real estate depreciation: A smart way for property investors to reduce tax bills?
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
