🏠 Buying Property from an NRI Seller? Avoid These Costly Mistakes
Buying a property from an NRI (Non-Resident Indian) can be a great opportunity—often involving premium properties, transparent pricing, and clear ownership history. However, such transactions also come with specific legal, tax, and compliance requirements that are very different from regular property deals.
Many buyers make avoidable mistakes due to lack of awareness, which can lead to penalties, delays, or even legal disputes. Here’s a complete guide on the mistakes you must avoid when buying property from an NRI.
⚖️ 1. Ignoring FEMA Rules and RBI Guidelines
Property transactions involving NRIs are governed by FEMA (Foreign Exchange Management Act) regulations.
Common mistake:
- Assuming NRI property sale rules are the same as resident Indian sales.
What you should know:
- NRIs can sell property only to Resident Indians or other NRIs (with conditions).
- Agricultural land, plantation property, and farmhouses cannot be sold to non-eligible buyers.
✅ Always confirm FEMA compliance before proceeding.
💸 2. Not Deducting TDS Correctly
This is one of the biggest and most costly mistakes buyers make.
Key rule:
- TDS is mandatory when buying property from an NRI, regardless of property value.
Applicable TDS rates:
- 20% + surcharge + cess for long-term capital gains
- 30% + surcharge + cess for short-term capital gains
❌ Deducting only 1% TDS (which applies to resident sellers) is wrong and can attract heavy penalties.
✅ Buyer is legally responsible for TDS deduction and deposit.
🧾 3. Skipping Lower TDS Certificate Option
Many buyers don’t know that NRIs can apply for a Lower or Nil TDS Certificate from the Income Tax Department.
Why this matters:
- Without this certificate, TDS is deducted on the entire sale value, not just profit.
- This can block a large amount of money unnecessarily.
✅ Encourage the seller to apply for a Lower TDS Certificate (Section 197) before registration.
📜 4. Not Verifying Power of Attorney (POA) Properly
NRIs often appoint someone in India through a Power of Attorney.
Common mistakes:
- Accepting an unregistered or improperly attested POA
- Not verifying consulate attestation
Correct procedure:
- POA must be executed abroad, attested by the Indian Consulate, and registered in India.
❌ An invalid POA can make the entire sale void.
🧑⚖️ 5. Incomplete Title and Ownership Verification
Just because the seller is an NRI doesn’t mean the property is risk-free.
Watch out for:
- Inherited properties with missing heir consent
- Joint ownership without proper approvals
- Pending legal disputes
✅ Always check:
- Title deed
- Encumbrance Certificate (15–30 years)
- Legal heir certificate (if applicable)
🏦 6. Ignoring Repatriation and Payment Rules
Payments to NRIs must follow RBI-approved banking channels.
Common mistakes:
- Paying in cash or local accounts
- Not using NRO/NRE accounts
Correct method:
- Payments must be made via NRO account of the NRI seller
- All transactions must be traceable through banking channels
🧾 7. Not Obtaining Capital Gains Clearance
Some buyers fail to check whether the NRI seller has planned capital gains tax compliance.
Risk:
- Seller may delay registration due to tax issues
- Buyer may face TDS-related notices later
✅ Ensure the seller has:
- Calculated capital gains
- Planned tax exemptions (Section 54 / 54EC)
- Filed necessary documents
🏛️ 8. Missing Mandatory Declarations and Forms
Buying from an NRI requires additional compliance:
- Form 26QB for TDS payment
- Form 16B issued to seller
- PAN of both buyer and seller
- Correct mention of NRI status in sale deed
❌ Missing forms can result in penalties and scrutiny from tax authorities.
📑 9. Poorly Drafted Sale Agreement
NRI transactions need stronger documentation.
Your sale agreement should clearly mention:
- Seller’s NRI status
- TDS responsibility and rate
- POA details (if applicable)
- Payment schedule via banking channels
Always get the agreement drafted or reviewed by a real estate lawyer.
🏁 10. Not Consulting a Tax or Legal Expert
Trying to save on professional fees often leads to bigger losses later.
Why expert help matters:
- Correct TDS calculation
- FEMA compliance
- Valid POA verification
- Smooth registration and mutation
✅ A CA + property lawyer combination is highly recommended for NRI property purchases.
Buying property from an NRI is completely legal and safe—if done correctly. Most problems arise not because of the seller, but due to buyer ignorance of tax and legal rules.
By avoiding these common mistakes and following proper procedures, you can ensure a secure, compliant, and hassle-free property transaction.