Selling a Jointly Owned Property When One Owner Is an NRI: The Tax Rules Most Buyers Miss

Joint property ownership is common in Indian families. A father and son co-own a flat in Chennai. Two siblings together hold an apartment in Mumbai that belonged to their parents. A married couple registered a home in both their names years ago. These situations feel routine, until the day someone decides to sell. And when one of those co-owners happens to be an NRI, the tax picture changes significantly. Most buyers walking into such a transaction do not fully appreciate how different the rules become, and the consequences of getting it wrong can be expensive.

This is one area where understanding the basics before signing any agreement can save everyone involved from serious trouble later.

The first thing to understand is that Indian tax law treats each co-owner in a jointly held property as a separate seller. When you buy a property from two people where one is a resident Indian and the other is a Non-Resident Indian, you are essentially dealing with two distinct tax deduction obligations under two entirely different sections of the Income Tax Act.

For the resident co-owner, the relevant provision is Section 194-IA. For the NRI co-owner, the applicable section is Section 195. These two sections have very different rules, different rates, and different procedural requirements. Treating the transaction as one uniform deal is where most buyers go wrong.

Under Section 194-IA, a buyer must deduct TDS on jointly owned property at 1 per cent of the sale consideration, but only if the resident seller's individual share of the sale price exceeds ₹50 lakh. This threshold applies to each seller's share separately, not the total deal value.

So in a scenario where a property sells for ₹70 lakh and each co-owner holds a 50 per cent share, the resident Indian's portion works out to ₹35 lakh. Since that figure is below the ₹50 lakh threshold, no TDS under Section 194-IA is required on the resident's share. The buyer simply pays the resident's portion directly without any deduction. If the resident's share were ₹50 lakh or more, a 1 per cent deduction would apply, filed through Form 26QB.

Here is where buyers need to pay close attention. When you are paying a Non-Resident Indian for their share of a property, Section 195 comes into play. Under this provision, TDS must be deducted at 20.8 per cent of the sale consideration paid to the NRI. And unlike the resident's case, there is no minimum threshold. Even if the NRI's share is ₹10 lakh, the deduction applies.

The 20.8 per cent is applied on the gross sale price received by the NRI, not on the capital gain they may have made. This is a critical distinction. The NRI receives the net amount after deduction, and the buyer deposits the TDS with the government.

To do this, the buyer must obtain a Tax Deduction Account Number, commonly called a TAN. Without a TAN, the buyer cannot deposit TDS on behalf of the NRI. This is an additional compliance step that does not arise in typical resident-to-resident property transactions.

If the NRI seller wants to send the sale proceeds abroad, which is often the entire reason for the sale in the first place, the process goes one step further. The buyer must complete Forms 15CA and 15CB before transferring money into the NRI's overseas account.

Form 15CB is a certificate issued by a Chartered Accountant confirming the nature of the remittance, the applicable tax rate, and that TDS has been properly deducted. Form 15CA is the buyer's own declaration submitted online to the Income Tax portal. Both must be filed before the payment is made. Doing this after the fact is possible but creates unnecessary complications.

TDS on jointly owned property NRI and resident situations often involve ownership that is not a clean 50-50 split. The Income Tax Act determines each co-owner's share based on actual financial contribution to the original purchase, unless the property was acquired through inheritance, gift, or a will, in which case the recorded share is used.

The buyer should ask for a clear written declaration from both sellers regarding their respective ownership percentages before computing TDS. The payment to each co-owner should then be made separately, directly into their individual bank accounts, in proportion to their ownership share. Paying the entire amount into one person's account, even with a private understanding between the sellers, creates documentation problems and potential tax complications.

The sale consideration in the agreement must not be lower than the circle rate, which is the government-registered guidance value used for stamp duty computation in that state. If the declared sale price falls below this rate, the tax authorities may treat the circle rate as the actual value of the transaction for the purpose of computing taxes on both sides. This rule applies regardless of whether one seller is an NRI or not.

When a buyer purchases property jointly held by a resident Indian and an NRI, two separate tax rules apply simultaneously. The resident's share attracts TDS under Section 194-IA at 1 per cent, but only if it exceeds ₹50 lakh. The NRI's share is subject to Section 195 TDS at 20.8 per cent on gross proceeds, regardless of amount. The buyer needs a TAN, must pay each co-owner separately, and must complete Forms 15CA and 15CB before any overseas remittance. Understanding these rules upfront is the only way to ensure a clean, compliant joint property NRI transaction.