What you can and can't buy as an NRI or OCI
Under FEMA, an NRI or OCI can buy property in India about as freely as a resident, with one clear carve-out. Residential property and commercial property are open — a flat, a house, an office, a shop, as many as you like. What you cannot buy is land used for farming: agricultural land, a farmhouse or a plantation. That restriction holds even for an OCI, and it applies to purchase, not to inheritance — agricultural land that comes to you through a will or succession is a separate matter and can be held.
| Type of property | Can an NRI / OCI buy it? |
|---|---|
| Residential (flat, house) | Yes |
| Commercial (office, shop) | Yes |
| Agricultural land, farmhouse, plantation | No |
The practical risk is a property described loosely as "residential" that is in fact on land classified as agricultural, or a farmhouse plot. Because the bar is on the land's classification rather than what is built on it, it is worth confirming the land use on the title and revenue records before you commit, not after.
Paying for it — where the money is allowed to come from
FEMA is equally clear on funding. The purchase price has to be paid in Indian rupees, through normal banking channels, from one of a short list of sources: money already in your NRE, NRO or FCNR account, or a fresh inward remittance from abroad. You cannot pay a seller in foreign currency, in cash, or out of an overseas account directly.
Keeping the payment trail clean matters beyond the purchase itself. When you later sell the property and want to take the proceeds out of India, the bank and your CA will look back at how it was originally funded. A purchase paid cleanly from NRE funds or inward remittance keeps your later repatriation simple; money that went in untraceably tends to surface as a problem at exit. So the source of every tranche — booking amount, instalments, final payment — is worth documenting as you go.
The TDS rule turns entirely on who the seller is
Every buyer of property above ₹50 lakh has to deduct tax before paying the seller. Which section applies, and how much you deduct, depends only on whether the seller is a resident or a non-resident — and this is where buyers most often go wrong.
If the seller is a resident, you deduct a flat 1% under Section 194-IA on the sale value, pay it using a simple challan-cum-statement, and you do not even need a TAN. It is a light-touch obligation.
If the seller is an NRI, Section 194-IA does not apply at all. You deduct under Section 195, at the rate that fits the seller's capital gain (long-term gain is taxed at a different rate from short-term, plus surcharge and cess), and you have to take a TAN and file a quarterly Form 27Q. The deduction is far heavier and the compliance is real.
| If the seller is… | Section | What the buyer must do |
|---|---|---|
| Resident | 194-IA | Deduct 1%; pay by challan; no TAN |
| NRI | 195 | Deduct on the gain; get a TAN; file Form 27Q |
The danger is treating an NRI seller as a resident — deducting just 1% when far more was due. The shortfall, plus interest, is recovered from you, the buyer, not the seller who has already left with the money. Confirming the seller's residential status before you pay is the cheapest insurance there is.
A worked example: buying a flat, two very different sellers
Arjun, an NRI in Singapore, is buying a flat in Hyderabad for ₹1.2 crore. The same purchase plays out two ways depending on who he is buying from.
If the seller is a resident, Arjun deducts 1% — ₹1.2 lakh — under Section 194-IA, deposits it with a challan-cum-statement, gives the seller the TDS certificate, and the deal closes. No TAN, no return to file.
If the seller is an NRI, the rule changes entirely. Section 194-IA is off the table; Arjun deducts under Section 195 on the seller's capital gain, at the long- or short-term rate plus surcharge and cess — a much larger figure than ₹1.2 lakh. He has to apply for a TAN before he can deposit the tax, and then file Form 27Q for the quarter. If Arjun had simply deducted 1% as though the seller were resident, the unpaid balance plus interest would come back to him as the buyer's liability long after the NRI seller had been paid in full.
The seller, if they expect their actual tax to be lower than the Section 195 deduction, can apply for a lower-TDS certificate (Form 13) before the sale — which reduces what Arjun has to deduct. But that is the seller's step to take; Arjun's job is to deduct correctly under the right section for whoever is on the other side.