India, July 20 -- Vikram Patel, a Mumbai resident, was thrilled to find a luxurious apartment listed by Neha Kapoor, an NRI in Singapore, for Rs.1.8 crore. The property was perfect, but Patel soon learned that buying from an NRI involved complex tax rules under the Income Tax Act, 1961 (IT Act). If he sold his own property to an NRI, the tax implications would differ.

As a resident Indian buying from an NRI, Vikram faced strict Tax Deducted at Source (TDS) rules under Section 195 of the IT Act. Says Kunal Savani, Partner, Cyril Amarchand Mangaldas, a law firm, "Where the seller is a Non-Resident Indian (NRI), the provisions of section 195 of the IT Act apply instead of section 194-IA."

Unlike resident-to-resident deals, where TDS is 1% ...