TDS on Property Sale by NRIs: Rates, Rules and How to Reduce It

The TDS on property sale by NRI sellers often surprise both buyers and sellers in India. The buyer must deduct tax before paying the seller, and the amount can be far higher than the actual tax due. Knowing the rules early helps you plan the sale, avoid payment delays, and recover any excess tax later. This blog explains the rates, the Form 13 process, and the mistakes that hold up refunds.

Why NRI Sellers Face Higher TDS Than Resident Sellers?

TDS is levied at the rate of 1% only on property sales made by residents of India where the total sale consideration or the stamp duty value is ₹50 lakh or higher under Section 194-IA. NRIs are treated differently because the tax department faces challenges tracking and collecting taxes once a non-resident leaves the country with the transaction proceeds. Consequently, Section 195 mandates that the buyer must deduct tax on the total gross sale consideration at the prevailing capital gains tax rate, plus applicable surcharges and cess, and not just on the profit.

In short, TDS on property sale by NRI sellers works as an advance collection, not a final tax bill. The buyer does not know the seller’s real gain at the time of payment, so the deduction stays high. This is why NRI property sale tax often looks much larger at the time of sale than the final liability.

In case of easing the process, major relief was introduced on October 1, 2026. Regular resident individual buyers and HUFs no longer need to apply for a Tax Deduction Account Number (TAN) or file complex quarterly TDS returns (Form 27Q). Instead, individual buyers can complete the entire TDS process using just their PAN via the updated Form 141 (Schedule E). However, if the buyer is a company, firm, or another NRI, a TAN and quarterly filings are still legally required.

TDS Rates Under Section 195 (Short-Term vs Long-Term Capital Gains)

The classification of capital gains depends on how long the seller has held the property. If the property is held for more than 24 months before its transfer, the gain is generally classified as long-term capital gain. If it is held for 24 months or less, the gain is classified as short-term capital gain. The applicable tax treatment depends on the relevant provisions and the date of transfer.

The tax rate of 12.5% plus surcharge and 4% health and education cess is being charged for transfers made from 23 July 2024 for long-term gains. The short-term gains will be taxed at slab rate of the seller, typically the rate of 30% plus Surcharge and Cess for high income sellers. The surcharge is proportional to total income and is applicable only towards capital gains and is capped at 15%.

If the buyer does not have a lower deduction certificate, he will buy a sale value. The TDS will be up to ₹13 lakh even with very nominal gains, if the sale made is ₹1 crore or above. The holding period is an important first consideration when it comes to any Indian NRI selling property taxation.

How to Apply for a Lower/Nil TDS Certificate (Form 13)

Form 13 is the application form for a lower or nil deduction certificate as per section 197. The seller files it on the income tax portal before they receive any money from the buyer.

Assessing Officer reviews your capital gains computation and sets the capital gains tax rate at which the buyer should deduct it. If the real gain is small, or the gain is covered by an exemption, the officer can allow a lower or nil rate. If you reinvested the proceeds from the sale of a residential house into a different house under Section 54, or in specific bonds under Section 54EC, then this plan would have reduced the amount of taxable gain, so you should account for it in your computation.

The buyer must deduct TDS strictly in accordance with the tax rate shown on the certificate. Applying for a Lower TDS Certificate (Form 128) is the most effective legal method to prevent the buyer from withholding high taxes on the gross sale price of an NRI’s property. Because the certificate is issued specifically for a single transaction, it is critical to apply at least 30 to 45 days before the transaction is completed. This proactive application is the single most important tax planning step for an NRI selling property in India.

Documents Required for the Lower Deduction Certificate

A complete set of documents can help the tax officer review the application more effectively. Depending on the case, the documents may include

• PAN card and passport copy of the seller
• Sale agreement or draft sale deed, with the relevant buyer details
• Copy of the original purchase deed and proof of purchase cost
• Receipts and supporting documents for improvement expenses
• Capital gains computation, preferably prepared by a chartered accountant
• Income tax returns and other relevant tax records
• Proof of non-resident status, where required
• Details of planned reinvestment, if applicable

Ensure that the figures and details are consistent across all documents, as discrepancies may lead to additional queries. A clear capital gains computation can also help estimate the applicable NRI property sale tax before the transaction is completed.

Common Mistakes That Delay Refunds

Most refund delays are caused by errors that are easily avoidable. Sometimes sellers apply for Form 13 after the sale is registered, which renders the certificate useless.

If the wrong or missing PAN is mentioned in the buyer's TDS return, then the credit is not reflected in the Form 26AS. A buyer who takes the withholding but fails to pay it or file the quarterly withholding return is also considered late. In deals involving buying property from NRI, TDS errors on the buyer’s side directly affect the seller’s refund.

Sometimes, the sellers also waste time by not filing their income tax return. The refund of excess TDS is possible only through a return, so file it on time even if no further tax is due. Lastly, ensure your bank account is pre-validated on the portal, as refunds will be credited to your account.

Frequently Asked Questions

1. Can TDS be avoided entirely?

Ans: Not by default. TDS must generally be deducted from payments made to an NRI seller in accordance with the applicable tax provisions. However, the seller may apply for a lower or nil TDS certificate under Section 197 if the estimated tax liability justifies it. The buyer can also apply under Section 195(2) to determine the portion of the payment chargeable to tax in India. If excess TDS is deducted, the seller can generally claim a refund by filing an income tax return.

2. How long does a Form 13 certificate take?

Ans: Each case will have its own set timing. It can take a few weeks to process, depending on the officer's questions and how complete your documents are. Apply early, respond promptly to notifications, and do not set a payment date until the certificate has been received.

3. What if the buyer deducts TDS at the wrong rate?

Ans: If excess TDS is deducted, the seller can generally claim a refund by filing an income tax return, subject to verification and the applicable tax rules. However, if the buyer deducts less tax than required, they may be liable for interest and penalties, depending on the circumstances.

The applicable TDS rate should be determined under the relevant tax provisions, with the help of a chartered accountant where necessary. Any lower or nil deduction should be supported by the appropriate certificate or authorisation.