An NRI sells a flat in Bengaluru for ₹1 crore that was bought years ago for ₹60 lakh. The real tax is on the ₹40 lakh gain. The buyer, correctly, deducts TDS on the full ₹1 crore.
That gap — between tax on the gain and TDS on the whole sale value — is where NRIs lose the most money in Indian property transactions. Not to tax. To cash-flow.
Why the buyer deducts on the whole sale value
When the seller is a resident, the buyer deducts a simple 1% under Section 194-IA. Almost everyone has heard of that one.
When the seller is a non-resident, Section 194-IA does not apply at all. The buyer must deduct under Section 195, which requires deduction on any sum chargeable to tax paid to a non-resident — and, in practice, the buyer deducts on the entire consideration, because the buyer is not in a position to compute your capital gain and carries personal liability for getting it wrong.
The rate follows the nature of the gain:
- Long-term (property held more than 24 months): 12.5% without indexation, plus applicable surcharge and cess.
- Short-term (24 months or less): your slab rates, plus surcharge and cess.
And note what is not available: the option of 20% with indexation for land or building acquired before 23 July 2024 is confined to resident individuals and HUFs. A non-resident does not get it.
So on a ₹1 crore sale of a long-held property, the deduction is computed on ₹1 crore — while the tax you actually owe is on ₹40 lakh. The difference isn't lost, but it sits with the department until you file a return and claim it back, which can mean waiting the better part of a year.
The fix: a Section 197 certificate — before the sale
Section 197 lets you apply to the Assessing Officer for a lower or nil deduction certificate. It tells the buyer, with authority, to deduct on your actual computed gain rather than the full sale value.
The critical word is before. The certificate has to be in the buyer's hands before the payment is made. Once TDS has been deducted on the full value, Section 197 can do nothing for you — your only route is a refund via a return, on the department's timetable.
This is why the first sentence of any NRI property conversation should be "when is the sale deed?" — not "what will the tax be?" An application started after the agreement is signed is often already too late to help.
Practically, the application needs the purchase documents, the sale agreement, a computation of the gain, and your PAN details. The AO reviews the computation and issues the certificate specifying the reduced rate.
Then: getting the money out
Repatriating the proceeds is a separate step with its own paperwork — Form 15CA and, in most cases, a Chartered Accountant's Form 15CB certifying the tax position on the remittance. Banks will not process the transfer without them.
The sequence that actually works
- Before the sale deed: compute the gain and apply under Section 197.
- At the sale: the buyer deducts per the certificate, on the gain rather than the full value.
- After the sale: file the Indian return, claim any DTAA relief, settle the final position.
- To repatriate: Form 15CA/15CB, then the remittance.
Done in that order, the cash stays with you. Done in the reverse order — sale first, questions later — a large sum sits with the department for a year and comes back as a refund.
One more thing buyers get wrong
If you are the buyer purchasing from an NRI, deducting 1% under 194-IA because "that's what you do for property" leaves you exposed. The obligation was under Section 195, and the consequences of short deduction fall on the deductor. Confirm the seller's residential status before you deduct — it changes the entire mechanism.
For the wider picture — residential status, DTAA relief, NRE vs NRO, and repatriation — see our NRI income tax page.