TDS on property sale by an NRI: why it's deducted on the full sale value

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 (Section 393(1) of the Income-tax Act 2025 from tax year 2026-27). 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 (for tax year 2026-27 onwards, the non-resident table in Section 393(2) of the 2025 Act), 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 lower-deduction certificate — before the sale

Section 197 of the 1961 Act — for tax year 2026-27 onwards, Section 395(1) of the Income-tax Act 2025 — 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.

The form moved with the section. The application was Form 13 under the 1962 Rules; under the Income-tax Rules 2026 it is Form 128, an application for a lower or nil deduction certificate under Section 395(1).

A warning on the numbers, because they collide. Section 197 of the 1961 Act is the lower-deduction certificate. Section 197 of the 2025 Act is something else entirely: the tax on long-term capital gains, which was Section 112 of the 1961 Act. A document that says "Section 197" without naming the Act can mean either, and on a property sale both are in play.

Then: getting the money out

Repatriating the proceeds is a separate step with its own paperwork — Form 145 (formerly 15CA) and, where the sum is taxable and above ₹5 lakh in the year, a Chartered Accountant's Form 146 (formerly 15CB) certifying the tax position on the remittance. Banks will not process the transfer without them. A certificate obtained for the sale helps here too: where you hold one, the remittance falls in Part B of Form 145 and no Form 146 arises.

The bank will also want the buyer's TDS certificate — Form 16A, or Form 131 for deductions in tax year 2026-27 onwards — and proof of how the property was originally paid for. That second item decides how much of the price can leave outside the USD 1 million annual limit on NRO repatriation. The full file is in repatriating property sale proceeds.

The sequence that actually works

1. Before the sale deed: compute the gain and apply under Section 197 (Section 395(1) for tax year 2026-27 onwards).
2. At the sale: the buyer deducts per the certificate, on the gain rather than the full value.
3. After the sale: file the Indian return, claim any DTAA relief, settle the final position.
4. To repatriate: Form 145/146 (formerly 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.

One procedural barrier has gone. From 1 October 2026, a resident individual or HUF buying from a non-resident no longer needs a TAN (Tax Deduction Account Number) to deduct and deposit the tax. Until then a TAN is required, which is where many private buyers stall. The relaxation is procedural only: the section, the rate and the base are unchanged, and a company, firm or LLP buyer still needs a TAN.

For the wider picture — which account the proceeds land in, the USD 1 million limit, and what the bank asks for — see repatriating money from India: the full route.

Where the property was inherited rather than bought, the cost and the holding period both step back to the person it came from, which usually makes the gain long-term — see selling inherited property in India as an NRI.

The certificate application has to be built on something, and that something is the exemption you intend to claim. Which route is open, and why it is settled before the deed rather than at the return, is in the capital gain and the exemptions that reduce it.

Updated 23 September 2026 for the Income-tax Act 2025 and Income-tax Rules 2026 numbering, as mapped in the CBDT's own comparison utility: Section 195 to Section 393 (the non-resident table is sub-section (2)), Section 197 to Section 395, Form 13 to Form 128, Form 16A to Form 131. The 1961 Act numbers still govern sales in FY 2025-26 and earlier. This is a general note, not advice on a particular sale; the rate, the surcharge and the certificate all turn on the facts and the date of payment, so confirm them before the agreement is signed.