A buyer purchasing property from an NRI must deduct tax at source at non-resident rates: tax on long-term gains is 12.5 per cent, plus surcharge and cess, where the property was held for more than two years, and slab rates apply to short-term gains. Unless the seller obtains a lower or nil deduction certificate from the Income Tax Department, buyers apply the rate to the entire sale price. Excess tax can be reclaimed only by filing a return.
- Long-term if held
- More than 24 months
- LTCG rate
- 12.5% plus surcharge and cess
- TDS base without certificate
- Usually full sale price
- Fix
- Lower deduction certificate
How the deduction works
Between two residents, a buyer deducts one per cent on property worth fifty lakh rupees or more. Where the seller is a non-resident a different provision applies, long known as section 195: the buyer must deduct tax on the sum chargeable to tax at the rates in force, whatever the price, and there is no threshold. The buyer needs a tax deduction account number, deposits the tax, files a quarterly statement and issues you a certificate, which is what lets you claim credit.
In law the deduction is on your gain. In practice a buyer cannot know your gain and is personally liable for any shortfall, so buyers and their banks deduct on the full consideration. On a property sold for two crore rupees with a modest gain, that can mean tens of lakhs locked up until a refund is processed the following year.
Capital gains: rates and computation
Property held for more than twenty-four months gives rise to long-term capital gain. For transfers on or after 23 July 2024 the rate is 12.5 per cent without indexation. The option to pay twenty per cent with indexation on property bought before that date was preserved only for resident individuals and Hindu undivided families, not for non-residents. Short-term gains are added to income and taxed at slab rates, with tax deducted at the maximum rate. Surcharge applies above set income levels, and health and education cess of four per cent is added.
Gain is the sale price less the cost of acquisition, cost of improvement and expenses of transfer such as brokerage and legal fees. For inherited or gifted property you take the previous owner's cost and holding period; for property acquired before 1 April 2001 you may substitute fair market value on that date, capped at stamp duty value. If the sale price is below the stamp duty value by more than the permitted margin, the stamp value is treated as the price.
The lower deduction certificate
You apply online to the Assessing Officer, International Taxation, having jurisdiction over your PAN, in the form long known as Form 13, with the agreement to sell, purchase documents, a computation of gain and any reinvestment plan. The officer verifies the figures and issues a certificate naming the buyer and specifying the rate or amount to be deducted. Buyers and lenders accept it without question because it shifts responsibility to the department.
Processing commonly takes three to six weeks and the certificate is valid for the financial year, so the application should go in as soon as the buyer is identified and before the sale deed. Where there are joint sellers, each needs a separate certificate. We prepare and pursue the application and deal with the officer's queries.
Reducing the tax lawfully
- Reinvesting in a house in India. Long-term gain from a residential house is exempt to the extent invested in another residential house in India bought within one year before or two years after the sale, or built within three years, subject to a ceiling of ten crore rupees. A similar relief applies where the asset sold was not a house and the net consideration is reinvested.
- Specified bonds. Up to fifty lakh rupees of gain from land or building can be invested within six months in notified bonds with a five-year lock-in, long known as section 54EC bonds.
- Capital Gains Account Scheme. If the new house is not ready by the return due date, depositing the amount in this account preserves the claim.
- Set-off of losses carried forward from earlier years.
These claims can be built into the lower deduction application so that tax is not deducted on the exempt portion in the first place.
After the sale: return, refund and repatriation
File a return for the year declaring the gain and claiming credit for the tax deducted; any excess is refunded to your Indian bank account with interest. Keep the buyer's deduction certificate and the challans. Once tax is settled, the proceeds in your NRO account can be remitted abroad on a chartered accountant's certificate. That process, and the one million dollar annual ceiling, are explained under repatriation of funds. For the conveyancing itself see buying and selling property.
Form and section numbers mentioned on this page are those long used under the Income-tax Act, 1961, which still governs earlier years. The Income-tax Act, 2025, in force from 1 April 2026, keeps the same requirements with new section numbers and, in some cases, renumbered forms.
Mistakes that cost NRIs time and money
- Applying for the certificate after the sale deed is signed.
- One certificate for a property owned jointly by two sellers.
- No proof of purchase cost for an inherited property.
- Not filing a return because "tax was already deducted".
A typical situation
Twenty lakh rupees released at closing
Two brothers abroad inherit a flat their father bought decades ago and agree to sell it for one and a half crore rupees. The buyer's bank proposes to deduct tax on the full price. Each brother applies for a certificate with a valuation as on 1 April 2001 and a plan to invest in specified bonds. The certificates direct a much smaller deduction, and the difference is paid to them on the day of registration instead of sitting in a refund claim for a year.
Illustration only, based on patterns we commonly see. It is not a real client's case and outcomes depend on the facts.
If you live in...
The Indian law is the same wherever you live. These are the points that differ by where you are.
USA and Canada
Give your US or Canadian accountant the Indian tax deduction certificate; it supports the foreign tax credit.
UK and Europe
Coordinate the Indian computation with your UK capital gains calculation, which uses different cost rules.
UAE and the Gulf
Indian tax is final for most Gulf residents, so exemptions through reinvestment or bonds are worth planning.
Country pages: UAE, Saudi Arabia, Qatar, Kuwait, Oman, Bahrain
Australia, New Zealand and Asia
Australia taxes residents on the gain; Singapore does not. The Indian certificate process is the same for both.
Country pages: Australia, New Zealand, Singapore, Malaysia
Detailed country pages for this service: TDS on Property Sale in India for NRIs in USA, TDS on Property Sale in India for NRIs in Singapore
Documents you will need
For a certificate application or gain computation we need:
- PAN and passport or OCI
- Purchase deed and payment proofs
- Bills for improvements and construction
- Agreement to sell with the buyer
- Buyer's PAN and TAN
- Inheritance or gift documents, if applicable
- Last two years' Indian tax returns, if filed
- Details of planned reinvestment or bonds
How we handle it for you
Gain estimate
We compute the capital gain and the tax with and without exemptions, and what a buyer would deduct by default.
Certificate application
The lower deduction application is filed with full workings before the sale deed.
Coordination with buyer
We guide the buyer on TAN, deposit and the quarterly statement so your credit appears correctly.
Return and refund
Your return is filed after year-end and any refund followed up.
Remittance paperwork
The certificate and declaration needed for repatriation are prepared.
Frequently asked questions
How much TDS is deducted when an NRI sells property in India?
On long-term gains the base rate is 12.5 per cent plus surcharge and four per cent cess; on short-term gains tax is deducted at the maximum slab rate. Without a lower deduction certificate, buyers generally apply the rate to the whole sale price.
Can an NRI avoid TDS on the full sale value?
Yes, by obtaining a lower or nil deduction certificate from the Assessing Officer before the sale. The buyer then deducts only the amount specified in the certificate.
Do NRIs get the benefit of indexation on property sold after July 2024?
No. Long-term gains of non-residents are taxed at 12.5 per cent without indexation. The alternative of twenty per cent with indexation for older properties was kept only for resident individuals and HUFs.
Can NRIs claim capital gains exemption by buying another house?
Yes, if the new residential house is in India and is bought or built within the prescribed time. Exemption through investment in specified bonds is also open to NRIs.
What if the buyer deducted only one per cent?
That is the rate for resident sellers and is incorrect for an NRI. The buyer becomes liable for the shortfall with interest, and you remain liable for the correct tax. It should be regularised promptly.
How does an NRI get a refund of excess TDS?
By filing an income tax return for the year of sale showing the actual gain and tax. The excess appears as a refund and is paid into your Indian bank account.
How long is a lower deduction certificate valid?
For the financial year in which it is issued and for the buyer named in it. A change of buyer needs a fresh certificate.
Is TDS deducted on the advance paid under the agreement to sell?
Yes. Tax is to be deducted at the time of each payment or credit, including advances.
