When a Non-Resident Indian sells property in India, the buyer is legally required to withhold tax before releasing the sale proceeds. TDS on the sale of property by an NRI is governed by Section 195 of the Income Tax Act, and the rates are far higher than the flat 1% that applies when a resident sells. After the Finance Act 2024, the effective withholding on long-term capital gains runs from roughly 13% to 14.95% of the gain, depending on the transaction value.1Indian Kanoon. Income Tax Act, 1961 – Section 195 The default withholding, however, is calculated on the full sale price rather than the gain, which is why most NRI sellers overpay unless they take specific steps in advance.
Effective TDS Rates on an NRI Property Sale
The rate the buyer withholds depends on how long you held the property. Property held for more than 24 months is a long-term capital asset. Property sold within 24 months is short-term.
Long-Term Capital Gains
Long-term gains on property are taxed at a flat 12.5% without indexation following the Finance Act 2024.2Press Information Bureau. FAQs Issued by CBDT on the New Capital Gains Tax Regime For property acquired before July 23, 2024, you may still compute the gain under the earlier 20%-with-indexation method if that produces a lower tax. This transitional option matters most for property held many years, where inflation has significantly eroded the real purchase price.3Income Tax Department. Capital Gain
On top of the base rate, a 4% Health and Education Cess applies, plus a surcharge that scales with transaction value.4Parliament of India. Lok Sabha Unstarred Question No. 706 – Cesses and Surcharges For capital gains under Section 112, the surcharge is capped at 15% regardless of transaction size.5eGazette India. Finance (No. 2) Act, 2024 – Gazette Notification The effective TDS rates on long-term gains work out to:
- Sale value under ₹50 lakh: 13% (no surcharge, 4% cess)
- ₹50 lakh to ₹1 crore: 14.3% (10% surcharge, 4% cess)
- Above ₹1 crore: 14.95% (15% surcharge, 4% cess)
Before the 2024 amendments, effective rates could exceed 23%, so the current structure is meaningfully lighter.6ICICI Bank. Understanding TDS on the Sale of Property in India by NRI Even so, 14.95% of a large gain is a substantial sum to have locked up until you file a return.
Short-Term Capital Gains
If you sell within 24 months, the gain is taxed at your applicable slab rate, which can reach 30% for income above ₹15 lakh. In practice, the buyer withholds at 30% plus surcharge and cess on the entire sale consideration to cover the worst case. Short-term sales are painful on cash flow even when your actual liability turns out to be lower.
PAN Is Not Optional
Both parties need valid PANs, and the buyer needs a Tax Deduction and Collection Account Number (TAN) before deducting anything.7DBS Bank. TDS on Purchase of Property from NRI in India If you don’t have a PAN, the default TDS rate is 20% or the applicable rate, whichever is higher. TDS must also be deducted at each payment, including advances and installments, not only at final settlement.
How the Actual Capital Gain Is Calculated
The taxable gain is the difference between the sale price and the cost of acquisition. Under the 12.5% regime, the cost is simply what you paid, with no inflation adjustment. If you qualify for the transitional 20% method, the Cost Inflation Index adjusts your original purchase price upward. The CII base year is 2001-02 (index value 100), and the CII for financial year 2025-26 is 376, so a property bought in the base year would have its cost multiplied by 3.76.
For property acquired before April 1, 2001, you can substitute the fair market value as of that date, determined by a registered valuer, in place of the original purchase price. For inherited or decades-old property, this often produces a much higher deemed acquisition cost and shrinks the taxable gain considerably.
Improvement costs, such as additions or renovations, can also be added to the acquisition cost if you have documentation. Once you work out the adjusted cost, the actual gain is usually a small fraction of the sale price. That gap between the gain and the sale price is precisely why the default TDS overshoots, and why a lower deduction certificate is worth the effort.
Applying for a Lower TDS Certificate Under Section 197
Without a certificate, the buyer withholds at the full statutory rate on the entire sale consideration. If you sell a ₹2 crore property with an actual gain of ₹40 lakh, the default TDS will be wildly disproportionate to the real tax owed. The fix is a lower (or nil) deduction certificate under Section 197, applied for through Form 13 on the TRACES portal.8Income Tax Department. Application for Lower or Nil Deduction Certificates Under Section 197
The application needs a detailed computation of the expected gain. Include the original purchase deed, proof of improvement expenses, the expected sale price, and the indexed cost of acquisition if you’re claiming the transitional 20% rate. The assessing officer reviews the file and, if satisfied, issues a certificate specifying the exact rate or amount the buyer should withhold.9Income Tax Department. Form 13 – Application Under Sections 197 and 206C(9)
Timing is everything. The certificate has to be in hand before the sale, and you give a copy to the buyer as the legal basis for reducing the withholding. Processing typically takes two to three weeks, sometimes longer if the officer asks for more documents. If the sale closes before the certificate arrives, the buyer has no option but to deduct at the full rate, and you’ll be waiting for a refund after filing your return. Start the application early.
Exemptions That Reduce the Tax Itself
Even after the sale, you can reduce or eliminate the capital gains tax by reinvesting within prescribed time limits. Two exemptions matter for most NRI sellers.
Section 54: Buy Another Residential Property in India
If you put the long-term gain into another residential property in India, you can claim full exemption up to the amount reinvested, capped at ₹10 crore. The new property must be purchased within one year before or two years after the sale, or constructed within three years. It has to be in India; foreign property doesn’t qualify. Sell the new property within three years of buying it and the exemption is clawed back into your income in the year of the second sale.
If you can’t reinvest before your return filing deadline, park the gains in a Capital Gains Account Scheme at a designated bank. That deposit counts as reinvestment for the exemption in your return and buys you more time to find the property. Anything left unused in the scheme after the prescribed period becomes taxable.
Section 54EC: Capital Gains Bonds
You can also invest up to ₹50 lakh of long-term gains in bonds issued by specified agencies like NHAI or REC. NRIs are explicitly eligible.10Stock Holding Corporation of India. Frequently Asked Questions on 54EC Capital Gain Tax Bonds The investment has to be made within six months of the sale, and the bonds carry a five-year lock-in during which they can’t be transferred or pledged. In exchange for a modest interest rate, the invested amount is fully exempt from capital gains tax.
What the Buyer Must Do (and Why You Should Verify)
The buyer handles the compliance mechanics, but you have a direct interest in making sure each step happens, because a mistake by the buyer can leave you without the paperwork you need.
After withholding, the buyer deposits the tax using Challan 281 by the 7th of the following month. The buyer then files a quarterly TDS return on Form 27Q, which reports the transaction, your PAN, and the tax deducted. Late filing attracts a fee of ₹200 per day, capped at the total TDS for the quarter.
The document you need is Form 16A, generated by the buyer from the TRACES portal after filing Form 27Q. The buyer must give it to you within 15 days of the TDS return due date.11DBS Bank. TDS on Sale of Property by NRI in India Without Form 16A you cannot claim credit for the TDS on your Indian return, and you’ll have a much harder time proving to foreign tax authorities that the Indian tax was paid. Ask for it, and don’t consider the transaction closed until you have it.
Repatriating the Sale Proceeds
Getting the money into your NRO account is only half the process. Moving it abroad has its own rules.
The USD 1 Million Annual Limit
The Reserve Bank of India permits an NRI to remit up to USD 1 million per financial year from an NRO account, and that ceiling covers all remittances during the year, not property proceeds alone.12Reserve Bank of India. Repatriation of Sale Proceeds The remittance must go through an authorized dealer bank, which will want a Chartered Accountant’s certificate confirming tax compliance before releasing the funds.
Form 15CA and Form 15CB
Before any remittance, Form 15CA has to be filed with the Income Tax Department. If the total remittance in the financial year exceeds ₹5 lakh and you don’t already hold a Section 197 certificate, Form 15CB is also required. That’s a Chartered Accountant’s certificate confirming the tax has been paid, that the remittance complies with the Income Tax Act, and that any treaty benefits have been applied correctly.13Income Tax Department. Form 15CA FAQs Form 15CA has to be filed before the remittance, and the bank will ask for the acknowledgment before processing anything.
Avoiding Double Taxation in Your Country of Residence
If your country of residence has a tax treaty with India, you won’t pay full tax in both places on the same gain. Under the India-US Double Taxation Avoidance Agreement, for example, Article 13 lets each country tax gains from immovable property under its own law, and Article 25 requires the US to give a credit for the Indian tax paid.14National Academy of Direct Taxes. India US Double Taxation Avoidance Treaty
A US-based NRI reports the Indian property gain on their US return and claims the Indian TDS and any additional Indian tax paid as a foreign tax credit on IRS Form 1116. The credit offsets US tax dollar-for-dollar, up to the amount of US tax attributable to that Indian income.15Internal Revenue Service. Foreign Tax Credit Because Indian capital gains rates are often close to or above the US rate on the same income, many NRIs owe little or no additional US tax on the sale. Excess credit can be carried forward. Keep Form 16A and all Indian payment receipts; the IRS needs evidence the foreign tax was actually paid.
NRIs resident elsewhere should check the specific treaty between India and their country of residence. Most major economies have one, and the mechanism generally works the same way: India taxes the gain first, and the country of residence provides a credit or deduction for the Indian tax.