TDS on Property Sale by an NRI: The Rule and How to Reduce It

The Surprise Every NRI Seller Meets

When an NRI sells property in India, the single most common shock is the tax withheld at the point of sale. It is larger than sellers expect. The reason is structural: for an NRI seller, the buyer is obliged to deduct tax at source from the sale consideration, the whole price, rather than from the actual gain.

This is fundamentally different from a resident seller's position and from how most people assume tax works. You might have a modest actual gain, or costs of acquisition and improvement to offset. The default withholding does not care, it is calculated on the gross sale price. A substantial amount can be locked up even when your real tax liability is far smaller.

The rate is also higher for an NRI than the equivalent for a resident. It carries surcharge and cess on top. The precise rate is set by policy and has changed — so the figure you should rely on is the current one at your sale, not a number from an article.

The practical consequence is that without planning, a large chunk of your sale proceeds is withheld and you recover the excess only later. This guide explains the mechanism and the remedy.

Why It Is Deducted on the Whole Price

Understanding why the withholding is on the gross price, not the gain, explains why the remedy matters so much.

For a resident seller, tax at source on property is a small percentage of the sale value, because the system assumes the resident will file and settle their actual liability. For an NRI seller, the tax authorities apply a more protective approach: they require the buyer to withhold at the rate applicable to the relevant category of gain, applied to the consideration, to ensure the tax on any gain is captured before the money potentially leaves the country.

The result is that the withholding is a proxy set high enough to cover the tax on a substantial gain — even if your actual gain, after your acquisition cost, improvements and any indexation or applicable computation, is much smaller or the holding qualifies for a lower rate.

So the gap between the amount withheld and the tax you actually owe can be large. That gap is your own money, sitting with the tax department until you reclaim it. The system is not penalising you. It is over-collecting by default. The remedy is to correct the default in advance.

The Remedy: A Lower-Deduction Certificate

The tool that aligns the withholding with your real liability is a lower-deduction certificate, obtained by applying to the tax authorities under the relevant provision — commonly referred to as the Section 197 route, applied for using Form 13.

The idea is simple: rather than accept the high default withholding, you apply in advance for a certificate authorising the buyer to deduct at a lower rate based on a computation of your actual expected liability — taking into account your acquisition cost, improvements, the holding period and any applicable computation. If granted, the certificate lets the buyer withhold only what you are genuinely likely to owe, rather than the gross-price default.

This is a well-established process used routinely by NRI sellers. It is not exotic or aggressive. It is the intended mechanism for exactly this situation.

The catch is timing. The certificate must be obtained before the transaction completes, because it governs what the buyer withholds at the point of sale. Applied for in advance, it prevents the over-collection in the first place. Left until after, you are reduced to reclaiming the excess through a return, which is slower and ties your money up.

Timing and Process

Because the whole value of the certificate depends on having it in hand before completion, the timing discipline matters more than any other point in this guide.

Start the application well before you expect to sell. The process takes time, the authorities assess your computation and your circumstances, and a sale that completes before the certificate is granted leaves you with the default high withholding regardless.

Engage a chartered accountant experienced with NRI transactions to prepare and file the application, because the computation of your expected liability needs to be done correctly to secure an appropriate lower rate. This is specialist work and the fee is trivial against the amount of your own money it frees up.

Assemble the supporting evidence early: your purchase documents and cost of acquisition, evidence of any improvements, and the details of the proposed sale. A well-prepared application with clear computations is what secures a favourable certificate.

Coordinate with your buyer, too, since they are the party who will act on the certificate when withholding. A buyer who knows a certificate is coming can withhold correctly at completion rather than at the default rate.

If You Miss the Window

If the sale completes before you obtain a certificate, because you did not plan for it or the timing did not allow, you are not without recourse. The position is worse.

In that case, the buyer withholds at the default rate on the gross price, and you recover the excess over your actual liability by filing an Indian income tax return and claiming a refund. You are entitled to the refund, but you wait for it, sometimes for a considerable period, during which a large sum of your own money sits with the tax department.

For a large transaction, that delay is expensive in opportunity terms. It is entirely avoidable with advance planning. It is the single strongest argument for treating the lower-deduction certificate as a standard part of exit planning rather than an afterthought.

The broader lesson is that an NRI should plan the exit at the same time as the entry, or at least well before selling — the certificate, the repatriation documentation covered in our repatriation guide, and any capital-gains exemptions you intend to use, all reward advance preparation. An NRI who prepares the exit hands over a clean transaction and keeps their money working. One who does not hands a large interest-free loan to the tax department for a year. The difference is planning. It costs almost nothing to get right.

Because tax, FEMA and repatriation rules and rates keep moving and hinge on your circumstances, use this as orientation as of 2026 rather than advice, and confirm the current position with a professional before you act.

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