Quick answer
- Who deducts TDS? The buyer must deduct tax at source (TDS) when an NRI sells property in India.
- Rate for a long-term sale: 12.5% of the sale price, plus surcharge and 4% health & education cess. The effective rate is 13.00% to 14.95%, based on the sale value.
- Rate for a short-term sale: TDS at the seller’s slab rates — in practice buyers often deduct at 30% (top slab) plus surcharge and cess.
- Full price vs. gain: In practice the buyer deducts TDS on the whole sale price. A lower-deduction certificate (Form 13) can bring the TDS down to the actual capital-gain tax.
- Refund: The NRI files ITR-2, reports the capital gain, and claims the excess TDS as a refund.
Why the rule is different for NRIs
When a resident buys property from another resident, the buyer uses Section 194-IA. That rule asks for 1% TDS only if the sale price is above ₹50 lakh.
If the seller is an NRI, Section 194-IA does not apply. Instead, Section 195 of the Income Tax Act, 1961 applies — Section 393(2), Table Sl. No. 17 of the Income-tax Act, 2025 from Tax Year 2026-27. Section 195 requires the buyer to deduct tax on any payment that will be taxable in the seller’s hands. The law treats the capital gain as taxable income, even if the seller lives abroad.
Because the seller lives outside India, the government does not rely on the simple 1% rule. It wants the capital-gain tax collected at source. So the buyer must deduct TDS under Section 195, whatever the sale price.
TDS rates that apply
| Holding period | Base rate | Surcharge | Health & education cess | Effective rate on sale price |
|---|---|---|---|---|
| Long-term (more than 24 months) | 12.5% | On total income: nil up to ₹50 lakh, 10% above ₹50 lakh, 15% above ₹1 crore (capped at 15% for long-term capital gains) | 4% on tax + surcharge | 13.00% (sale up to ₹50 lakh), 14.30% (₹50 lakh–₹1 crore), 14.95% (above ₹1 crore) |
| Short-term (24 months or less) | Seller’s slab rate (often 30%, the top slab) | As per total income: 10% above ₹50 lakh, 15% above ₹1 crore, 25% above ₹2 crore, 37% above ₹5 crore | 4% on tax + surcharge | About 31.20% at the top slab with no surcharge; higher if surcharge applies |
Key points:
- There is no minimum threshold. TDS is due even if the sale price is ₹5 lakh.
- The tax is worked out on the sale price, not on the actual capital gain, unless the buyer holds a lower-deduction certificate.
- For sales on or after 23 July 2024, the long-term rate is 12.5% without indexation. NRIs do not get the 20%-with-indexation option that resident individuals and HUFs can choose for older property — for NRIs, 12.5% without indexation is the rate.
The “full-price” problem — a worked example
An NRI bought a flat in 2015 for ₹60 lakh. He sells it in 2025 for ₹1.20 crore.
- Capital gain = ₹1.20 crore − ₹60 lakh = ₹60 lakh.
- The law says TDS under Section 195 is on the income that is taxable — that is, the capital gain of ₹60 lakh.
What most buyers do
Because they cannot verify the original cost, they deduct TDS on the whole ₹1.20 crore at the long-term effective rate of 14.95%.
TDS = ₹1.20 crore × 14.95% = ₹17,94,000
What the tax actually is (assuming total income in the ₹1 crore–₹2 crore band, so surcharge is 15%)
Long-term capital-gain tax = 12.5% of ₹60 lakh = ₹7,50,000. Add surcharge of 15% → ₹8,62,500. Add health & education cess of 4% → ₹8,97,000.
Result
The buyer has deducted ₹17,94,000, but the real tax due is ₹8,97,000. The NRI can claim a refund of ₹8,97,000 when filing the return.
If the seller had a Form 13 (lower-deduction certificate) before the sale, the buyer would have deducted only about ₹8,97,000, and the refund wait would not have been needed.
How an NRI can reduce TDS — Form 13
- Apply early. The seller files Form 13 with the Assessing Officer (AO), at least 25–30 days before the sale deed is signed.
- What the form does. It tells the AO the expected capital gain and the tax on it. The AO then issues a certificate stating the exact amount of TDS to be deducted.
- Validity. The certificate is valid until the end of the financial year in which the sale takes place.
- Include exemptions. While applying, the seller can claim exemptions under Sections 54, 54EC and 54F. The AO factors those into the lower amount.
- Give the certificate to the buyer. The buyer then deducts only the certified amount, not TDS on the whole sale price.
Note: even with a Form 13, the buyer still has to follow the same compliance steps — deposit the TDS, file the quarterly statement, and issue Form 16A.
Buyer compliance steps
| Step | What the buyer must do | Deadline |
|---|---|---|
| 1. Get TAN | Apply for a Tax Deduction and Collection Account Number (TAN). From 1 October 2026, a resident individual or HUF buyer may use their PAN instead of a TAN for this TDS. | Before the sale |
| 2. Deduct TDS | Work out TDS on the full sale price (or the amount in the Form 13 certificate). | At the time of payment |
| 3. Deposit TDS | Pay the deducted amount to the government. | By the 7th of the next month |
| 4. Quarterly statement | File Form 27Q (Form 144 under the Income-tax Act, 2025) for each quarter in which the sale falls. | 31 July / 31 October / 31 January / 31 May |
| 5. Issue certificate | Give the seller Form 16A (TDS certificate) showing the amount deducted and deposited. | Within 15 days of the statement due date |
| 6. Keep records | Keep the sale deed, PAN/TAN details, Form 13 (if any) and bank challan. | For at least 6 years |
If the buyer fails to deduct TDS, the law treats the buyer as an “assessee in default”. Interest of 1% per month on the delayed amount and a penalty equal to the TDS amount can follow.
What the seller must keep in mind
- PAN is a must. Without a PAN, Section 206AA (now Section 397(2)) forces the buyer to deduct at 20% or the rate in force, whichever is higher, on the whole price.
- Rule 37BC relief. If the seller gives the buyer their name, email, phone number, address, a Tax Residency Certificate (TRC) and a Tax Identification Number (TIN) of the country of residence, the buyer can skip the higher 20% deduction.
- Form 13. Apply for the lower-deduction certificate as explained above.
- Keep the TRC and Form 10F. Useful where a Double Taxation Avoidance Agreement (DTAA) gives a lower rate — rare for immovable property, since most treaties still let India tax the gain on property located in India.
Claiming a refund of excess TDS
- File ITR-2. NRIs cannot use ITR-1. The capital gain from the property sale goes in the “Capital Gains” schedule of ITR-2.
- Show the tax paid. Enter the TDS amount (₹17,94,000 in the example) under “Tax deducted at source”.
- Work out the actual tax. The return computes the correct tax (₹8,97,000 in the example) from the gain and any exemptions claimed.
- Refund claim. The excess (₹8,97,000) appears as a refund. The department credits it to the NRO account given in the return.
- Bank account. The NRO account must be pre-validated (linked to the PAN) for the refund to be processed.
Refunds can take a few months. Keep the sale deed, Form 16A and bank statements handy in case the department asks for proof. If the return is filed after the due date, the belated-return rules apply — the late fee and interest are covered in our guide to belated ITR filing.
Exemptions NRIs can use
| Section | What it does | Conditions for NRIs |
|---|---|---|
| 54 | Exempts the long-term gain if the seller buys another residential house in India (purchase 1 year before or 2 years after the sale, or construction within 3 years). | The new house must be in India. The cost of the new house above ₹10 crore is counted as ₹10 crore for the exemption. |
| 54EC | Exempts up to ₹50 lakh if the seller invests the gain in specified bonds (REC, NHAI, PFC, IRFC) within 6 months of the sale. | Bonds must be held for 5 years. |
| 54F | Exempts the long-term gain if the seller sells any long-term asset and invests the entire sale proceeds (not just the gain) in a residential house in India. | The seller must not own more than one house (other than the new one) on the sale date. The ₹10 crore cap applies here too. |
When applying for Form 13, the seller can mention any of these exemptions. The Assessing Officer then certifies a lower TDS amount that reflects the reduced tax.
Repatriating the sale proceeds
- Proceeds go to the NRO account. All sale money must first come into an NRO (Non-Resident Ordinary) bank account.
- Repatriation limit. Up to USD 1 million per financial year can be sent abroad.
- Forms needed. Form 15CA (online declaration) and Form 15CB (CA-certified statement). The CA checks that the correct tax has been paid in India.
- Documents. Sale deed, Form 16A, PAN and the TRC.
Frequently Asked Questions
1. What is the TDS rate on sale of property by NRI?
For long-term sales the effective rate is 13%–14.95% (including surcharge and cess) on the full sale price. For short-term sales the buyer usually deducts at the top slab — about 30% plus surcharge and cess.
2. Who deducts TDS when an NRI sells property?
The buyer of the property must deduct TDS at source under Section 195 (Section 393(2) of the Income-tax Act, 2025).
3. Is TDS deducted on the full sale price or only on the gain?
In practice the buyer deducts TDS on the full sale price because the seller’s cost cannot be verified. A Form 13 certificate can bring the deduction down to the actual gain.
4. How can an NRI reduce TDS on a property sale?
The NRI should apply for a Form 13 lower-deduction certificate from the Assessing Officer before the sale. The certificate states the exact amount of TDS to be deducted.
5. How does an NRI claim a refund of excess TDS?
File ITR-2 showing the capital gain and the TDS already deducted. The return works out the correct tax, and any excess appears as a refund, credited to the NRO bank account.
6. What happens if the buyer does not deduct TDS?
The buyer becomes an assessee in default. The buyer must pay interest of 1% per month and a penalty equal to the TDS amount that should have been deducted.
7. Can an NRI claim Section 54 exemption on a property sale?
Yes. If the NRI reinvests the long-term gain in another residential house in India (or uses the exemptions under Sections 54EC/54F), the capital-gain tax can be reduced or removed. Mention the exemption while applying for Form 13.
Official Sources
- Income Tax e-Filing Portal — incometax.gov.in
- Central Board of Direct Taxes — incometaxindia.gov.in
- India Code — Income-tax Act, 2025 — indiacode.nic.in
Related guides
- TDS on FD Interest: Section 194A (Now Section 393) — Rates, ₹50,000/₹1 Lakh Limits & Form 121
- TDS on Salary: Section 192 (Now Section 392) – Rates, Calculation and How to Reduce It
- TDS on Rent: Section 194-I vs 194-IB — ₹50,000/Month Rule Explained
Reviewed by Asuthod Rathod, CA
Last updated: 15 October 2026
Disclaimer: This article is general information about tax rules, not personal tax advice. Rates and forms can change with new notifications. Check your own facts with a chartered accountant before you act.
Related reading: TDS on Rent: 194-I vs 194-IB · TDS on Salary: Section 192 · TDS on FD Interest: Section 194A · Income Tax Refund Status
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.
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