TDS on NRI Property Sale: Section 195, Lower Certificate and Refund
A buyer purchasing Indian property from a non-resident must use the non-resident withholding framework, not the resident-seller 1% rule.
Reviewed by CA Nikhil Gupta · Last reviewed 5 Aug 2026 · Long-term property gains after 23 July 2024 generally use the 12.5% framework; AY 2026–27 remains under the Income-tax Act, 1961, with income from 1 April 2026 governed by the Income-tax Act, 2025 where relevant
Applicable capital-gain rates, surcharge and cess can create high withholding; a lower-deduction certificate can align TDS more closely with estimated taxable gain.
Legal or Computational Framework
Governing rule
Long-term property gains after 23 July 2024 generally use the 12.5% framework, while short-term gains use applicable rates. Section 195 applies to sums chargeable to tax, but practical deduction on gross payment without a certificate can create excess credit and refund.
The core mismatch driving this whole topic: the resident-seller property TDS rule (commonly cited as "1% under Section 194-IA") simply does not apply once the seller is a non-resident. A buyer who mechanically deducts 1% and files Form 26QB — the resident-seller process — has under-withheld, because Section 195 requires TDS on the full chargeable sum at the applicable capital-gains rate (plus surcharge and cess), not a flat 1% on sale value, and uses Form 27Q rather than Form 26QB.
For the connected rule or filing step, see NRI TDS on Property Sale: Lower Deduction Certificate and Evidence File.
Correct workflow
Verify seller residential status; calculate estimated gain and rate; determine whether a lower determination or certificate is needed; obtain TAN and forms; deduct and deposit at payment; issue certificate; seller files return or refund claim.
The buyer needs a TAN specifically because Section 195/27Q filings, unlike the resident-seller Form 26QB route, do not accept a PAN-only challan-cum-statement — apply for the TAN early, since it can take days to be issued and TDS must still be deposited within the statutory timeline regardless of TAN-application delay.
When you are ready for the next step, see NRO and Property-Sale Repatriation Limit Tracker.
Step-by-step method
- Verify seller residential status.
- calculate estimated gain and rate.
- determine whether a lower determination or certificate is needed.
- obtain TAN and forms.
- deduct and deposit at payment.
- issue certificate.
- seller files return or refund claim.
Worked example
An NRI sells for ₹1.2 crore with estimated taxable LTCG ₹35 lakh. Applying tax to full consideration can materially exceed final liability; an approved lower certificate can specify an appropriate deduction.
The example is an audit trail, not a substitute for the user's facts. Change one input—residence, payment date, tax year, asset, return form, GST status, employer category or supporting document—and the result can change.
Edge cases
- Treaty usually preserves India right over Indian immovable property: most Double Taxation Avoidance Agreements let the source country (India) tax gains on Indian immovable property regardless of the seller’s treaty-resident status, so a DTAA claim rarely reduces Section 195 withholding on property the way it can for interest or royalty.
- NRO account is not proof of residence: a buyer cannot conclude residential status just from the seller holding an NRO account — verify the passport, visa status and actual physical-presence test, since a resident can also hold an NRO account in some situations.
- Multiple payments require withholding: if consideration is paid in instalments (booking amount, construction-linked payments, final payment), TDS applies separately on each instalment at the time it is credited or paid, not only on the final payment.
- Repatriation is a separate FEMA process: clearing income-tax TDS and obtaining a certificate does not itself authorise remitting the sale proceeds abroad — that needs a separate FEMA repatriation process (Form 15CA/15CB and the NRO-to-foreign-account limits) after the tax step.
- Section 54 relief does not automatically reduce buyer TDS: the seller’s eligibility for a Section 54/54F reinvestment exemption is a seller-side claim made at return-filing time — the buyer cannot deduct lower TDS on the strength of it without the seller first obtaining a lower-deduction certificate that accounts for the exemption.
What Generic Pages Miss
- Deducting 1%.
- Using Form 26QB.
- Ignoring surcharge or cess.
- Assuming sale proceeds equal gain.
- Waiting until registration after instalments.
Generic pages often confuse gross income with net receipt, TDS with final tax, GST turnover with income-tax turnover or a portal value with legal eligibility. Finin2min should show why an amount is accepted, deferred, reversed, rejected or carried forward.
Practical Documentation Checklist
- Seller residence/passport
- Purchase and sale deeds
- Gain and rate working
- Lower certificate
- Buyer TAN/challans
- TDS certificate and refund file
For the complete rules on this topic, see the core guide: TDS Sections 192-194T Consolidated: Section 392 & 393 Mapping.
See the broader FEMA, NRI & International Tax knowledge hub for related rules and calculators on this topic.
Finin2min Summary
A buyer purchasing Indian property from a non-resident must use the non-resident withholding framework, not the resident-seller 1% rule. Applicable capital-gain rates, surcharge and cess can create high withholding; a lower-deduction certificate can align TDS more closely with estimated taxable gain.
Finin2min rule: classify the legal event, calculate from source records and show every adjustment.
Frequently Asked Questions
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- FEMA & International Tax
- Official starting point
- www.incometax.gov.in