When a resident Indian buys property from another resident, TDS is a simple 1% under Section 194-IA. But when the seller is an NRI, the rules change dramatically - the buyer must deduct TDS under Section 195 at a rate that can run as high as 20-30% of the entire sale value, not just the gain. For NRIs, applying for a Lower TDS Certificate (Form 13) before the sale can be the difference between a smooth transaction and a large chunk of sale proceeds getting locked up for months.
Why Is TDS on NRI Property Sales So Different?
For property purchases from resident sellers, Section 194-IA requires the buyer to deduct a flat 1% TDS on the sale consideration (if it exceeds ₹50 lakh). But when the seller is a Non-Resident Indian (NRI), Section 194-IA does not apply - instead, Section 195 applies, which has fundamentally different characteristics.
| Particulars | Resident Seller (194-IA) | NRI Seller (195) |
|---|
| TDS rate | 1% of sale consideration | Based on the applicable capital gains tax rate on the gain - effectively translating to TDS as high as ~20-30% (plus surcharge/cess) of the sale consideration in practice, since the buyer typically cannot easily determine the seller's cost basis |
| Threshold | Applies if consideration exceeds ₹50 lakh | No threshold - applies regardless of transaction value |
| TAN requirement for buyer | Not required (Form 26QB used instead) | Buyer generally needs to obtain a TAN and deduct/deposit TDS, file TDS returns (Form 27Q) |
The buyer often deducts TDS on the full sale value, not just the gain - unless a Lower TDS Certificate is obtained. Since the buyer is not in a position to verify the NRI seller's cost of acquisition, holding period, or eligible exemptions, buyers commonly deduct TDS at the highest applicable rate (effectively treating the gain as if it were the entire sale consideration) to avoid being held liable for short-deduction. This can result in 20-30%+ of the entire sale price being withheld - a massive cash flow hit for the NRI seller, even if their actual capital gains tax liability (after indexation, exemptions under Section 54/54F/54EC, etc.) is much lower.
The Solution: Lower/Nil TDS Certificate (Form 13)
Form 13 lets the NRI get TDS deducted on the actual estimated tax liability, not the gross sale valueAn NRI seller can apply to the Income Tax Department (via the TRACES portal) using Form 13, requesting a certificate for deduction of tax at a lower rate (or nil rate, in some cases) under Section 197. The application requires the NRI to provide details of the property, its cost of acquisition, expected sale consideration, computation of capital gains (after indexation and any exemptions to be claimed under Sections 54/54F/54EC), and supporting documents. If approved, the Assessing Officer issues a certificate specifying the rate at which the buyer should deduct TDS - often dramatically lower than the default rate, since it's based on the actual estimated capital gains rather than the gross sale value.
Process Overview
| Step | Action | Timing |
|---|
| 1 | NRI registers on the TRACES portal and files Form 13 application with computation of expected capital gains and supporting documents | Before the sale transaction, or as early as possible once the sale is being negotiated |
| 2 | Assessing Officer reviews the application, may seek clarifications/documents | Processing time can vary - applying early is important |
| 3 | Certificate issued specifying the lower/nil TDS rate | Valid for the period/transaction specified in the certificate |
| 4 | NRI shares the certificate with the buyer; buyer deducts TDS at the certified rate instead of the default rate | At the time of payment/registration of the sale deed |
What If No Lower TDS Certificate Is Obtained?
- The buyer deducts TDS at the higher default rate (effectively a large percentage of the sale consideration), deposits it with the government, and issues a TDS certificate (Form 16A) to the NRI.
- The NRI must then file an ITR in India, compute the actual capital gains tax liability (with indexation and applicable exemptions), and claim a refund of the excess TDS deducted over the actual liability.
- This refund process can take several months, during which the NRI's funds remain with the tax department rather than being available for use (e.g., for reinvestment, repatriation, or other purposes).
Repatriation of Sale Proceeds
After tax compliance (TDS deduction and, where applicable, ITR filing/refund), NRIs repatriating sale proceeds abroad need to comply with FEMA repatriation limits and procedures, which typically involve obtaining a certificate from a Chartered Accountant (Form 15CB) and filing Form 15CA, in addition to the income tax compliance discussed above. Repatriation of sale proceeds of residential property is generally permitted up to specified limits per financial year, subject to conditions.
Frequently Asked Questions
I'm an NRI selling a property I bought 10 years ago. The buyer is insisting on deducting 20% TDS on the entire sale value, but my actual long-term capital gains tax liability (after indexation) is much lower. Is there anything I can do before the sale closes? ▼
Yes - this is exactly the situation Form 13 (Lower/Nil TDS Certificate application under Section 197) is designed for. By applying to the Income Tax Department via the TRACES portal with your property details, cost of acquisition, indexed cost, and computation of actual capital gains, you can request a certificate specifying a lower TDS rate based on your actual estimated tax liability rather than a blanket rate applied to the gross sale value. This needs to be done before the transaction closes (ideally with enough lead time for processing), as the certificate must be presented to the buyer before TDS deduction. If the sale is imminent and there's no time to obtain the certificate, you would need to proceed with the higher TDS deduction and claim a refund later via your ITR.
If TDS is deducted at a high rate on my property sale and I want to claim a refund, how long does this typically take and what documents do I need? ▼
The refund process requires filing an Income Tax Return (ITR) in India for the relevant assessment year, reporting the property sale, computing the actual capital gains (using indexed cost of acquisition/improvement and claiming any applicable exemptions under Sections 54/54F/54EC if you've reinvested), and claiming the TDS deducted (as reflected in Form 26AS, based on the TDS certificate/Form 16A issued by the buyer) as a credit. The refund, if any, is processed after the return is filed and verified by the tax department - processing times can vary, but NRIs should generally expect this to take several months from the date of filing, and should ensure their bank account details (preferably an NRO account) are correctly updated for refund credit. Maintaining the sale deed, purchase deed, indexation computation, and TDS certificates is essential documentation for this process.
Does the buyer need to do anything special (like get a TAN) when buying property from an NRI, compared to buying from a resident Indian? ▼
Yes. When purchasing property from a resident, the buyer typically uses Form 26QB to deduct and deposit 1% TDS under Section 194-IA, without needing a TAN (Tax Deduction and Collection Account Number). However, when purchasing from an NRI seller, TDS falls under Section 195, and the buyer is generally required to obtain a TAN, deduct TDS at the applicable rate (or the rate specified in any Lower TDS Certificate provided by the seller), deposit it with the government, and file the relevant TDS return (Form 27Q) and issue Form 16A to the NRI seller. This is an additional compliance burden for the buyer that doesn't arise in resident-to-resident property transactions, and buyers should be made aware of this upfront when negotiating to purchase property from an NRI.