The Moment Every NRI Dreads at the Negotiating Table

You've finalised the deal. Price agreed. Token payment received. And then the buyer says, "I'll need to deduct TDS before I transfer the money." You ask how much. There's an awkward pause. Neither of you is quite sure.

That pause is expensive. On a ₹1.5 crore property sale, a miscalculated TDS can lock up ₹20–25 lakhs with the income tax department for 12 to 18 months. And if the buyer gets the form wrong, the credit may not even show in your tax record. This guide exists so that pause doesn't cost you.

Who Is Responsible for TDS — and Why the Buyer Bears the Risk

Under Section 393(2) of the Income Tax Act, 2025 [erstwhile Section 195, IT Act, 1961], the buyer is legally obligated to deduct TDS before paying an NRI seller. This applies to every property transaction involving an NRI — residential, commercial, inherited, gifted, whatever the history.

Critically, there is no minimum threshold. The TDS obligation kicks in from rupee one. This is a sharp contrast to Section 393(1) [old Section 194-IA] where TDS applies to resident sellers only if the transaction exceeds ₹50 lakhs.

Until 30 September 2026, the buyer must hold a TAN (Tax Account Number) to deposit TDS and file the quarterly TDS return in Form 144 [old Form 27Q under the IT Act, 1961]. From 1 October 2026, a simplified PAN-based mechanism (analogous to how resident property TDS currently works) is expected to take over. If your transaction is closing before that date, confirm your buyer has a TAN — not doing so puts both parties in a compliance problem.

The Part That Catches Most NRI Sellers Off Guard

Here is the central issue with NRI property TDS: without a lower deduction certificate, TDS is typically deducted on the entire sale consideration — not on your actual profit.

Walk through this scenario. You bought a flat in Hyderabad in 2010 for ₹35 lakhs. You're selling it in 2026 for ₹1.5 crore. After computing LTCG (with or without indexation), your taxable gain might be ₹80–90 lakhs. Your actual tax liability at the applicable rate — roughly ₹12–13 lakhs.

But if the buyer has no lower deduction certificate, he deducts TDS on ₹1.5 crore at the applicable rate. At the maximum effective LTCG TDS rate of approximately 14.95%, that's ₹22.4 lakhs withheld. The excess is your money, sitting in the IT department's account while you wait for a refund after filing your return.

That refund can take 6 to 18 months.

TDS Rates for NRI Property Sales

*Surcharge on LTCG from immovable property is capped at 15% for individuals and HUFs. For STCG, the surcharge depends on total income and can go higher. Since the buyer rarely knows the NRI's total Indian income, they default to 30% on the full sale consideration for STCG transactions — this is conservative, and often results in a large refund for the NRI.

The Fix: Apply for a Lower Deduction Certificate Before the Sale Closes

Under the Income Tax Act, 2025, NRIs can apply for a lower or nil TDS certificate using Form 128 [old Form 13 under the IT Act, 1961]. The application goes online to the jurisdictional Assessing Officer (AO), setting out the actual capital gains after deductions and the correct tax rate applicable.

If the AO is satisfied, a certificate is issued authorising the buyer to deduct TDS only on the actual gain — at the actual rate. This alone can reduce TDS from ₹22 lakhs to ₹12 lakhs on the example above.

Practical timeline: the process typically takes 3–5 weeks. Apply at least 4–6 weeks before the expected registration date, once the buyer is identified and the deal price is confirmed. Note that the certificate is buyer-specific — if the buyer changes after issuance, a fresh application is required.

Three Routes to Reduce Capital Gains Tax Altogether

Even after computing LTCG, you may not need to pay the full tax. Three exemption provisions under the IT Act, 2025 are directly relevant to NRI sellers:

Section 82 [old 54]: NRIs can claim exemption on LTCG from the sale of a residential house by reinvesting the gains in another residential property — purchased within 1 year before or 2 years after the sale, or constructed within 3 years. Maximum exemption capped at ₹10 crore.

Section 86 [old 54F]: If you're selling a non-residential property or land, and you invest the entire net consideration in a residential house in India, the full LTCG is exempt. Partial reinvestment attracts proportionate exemption. Cap of ₹10 crore applies.

Section 85 [old 54EC]: Invest the LTCG (up to ₹50 lakhs) in notified capital gains bonds within 6 months of sale. Currently approved issuers include NHAI, REC, and HUDCO — HUDCO was newly added via CBDT Notification No. 31/2025, dated 7 April 2025. Lock-in period is 5 years.

If reinvestment is planned but not yet executed, park the unutilised gains in a Capital Gains Account Scheme (CGAS) with a scheduled bank before the ITR filing due date. This preserves your exemption while you locate and close on the new property.

DTAA: A Word on Treaty Relief

If you are a tax resident of a country that has a Double Taxation Avoidance Agreement (DTAA) with India, the treaty may offer rate relief or credit against your home country's taxes. Most DTAAs, including India-USA, India-UK, and India-Singapore, preserve India's right to tax immovable property situated in India — so you will still pay Indian capital gains tax. However, you can claim credit in your country of residence for the tax paid in India, avoiding double taxation.

To invoke DTAA, file Form 10F along with a self-declaration of tax residency before the transaction is processed.

After the Sale: FEMA, NRO Accounts, and Getting Money Out

Under FEMA, sale proceeds from Indian property must first be credited to the NRI's NRO (Non-Resident Ordinary) account in India. This is mandatory and not optional. The NRI cannot instruct the buyer to transfer proceeds directly abroad.

From the NRO account, repatriation abroad is permitted up to USD 1 million per financial year, after applicable taxes have been paid. Documentation required includes:

• Declaration to the bank in the prescribed format
• Equivalent of Form 15CA (remitter's online declaration) and Form 15CB (CA certificate) — under the Income Tax Rules, 2026, these remittance declarations may be captured under revised form references; consult your CA for the current forms applicable at the time of remittance
• Copy of ITR acknowledgment or evidence that TDS has been deducted and deposited correctly

If the sale value exceeds the USD 1 million cap, repatriation must be staggered across financial years, or an RBI approval obtained in advance.

Filing the ITR Is Not Optional

Even where the buyer has deducted TDS in full, the NRI is required to file an ITR in India for the Tax Year in which the property was sold. The ITR declares the capital gains, avails the exemptions claimed, accounts for TDS credit, and generates any refund due. It also creates a clean compliance trail for FEMA documentation purposes and is often required by the bank at the time of repatriation.

Compliance Checklist for NRI Property Sellers

☐ Confirm residential status under the IT Act, 2025 for the Tax Year of sale
☐ Verify that the property qualifies as held for more than 24 months (LTCG)
☐ Compute LTCG under both methods if property was acquired before 23 July 2024 (choose lower of 12.5% without indexation vs 20% with indexation)
☐ Evaluate which capital gains exemption applies — Section 82, 85, or 86
☐ Apply for Form 128 (lower deduction certificate) 4–6 weeks before registration
☐ Confirm buyer has TAN (mandatory until 30 September 2026)
☐ Ensure buyer deposits TDS using Form 144 (old Form 27Q) — not the resident property form
☐ Credit sale proceeds to NRO account — do not ask buyer to remit directly abroad
☐ Verify TDS credit in tax records within 10 days of deposit
☐ File ITR for the Tax Year of sale
☐ Arrange remittance documentation for repatriation (equivalent of Form 15CA/15CB under IT Rules, 2026)
☐ Invoke DTAA and file Form 10F if applicable

Plan before the sale, not after. A lower deduction certificate and the right reinvestment route can save lakhs in tax and months in blocked funds. Both require lead time — start the process the moment the deal is in sight.

CA Praneeth Thunuguntla | Thunuguntla & Associates | Income Tax & GST Advisory