An NRI sells a flat in Hyderabad for two crore rupees. The actual tax on the sale, once the gains are worked out, comes to roughly twenty-four lakh. The amount the buyer is legally required to withhold before paying a single rupee to the seller: nearly thirty lakh.
That is on a clean sale, with tax due. If the seller is reinvesting the proceeds in another house and the real tax liability is nil, the buyer still has to withhold the same thirty lakh, and the seller waits a year or more to get it all back.
There is a way to stop this before it happens. It is called a lower deduction certificate, it is applied for using Form 13, and it is the single most useful piece of paperwork an NRI seller can arrange. Most never do.
Here is what it is, why the default is so punishing, and how to get one from abroad.
Why the Default TDS Is So Brutal for NRIs
Start with the rule that creates the problem.
When a resident sells property to another resident, the buyer deducts a flat 1% TDS under Section 194-IA, and only if the price crosses fifty lakh. It is a light touch, withheld on the sale value, easy to live with.
The moment the seller is an NRI, a completely different section takes over. Section 195 governs any payment to a non-resident that is taxable in India, and it works nothing like the resident rule. There is no fifty-lakh threshold. There is no 1% rate. And, critically, the buyer is required to deduct on the entire sale consideration, not on your profit.
That last point is where the money gets trapped. The buyer has no idea what you paid for the property in 1998, what you spent renovating it, or whether you are reinvesting under Section 54. They cannot compute your capital gain, so the law does not ask them to. They apply the rate to the full price and deposit it with the government.
The buyer also cannot use Form 26QB, the form residents file. They have to obtain a TAN, deduct under Section 195, and file Form 27Q every quarter. We have written about what goes wrong when a buyer botches that paperwork in the case of a Delhi buyer’s TDS form error, and it is the NRI seller who ends up chasing the consequences.
What the Rate Actually Comes To
For property held longer than 24 months, the gain is long-term, taxed at 12.5%. For property bought before 23 July 2024, resident sellers can choose between that 12.5% without indexation and the older 20% with indexation. That choice was not extended to non-residents, so as an NRI you are generally looking at 12.5% on the gain.
On top of the base rate sit a surcharge and a 4% health and education cess. The surcharge climbs with income, but for long-term capital gains it is capped at 15%, however large the sale. Run the 12.5% base through the surcharge bands and the cess, and the effective rate the buyer applies to your full sale price looks like this:
| Sale value / income band | Surcharge | Effective TDS rate on full sale price |
|---|---|---|
| Up to ₹50 lakh | 0% | 13.00% |
| ₹50 lakh to ₹1 crore | 10% | 14.30% |
| ₹1 crore to ₹2 crore | 15% | 14.95% |
| Above ₹2 crore | 15% (capped) | 14.95% |
So on a two-crore sale, the buyer withholds 14.95%, which is ₹29.9 lakh, calculated on the whole price rather than the slice that is actually profit. If your holding was short-term, it is worse: the gain is taxed at your slab rate, up to 30%, and the surcharge cap does not apply.
This is not a niche complaint. It is the structural reason NRIs end up overpaying, and we cover the full mechanics in our guide to capital gains tax on an NRI property sale.
What Form 13 Changes
Section 197 of the Income Tax Act exists precisely for this mismatch. It lets you apply to the Assessing Officer for a certificate that tells the buyer to deduct at a lower rate, or none at all, based on what your tax actually works out to.
Think of it as getting the tax computed before the sale instead of after. Instead of the buyer guessing high and the government holding the difference, the officer looks at your numbers, agrees the real liability, and issues a certificate fixing the deduction at that level. The buyer deducts the certified amount, you get the rest at completion, and you never enter the refund queue.
Run it against the two-crore example.
Say you bought the flat in 2009 for forty lakh and the gain is one crore sixty lakh. The actual tax, at 12.5% plus the 15% surcharge and 4% cess, is about ₹23.9 lakh. Without a certificate the buyer withholds ₹29.9 lakh. The gap of roughly six lakh is your money, parked with the tax department until you file a return next year and wait for it to be processed.
Now change one fact. Suppose you are rolling the entire gain into another house under Section 54, so your actual tax is nil. The buyer is still required to withhold the full ₹29.9 lakh without a certificate. With a Form 13 nil certificate, they withhold nothing. That is the difference between thirty lakh in your account at completion and thirty lakh you spend a year trying to recover. Our Section 54 exemptions guide explains when your liability can legitimately be brought down to nil.
How the Officer Decides the Rate
The Assessing Officer does not simply rubber-stamp your number. Rule 28AA of the Income Tax Rules sets out what they weigh:
- the tax payable on your estimated income for the year
- the tax you paid on assessed or returned income over the last four years
- any existing tax demand outstanding against you
- advance tax, TDS, and TCS already paid for the year
In practice, for a property sale, the heart of the application is a clean capital gains computation: sale value, cost of acquisition, the holding period, and any reinvestment you are claiming. The cleaner and better-documented that computation, the smoother the certificate.
One thing the officer is not allowed to do is reject your application just because you have an unrelated tax demand from an earlier year. The Patna High Court has held that a pending demand from a different assessment year cannot, by itself, be grounds to refuse a Section 197 certificate; each matter needs independent consideration. The Delhi High Court has gone further in the case of a non-resident applicant, holding that an officer cannot mechanically rely on earlier years’ assessment orders and must apply an independent mind, because each assessment year stands on its own. A Section 197 decision is a quasi-judicial act, and an officer who refuses one has to record proper reasons. If your application is stonewalled, that is worth knowing.
How to Apply, From Abroad
The whole process is online, through the TRACES portal (tdscpc.gov.in). You do not need to fly in.
1. Get the buyer’s TAN sorted first. You cannot file until the buyer has a TAN, because the certificate is issued against that specific buyer and transaction. If your buyer is an individual who has never deducted tax before, build time in for them to apply for one.
2. Assemble the cost-of-acquisition trail. The original purchase deed, registration receipts, and bills for any major improvements. This is what proves your gain is smaller than the sale price, and it is the part NRIs most often cannot lay hands on quickly because the documents are sitting in a cupboard in India.
3. Prepare the capital gains computation. Sale value from the draft agreement to sell, cost of acquisition, holding period, and any Section 54 or 54EC reinvestment you intend to claim.
4. File Form 13 on TRACES. You verify it with a Digital Signature Certificate, which works without an Indian mobile number, or by electronic verification. Most NRIs appoint a chartered accountant to file on their behalf.
5. Respond quickly to any query. The officer may raise questions. Fast, complete answers are the difference between a two-week turnaround and a two-month one.
Two timing traps are worth repeating. Apply 30 to 45 days before you expect to complete, because the officer has up to 30 days from month-end to dispose of it. And remember the certificate dies on 31 March; a deal that slides into the next financial year needs a fresh application.
Why So Many NRIs Skip It
Knowing all this, why do most sellers still take the full hit and chase a refund later?
Usually it is timing. A buyer appears, wants to close in three weeks, and the seller does not want to risk the deal waiting on a tax certificate. Sometimes it is the buyer-TAN friction, which adds a step nobody anticipated. Often it is simply that the seller is abroad, the documents are in India, and arranging a DSC and a chartered accountant feels like more than the problem is worth.
It rarely is. The reactive route, claiming the money back, is real and it works, and we have written a full walkthrough of the TDS refund NRIs are entitled to but rarely claim. But a refund means filing an Indian return, waiting out processing that can stretch past a year for capital gains cases, and accepting that a large sum of your own money is doing nothing while you wait. The certificate avoids all of it.
There is also a moving piece worth tracking. The rules around how buyers deduct from NRI sellers have been shifting, and we keep the 2026 changes to TCS and TAN requirements updated as they land. Whatever the deduction mechanism, the logic of getting your tax computed before the sale rather than after does not change.
What You Should Do
- Decide on the certificate before you market the property, not after a buyer appears. The single biggest reason NRIs miss it is time pressure at the end.
- Find your original purchase deed and improvement bills now. Without the cost of acquisition, you cannot show the gain is smaller than the price, and the certificate falls apart.
- Make the buyer’s TAN a condition of the timeline. Raise it the moment a serious buyer emerges, because nothing can be filed without it.
- Appoint a chartered accountant early. A clean Form 13 with a tidy capital gains computation gets processed faster than a rushed one.
- Keep every document in one accessible place. A platform like Assetly lets NRIs store the purchase deed, improvement bills, draft sale agreement, and capital gains working together, so the application can be filed the week a buyer appears rather than the month after.
The certificate is not a loophole. It is the mechanism the law built so that tax is collected on your gain, not on your gross sale price. Used in time, it is the difference between walking away from the sale with your money and spending the next year asking for it back.
Related Reading
- The TDS Refund NRIs Are Entitled To But Rarely Claim - the reactive route if you have already sold without a certificate.
- Capital Gains Tax on Property Sale by NRI: The Complete Guide - how the gain and the rate are actually computed.
- How to Legally Pay Zero Capital Gains Tax When Selling Property in India - the reinvestment exemptions that can bring your liability, and your certified TDS, to nil.
- NRI Property Rules in 2026: What TCS and TAN Changes Actually Mean - the shifting mechanics of how buyers deduct from NRI sellers.
- Form 15CA and 15CB: How NRIs Repatriate Property Sale Proceeds from India - moving the proceeds abroad once the sale is done.
Assetly is a property document management platform that helps NRIs and remote owners organise, verify, and track their India property documents from anywhere. Learn more.
