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. For tax year 2026-27 the application is Form 128 under Section 395(1); older guidance calls it Form 13 under Section 197. It is one of the most useful pieces of paperwork an NRI seller can arrange. Most never do. It is one move inside the larger NRI property-sale process.
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.
Resident and non-resident sellers follow different entries under the current Act. A buyer should first establish the seller’s tax status and then use the section, threshold and reporting route that applies on the payment date.
The moment the seller is an NRI, a different withholding entry applies. For payments from 1 April 2026, that rule is in Section 393(2), Table serial number 17 of the Income-tax Act, 2025; older material calls it Section 195. There is no fifty-lakh threshold and no automatic 1% rate. The buyer must establish the correct withholding basis and rate for the transaction rather than copy the resident-seller process.
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.
For deductions from 1 October 2026, a resident individual or HUF buyer can use Form 141 Schedule E under Section 393(2), without obtaining a TAN. Before that date, and for buyer categories outside that relief, the transaction used the TAN-based non-resident return route. 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
Capital-gains tax and withholding are related but are not the same calculation. The buyer’s Section 393 amount can depend on the statutory entry, taxable portion, seller status, surcharge, cess, exemptions and any certificate. Applying a capital-gains headline rate to the full sale price can materially overstate or understate the deduction.
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 128 Changes
Section 395(1) of the Income-tax Act, 2025 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. This is the current successor to Section 197 of the 1961 Act.
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 the ordinary Section 393 computation for your payment would produce a materially larger deduction than the expected final liability after acquisition cost and available reliefs. Without a certificate, the difference may remain tied up until you file a return and the refund is processed. A Form 128 certificate gives the buyer an assessed rate to follow before payment.
Now change one fact. Suppose you are rolling the entire gain into another house under the applicable reinvestment exemption, so your actual tax is nil. Without a certificate, the buyer still has to follow the ordinary withholding rule. With a valid Form 128 nil-rate certificate, they can withhold nothing. That is the difference between receiving the proceeds at completion and spending the next year trying to recover an excess deduction. Our capital-gains exemption guide explains when the liability may 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. Confirm the buyer’s reporting route and details. A resident individual or HUF buyer using Form 141 Schedule E after 1 October 2026 does not need a TAN. Other buyer categories may still require one. The certificate is transaction-specific, so collect the buyer’s PAN, status and other prescribed details early.
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 128 electronically. The Income Tax Department says the process is available through TRACES or the e-filing portal. Follow the current verification steps and have the adviser retain the acknowledgement.
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.
- Confirm the buyer’s category and reporting route early. TAN relief applies to resident individual and HUF buyers, not automatically to every purchaser.
- Appoint a chartered accountant early. A clean Form 128 with a tidy capital gains computation is easier to assess 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.
