The TDS Refund NRIs Are Entitled To But Rarely Claim

If you sold property in India in the last few years and didn’t file an Indian income tax return, there is a reasonable chance the government is holding money that belongs to you.

Not a small amount. On a typical Rs 1 crore property sale by an NRI, the buyer is required to withhold roughly Rs 15 lakh as TDS before paying you. Your actual capital gains tax on that sale might be Rs 5 lakh, or Rs 3 lakh, or nil if you reinvested under Section 54. The Rs 10 to 15 lakh sitting in between — that is a refund you are entitled to claim.

Most NRIs don’t. Some don’t know an Indian return is required when TDS has already been deducted. Others assume it’s too complicated to file from abroad. Some haven’t maintained a PAN. The refund sits unclaimed, earning the government a modest interest-free loan at your expense.

Here is how the overpayment happens, how to calculate what you’re owed, and exactly how to get it back.

Why TDS Is Almost Always More Than Your Actual Tax

Think of TDS as a rough estimate. The buyer withholds money upfront because the government cannot wait for your tax return — it wants something now. But the buyer has no idea what your actual tax liability is. They don’t know what you paid for the property, whether you’ve renovated it, or whether you’re reinvesting the gains. So the law requires them to deduct based on the full sale price.

The rate, for long-term capital gains on property sold by an NRI, is 12.5% plus a 15% surcharge plus 4% health and education cess — an effective rate of about 14.95% on the entire sale price.

Your actual tax, on the other hand, is 14.95% of your capital gain. Capital gain = sale price minus what you paid for the property, minus renovation costs, minus brokerage and other transfer expenses.

The numbers in practice:

And if you’ve reinvested the full gain in a new property under Section 54 or in bonds under Section 54EC — your actual tax liability is nil, and the entire Rs 14.95 lakh is a refund.

Short-term sales (property held under 24 months) create an even larger gap. TDS on short-term gains is deducted at slab rates — up to 35.88% on the full sale price — while your actual tax is on the gain only.

The First Check: Did the Buyer Actually File Their TDS Return?

Before you file your return and claim the credit, verify that the TDS is actually visible in your account. This is where many NRIs discover a problem.

Depositing TDS at the bank is step one. But TDS credit appears in your Form 26AS only after the buyer files Form 27Q — the quarterly TDS return for payments made to non-residents. These are two separate actions, and many individual buyers deposit the TDS via Challan 281 and stop there, never filing Form 27Q.

If Form 27Q has not been filed, your Form 26AS shows no TDS credit. If you file your ITR claiming a refund that isn’t reflected in Form 26AS, the CPC will disallow it and issue a demand notice instead of a refund.

How to check: log into the income tax e-filing portal (incometax.gov.in), navigate to AIS/Form 26AS, and look for the TDS entry with the buyer’s TAN against the property sale. If it’s missing, contact your buyer and ask them to file Form 27Q — or confirm with their CA that it has been filed. The quarterly deadlines for Form 27Q are 31 July, 31 October, 31 January, and 31 May.

Once the credit is visible in Form 26AS, you can safely file your return and claim it.

The Two Routes: Before the Sale and After

You have two ways to address the TDS gap, and they’re not mutually exclusive.

Route 1 — before the sale: Lower Deduction Certificate

If you haven’t sold yet, apply for a Lower Deduction Certificate (LDC) under Section 197 using Form 13 on the TRACES portal (tdscpc.gov.in). Apply at least 30 to 45 days before the expected sale date.

If your actual tax liability is nil (because you’re reinvesting fully under Section 54), the Assessing Officer can authorise nil TDS. The buyer deducts nothing, and you never enter the refund cycle. This is the cleaner path — you get the full sale proceeds immediately rather than waiting 6 to 18 months for a refund. The complete TDS guide walks through the LDC application in detail, and our Section 54 exemptions guide explains when your liability can be reduced to nil.

Route 2 — after the sale: ITR refund claim

If TDS has already been deducted, file an Indian income tax return (ITR-2) for the financial year of the sale. Declare the capital gain, claim any applicable exemptions (Section 54, 54EC, 54F), and the refund is computed automatically.

Filing the Refund Claim: Step by Step

What you need before you start:

• PAN (mandatory — no PAN means no filing)
• Form 16A from the buyer (TDS certificate issued after they file Form 27Q)
• Your purchase deed or inheritance documents (to establish cost of acquisition)
• Sale deed
• A capital gains computation — ideally prepared with a CA, though for straightforward sales you can do it yourself
• NRO bank account pre-validated on the e-filing portal

How to pre-validate your NRO account: Log into incometax.gov.in, go to Profile, then Bank Account, add your NRO account with IFSC code, and mark it as a refund account. The bank validates it digitally within a few days.

Filing the return:

File ITR-2, which is the correct form for individuals with capital gains income. Log into the e-filing portal, select ITR-2, fill in Schedule CG (capital gains), enter the TDS credit from Form 26AS, and the refund figure populates automatically.

After filing, you must e-verify within 30 days. Options for NRIs:

• Digital Signature Certificate (DSC) — works without an Indian mobile number
• EVC via your net banking
• Aadhaar OTP — if your email is registered with the e-filing portal, you may receive the OTP there even without an Indian number

The filing deadline is 31 July of the assessment year. If you sold property in FY 2025-26, the deadline is 31 July 2026.

Missed the deadline?

File a belated return under Section 139(4) by 31 December of the assessment year. For even older sales, Section 139(8A) allows an updated return within 48 months — roughly four years back — though updated returns for refund claims are subject to certain conditions.

For years beyond that, a formal application under Section 119(2)(b) to the CBDT for condonation of delay is the only option. These are considered case by case.

Section 244A: The Government Pays You Interest

While you wait for the refund, Section 244A works in your favour. The Income Tax Act mandates interest on delayed refunds at 0.5% per month (or part of a month) from 1 April of the assessment year to the date the refund is credited.

On a Rs 9 lakh refund held for 12 months, that is Rs 54,000 in interest. On Rs 15 lakh held for 15 months, it is Rs 1,12,500. The interest accrues automatically and should appear in the refund amount credited to your account. If it doesn’t, file a rectification under Section 154 on the portal.

One caveat: no interest applies if the refund amount is less than 10% of the total tax determined.

When the Buyer Got the TDS Wrong

Buyers sometimes deduct TDS at 1% (the resident rate under Section 194-IA) instead of the NRI rate under Section 195, either out of ignorance or because the NRI seller did not disclose their residential status.

This creates two problems. First, the buyer becomes an assessee in default under Section 201, liable for the shortfall plus 1% per month interest from the date the tax was deductible (the payment date) to the date it is actually deducted, and 1.5% per month from the date of deduction to the date of actual payment. The ITAT Bangalore confirmed this in Nitesh Estates Ltd. v. ADIT (2022) — even a long-standing business relationship was not accepted as an excuse for failing to apply Section 195 correctly when the purchaser knew the seller was an NRI.

Second, for the NRI seller: if TDS was deducted at 1% instead of 14.95%, your Form 26AS shows only a 1% credit. The remaining tax is still owed. You cannot claim a refund for tax that was never deposited. In this situation, you owe the balance tax when you file your return.

If you suspect the buyer deducted at the wrong rate, check Form 26AS for the TAN used (a TAN starting with “BLRN” or similar suggests a corporate buyer; individuals will show their own TAN) and verify the rate applied.

Getting the Refund Out of India

Refunds are credited to the NRO account you specify on the e-filing portal. The NRO account is an Indian rupee account, and the money stays in India until you repatriate it.

To move it abroad, you follow the same process as property sale proceeds: obtain a CA certificate (Form 15CA/15CB) confirming taxes have been paid, submit it to your bank, and initiate the remittance. The annual cap under FEMA is USD 1 million from the NRO account per calendar year, which for most NRIs is more than sufficient to cover a TDS refund. Our Form 15CA/15CB guide walks through the full repatriation process.

Keep the ITR acknowledgement, the refund credit confirmation, and your Form 26AS together. The bank will ask for them, and the tax authorities in your country of residence may need the Indian tax credit documentation for your DTAA claim.

A Practical Timeline

If you sold property in FY 2025-26 (April 2025 to March 2026):

Keeping your sale documents, capital gains computation, and Form 16A organised before the ITR deadline is the step that most NRIs skip. A platform like Assetly lets you store and access all of these from abroad, so the annual filing doesn’t require hunting through email threads and WhatsApp forwards.

Assetly helps NRIs organise, verify, and track their property documents digitally — from sale deed to ITR acknowledgement — so nothing gets lost between a sale in India and a filing deadline abroad. Learn more.