TDS on Property Sale by NRI: The Complete Guide

Here is a number that catches most NRIs off guard: 12.5%.

That is the minimum TDS (Tax Deducted at Source) the buyer must withhold when you sell property in India. Not 1%, which is what buyers deduct when both parties are residents. Not the actual tax you owe, which might be much less. A flat 12.5% of the entire sale price, right off the top.

Sell a flat for Rs 1 crore, and Rs 12.5 lakh disappears before you see a single rupee. Add surcharge and cess, and the effective rate climbs to nearly 15%. If your actual capital gains tax liability was only Rs 3 lakh, you have just given the government a Rs 9.5 lakh interest-free loan.

Think of TDS as an advance payment on your tax bill, not an extra tax. The government will return the excess, eventually, after you file a return and wait for processing. But that “eventually” can stretch to 12 or 18 months. And if you do not understand the system, you might overpay by lakhs without realising there were perfectly legal ways to reduce the deduction upfront.

This guide walks through everything: the rates, the forms, the exemptions, and the mistakes that trip up NRIs and their buyers.

Why NRIs Pay More TDS Than Residents

The gap comes down to two different sections of the Income Tax Act.

When a resident sells property worth Rs 50 lakh or more to another resident, the buyer deducts TDS at 1% of the sale price (or stamp duty value, whichever is higher) under Section 194-IA. Simple. The buyer fills out Form 26QB online, pays the TDS, and both parties move on.

When the seller is an NRI, a completely different section kicks in. Section 195 governs all payments to non-residents, and it does not care whether you are selling property, providing consulting services, or licensing software. The buyer must deduct TDS at the rate at which the NRI’s income is taxable in India.

For property, that means the capital gains tax rate. And because the buyer typically cannot verify your purchase price, holding period, or reinvestment plans, TDS gets deducted on the full sale consideration, not just the profit.

The practical difference is enormous:

That is why the first call every NRI should make before selling property in India is to their Chartered Accountant, not their broker. For a complete walkthrough of the tax side, see our capital gains tax guide for NRIs selling property.

The TDS Rates: A Closer Look

Whether a property sale qualifies as short-term or long-term depends on how long you held it. If you owned the property for more than 24 months, it is a long-term capital asset. Less than 24 months, and it is short-term.

Long-Term Capital Gains (property held over 24 months):

The base tax rate is 12.5%, effective from 23 July 2024 after the Union Budget reduced it from 20%. On top of this, surcharge and a 4% health and education cess apply.

Short-Term Capital Gains (property held 24 months or less):

Taxed at the NRI’s applicable income tax slab rate, which can go up to 30%. Again, surcharge and cess apply on top.

Surcharge tiers for FY 2025-26:

One important cap: for long-term capital gains, the surcharge is capped at 15% regardless of how high the income is. So even if an NRI sells property worth Rs 10 crore, the surcharge on the LTCG portion will not exceed 15%.

Effective LTCG TDS rate (most common scenario):

12.5% base + 15% surcharge on that + 4% cess = approximately 14.95% of the sale price.

That is a lot of money to part with upfront. Which is why the Lower Deduction Certificate exists.

A Worked Example

Let us make this concrete. Priya, an NRI living in San Francisco, inherited a flat in Pune from her father in 2015. She sells it in March 2026 for Rs 1.5 crore. Her father originally purchased the flat in 2010 for Rs 40 lakh.

Step 1: Determine the capital gain.

Since Priya held the property for more than 24 months, this is a long-term capital gain. Post-Budget 2024, there is no indexation benefit for NRIs (more on this shortly).

• Sale price: Rs 1,50,00,000
• Cost of acquisition: Rs 40,00,000
• Long-term capital gain: Rs 1,10,00,000

Step 2: Calculate the actual tax.

• LTCG tax at 12.5%: Rs 13,75,000
• Surcharge at 15% (income exceeds Rs 1 crore): Rs 2,06,250
• Cess at 4%: Rs 63,250
• Total tax liability: Rs 16,44,500

Step 3: Calculate TDS without a Lower Deduction Certificate.

The buyer deducts TDS on the full sale price, not just the gain:

• TDS at 12.5% of Rs 1.5 crore: Rs 18,75,000
• Surcharge at 15%: Rs 2,81,250
• Cess at 4%: Rs 86,250
• Total TDS deducted: Rs 22,42,500

The gap: Priya’s actual tax liability is Rs 16,44,500, but TDS of Rs 22,42,500 gets deducted. That is Rs 5,98,000 in excess TDS. She will need to file a return and wait for a refund.

If Priya had obtained a Lower Deduction Certificate before the sale, the buyer could have deducted TDS based on her actual capital gains. That would have saved her from tying up nearly Rs 6 lakh with the government for over a year.

What the Buyer Must Do

The buyer’s obligations when purchasing property from an NRI are significantly more involved than in a resident-to-resident transaction. Here is the checklist:

1. Obtain a TAN (Tax Deduction Account Number). Unlike resident transactions where PAN suffices, buying from an NRI has historically required the buyer to have a TAN. Apply on the NSDL/UTIITSL website using Form 49B. Note: for transactions on or after 1 October 2026, resident individual and HUF buyers can deposit TDS using their PAN and a challan-cum-statement instead of obtaining a TAN. See our 2026 NRI property rule changes guide for the details and scope.

2. Deduct TDS at the appropriate rate. The buyer must deduct TDS at the time of each payment (including advances and instalments), not just the final payment. This catches many buyers off guard. If you pay Rs 20 lakh as an advance, you deduct TDS on that Rs 20 lakh.

3. Deposit TDS and file the quarterly return. The buyer deposits the TDS with the government within seven days from the end of the month in which deduction was made. The quarterly return is filed through the TIN-Protean TDS return utility. Until 31 March 2026, this was Form 27Q. Under the Income-tax Rules notified with the Income-tax Act 2025, Form 27Q has been renumbered as Form 144 from 1 April 2026. Same form, same pipeline, new label. It is not available on the income tax e-filing portal (and never was), which is a common point of confusion in April 2026 when CAs start referencing the new number. Form 141 (the renumbered Form 26QB) is still restricted to resident sellers and cannot be used when buying from an NRI.

4. Issue Form 16A to the NRI seller. This is the TDS certificate, proof that tax was deducted and deposited with the government. The NRI needs this document to file their Indian tax return and to claim credit for TDS.

Getting any of these steps wrong creates problems for both sides. If the buyer deducts at the wrong rate or files the wrong form, the NRI’s TDS credit may not reflect in their tax records, leading to demands, penalties, and repatriation delays.

When the Buyer Gets It Wrong: A Court Case

In a 2025 Delhi High Court case, an NRI based in the United States sold a property in Pune for Rs 2 crore back in 2015. The buyer deducted TDS of Rs 18.68 lakh, but made a procedural error: they filed it under Form 26QB instead of Form 27Q.

Form 26QB is for resident sellers. Form 27Q is for NRI sellers. Different forms, different systems.

Because the wrong form was used, the TDS credit never appeared in the NRI seller’s tax records. Years later, in 2023, the Income Tax Department issued a reassessment notice claiming the NRI had escaped assessment. The department demanded Rs 46.81 lakh in taxes plus penalties under Section 270A, even though the NRI had already paid Rs 1.91 lakh in advance capital gains tax and the buyer had genuinely deducted and deposited the TDS.

The Delhi High Court ruled in the NRI’s favour. The Court held, in effect, that a procedural lapse by the buyer cannot be a ground to penalise a compliant NRI seller. The Court directed the department to correct the TDS credit, compute the refund, and void all prior demands and penalties.

The takeaway: even when the law is on your side, getting the paperwork wrong can mean years of litigation. Make sure your buyer understands the difference between Form 26QB and Form 27Q before the sale, not after.

Form 15CA and 15CB: Repatriating Sale Proceeds

Once the property is sold and TDS is deducted, the NRI’s next challenge is getting the money out of India. This is where FEMA rules and income tax compliance intersect.

Sale proceeds from an NRI property transaction first land in the NRI’s NRO (Non-Resident Ordinary) account. To move this money abroad (or to an NRE account), the NRI needs to complete a two-form process:

Form 15CB is a certificate issued by a Chartered Accountant. It confirms that:

• The NRI has a valid PAN
• The correct TDS has been deducted and deposited
• The remittance complies with the Income Tax Act and FEMA
• The applicable DTAA provisions have been considered

The CA files Form 15CB electronically on the Income Tax e-filing portal using their Digital Signature Certificate. Expect this to take 5 to 15 working days, depending on documentation completeness.

Form 15CA is a declaration filed by the NRI (the remitter) on the Income Tax portal. For the full step-by-step repatriation process, see our dedicated Form 15CA/15CB guide. It comes in four parts:

For most NRI property sales, you will use Part C (with Form 15CB) or Part B (if you obtained a Lower Deduction Certificate).

The sequence matters:

1. CA files Form 15CB on the e-filing portal
2. NRI files Form 15CA online, referencing the 15CB acknowledgement number
3. NRI submits the Form 15CA acknowledgement to their bank
4. Bank processes the outward remittance (typically 3 to 5 working days)

Repatriation limits: NRIs can remit up to USD 1 million per financial year from NRO balances. If the property was originally purchased using NRE or FCNR(B) funds, repatriation is allowed up to the original investment amount, restricted to two residential properties.

The Lower Deduction Certificate: Your Best Tool

If you remember only one thing from this guide, make it this: apply for a Lower Deduction Certificate under Section 197 before you sell.

A Lower Deduction Certificate (LDC) is an authorisation from the Income Tax Department that allows the buyer to deduct TDS at a lower rate, or even nil, based on your actual capital gains liability rather than the full sale price.

Go back to Priya’s example. Without an LDC, her buyer deducted Rs 22.42 lakh. Her actual tax liability was Rs 16.44 lakh. With an LDC, the buyer could have deducted TDS based on the actual gains, saving Priya from a Rs 6 lakh overpayment.

If Priya was reinvesting the gains under Section 54, her tax liability could drop to zero, and the LDC could authorise nil TDS.

How to apply:

1. File Form 13 on the TRACES portal (TDS Reconciliation Analysis and Correction Enabling System)
2. Attach supporting documents: purchase deed, sale deed, capital gains computation, proof of reinvestment intent, PAN, passport, and last three years’ tax returns
3. The Assessing Officer reviews the application and issues a certificate specifying the TDS rate

Timeline: Apply at least 30 to 45 days before the expected sale date. Processing can take 15 to 45 days. Do not leave this to the last minute.

Documents typically required:

• Copy of the purchase deed (or inheritance documents)
• Proposed or executed sale deed
• Capital gains computation sheet
• Proof of reinvestment (if claiming exemption under Section 54/54EC/54F)
• Last three years’ ITR acknowledgements and computation
• Encumbrance certificate for the property
• PAN card and passport copy

Keeping all these documents organised is critical, especially for NRIs managing the process remotely. A platform like Assetly can help you store and track every document in one place, so nothing goes missing when your CA or Assessing Officer asks for it.

Capital Gains Exemptions: How to Reduce Your Tax

The Income Tax Act offers three main exemptions that can reduce or eliminate capital gains tax on property sales. All three are available to NRIs.

Section 54: Reinvest in a residential property

If you sell a residential property and buy or construct another residential property in India, the capital gains (up to Rs 10 crore) are exempt.

• Purchase the new property within 1 year before or 2 years after the sale
• Or construct within 3 years of the sale
• If you cannot buy immediately, deposit the gains in a Capital Gains Account Scheme (CGAS) at a designated bank before the ITR filing deadline. NRIs need a Non-Resident CGAS (NRCGAS) account.

Section 54EC: Invest in specified bonds

Invest up to Rs 50 lakh of capital gains in bonds issued by REC (Rural Electrification Corporation), PFC (Power Finance Corporation), IRFC (Indian Railway Finance Corporation), or HUDCO (Housing and Urban Development Corporation). NHAI discontinued 54EC bond issuance in 2022; HUDCO was added as an eligible issuer from April 2025. The bonds have a 5-year lock-in period and currently offer 5.25% annual interest.

• Must invest within 6 months of the sale
• Maximum investment: Rs 50 lakh per financial year
• Cannot be sold, pledged, or transferred during the lock-in period

Section 54F: Reinvest net consideration from non-residential assets

If you sell a long-term asset that is not a residential property (say, a plot of land or commercial property), you can claim exemption by investing the entire net sale consideration in a residential property.

• You must not own more than one residential property (other than the new one) on the date of sale
• Purchase within 1 year before or 2 years after, or construct within 3 years

These exemptions are how many NRIs bring their TDS liability down to nil using a Lower Deduction Certificate. If you can demonstrate to the Assessing Officer that you plan to reinvest under Section 54, they can authorise zero TDS.

The 2024 Budget Change: What It Means for NRIs

The Union Budget of July 2024 made a significant change to how long-term capital gains on property are taxed. The LTCG rate was reduced from 20% to 12.5%, but the indexation benefit was removed.

Indexation allowed sellers to adjust their purchase price for inflation using the Cost Inflation Index (CII). If you bought a property in 2005 for Rs 20 lakh, indexation might inflate that to Rs 60 lakh by 2024, significantly reducing your taxable gain.

Under the new regime:

• Rate: 12.5% (down from 20%)
• Indexation: Not available
• Capital gain: Sale price minus actual purchase price (no inflation adjustment)

The government offered a choice between the old regime (20% with indexation) and the new regime (12.5% without indexation) for properties acquired before 23 July 2024. But here is the catch: this choice is available only to resident taxpayers. NRIs must pay at the flat 12.5% rate without indexation.

Who benefits, who loses?

If you bought property recently (say, in the last 5 to 7 years), the lower 12.5% rate probably works in your favour. The inflation adjustment over a short period would not have reduced your gain by much anyway.

If you have held property for 15 to 20 years, the removal of indexation can hurt. Your purchase price stays at the original nominal value, making the taxable gain much larger. Even at 12.5%, the absolute tax amount could be higher than what you would have paid at 20% with indexation.

Run the numbers with your CA before deciding when to sell. In some cases, it may make sense to claim exemptions under Section 54 or 54EC to offset the higher gain rather than relying on the tax rate alone.

Common Mistakes NRIs and Buyers Make

1. Buyer deducts TDS at 1% instead of 12.5%+

This is the most common mistake. The buyer, unfamiliar with Section 195, applies the resident rate under Section 194-IA. The buyer becomes an assessee in default, faces interest and penalties, and the NRI’s repatriation gets stuck.

2. Filing Form 26QB instead of Form 27Q

As the Delhi High Court case showed, using the wrong form can erase your TDS credit from the system. Buyers purchasing from NRIs must use Form 27Q, not Form 26QB.

3. Not applying for a Lower Deduction Certificate

Many NRIs do not know the LDC exists. They accept the full TDS deduction and then spend over a year chasing a refund. Apply under Section 197 before the sale.

4. Missing the Section 54EC bond deadline

You have exactly six months from the date of sale to invest in REC/PFC/IRFC bonds. Miss this deadline by even a day, and the exemption is gone. Calendar it the moment you sign the sale deed.

5. Not filing an Indian tax return

Some NRIs assume that because TDS was deducted, no return is needed. Wrong. You must file an ITR to claim exemptions, get refunds, and complete the repatriation process. The due date is 31 July of the assessment year.

6. Ignoring the pre-sale document check

Before listing the property, run through a complete seller’s document checklist and get a fresh encumbrance certificate to confirm there are no liens or pending charges. Disputes over title can delay the sale and create complications with TDS timelines. India’s property dispute crisis means these checks are not optional; they are essential.

DTAA: Avoiding Double Taxation

If you are an NRI, you are tax-resident in another country. When you sell property in India and pay capital gains tax here, your country of residence might also want to tax the same gain. This is where the Double Taxation Avoidance Agreement (DTAA) comes in.

India has DTAAs with nearly 90 countries, including the US, UK, Canada, Australia, Singapore, and the UAE. The basic principle: you should not pay tax twice on the same income.

How it works in practice:

Most DTAAs for immovable property follow the same pattern. India (the source country) gets to tax the capital gain first. Your country of residence then either exempts the income or gives you a credit for the tax paid in India.

Country-specific notes:

• United States: The US taxes worldwide income. You report the Indian property gain on your US return and claim a Foreign Tax Credit (Form 1116) for taxes paid in India. The credit is limited to the US tax on the same income, so if Indian tax exceeds US tax, you may not get full credit.

• United Kingdom: Similar to the US. Report the gain, claim relief under the India-UK DTAA. UK capital gains tax on foreign property is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, so the Indian tax credit usually covers most or all of the UK liability.

• Canada: Report the gain in Canadian dollars, claim a Foreign Tax Credit for Indian taxes paid. Canada’s LTCG inclusion rate (50% of the gain is taxable) means the effective rate is often lower than India’s, so the credit may fully offset the Canadian tax.

• Australia: Similar credit mechanism. Australia taxes foreign capital gains but allows a credit for Indian taxes.

• UAE and Singapore: Neither country levies capital gains tax on individuals. So you pay tax only in India, and DTAA ensures no double taxation applies.

Critical requirement: To claim DTAA benefits, obtain a Tax Residency Certificate (TRC) from your country of residence. Without a TRC, the Indian tax authorities will not apply DTAA provisions, and your country’s tax authority may not accept the Foreign Tax Credit claim.

Keep Form 16A (your TDS certificate from the buyer) and the tax return acknowledgement from India. You will need these when filing in your country of residence. Store dated copies of everything; tax authorities in both countries may ask questions years later.

A Checklist Before You Sell

If you are an NRI planning to sell property in India, work through this list:

1. Verify your residential status for Indian tax purposes. NRI status affects which TDS section applies.
2. Get an encumbrance certificate and clear title verification done.
3. Apply for a Lower Deduction Certificate (Form 13, Section 197) at least 30 to 45 days before the sale.
4. Brief your buyer on their obligations: TAN, Form 27Q, correct TDS rate. Share this guide with them if needed.
5. Collect Form 16A from the buyer after TDS is deposited.
6. Invest in Section 54EC bonds within six months if you are not reinvesting in property.
7. File Form 15CB through your CA and Form 15CA on the e-filing portal before initiating the remittance.
8. File your Indian income tax return by 31 July of the assessment year.
9. Obtain a Tax Residency Certificate from your country of residence for DTAA claims.
10. Store all documents securely. You may need them for years. Assetly can help you keep everything organised and accessible from anywhere.

Assetly is a property document management platform that helps Indian property owners, especially NRIs, organise, verify, and track their property documents digitally. Learn more.