NRI Selling Property in India: How Section 195 TDS Works and How to Lower It

Sell a flat in Mumbai for 1.5 crore rupees as an NRI, and the buyer doesn't hand over that full amount. A significant chunk gets deducted before the money ever reaches you, under a rule most resident sellers never have to think about: Section 195 of the Income Tax Act. It exists to make sure India collects tax on a non-resident's gain before the money can leave the country, but in practice it often withholds far more than the seller actually owes, sometimes locking up a large sum for a year or more until a refund comes through. Understanding how that deduction is calculated, and what can be done about it before the sale closes, is the difference between a smooth transaction and a very slow, very expensive one.

Why an NRI Seller Faces a Different TDS Rule Than a Resident

When a resident sells property in India, the buyer deducts a flat 1% under Section 194-IA, and only once the sale value crosses a set threshold. Section 195 runs on entirely different logic. It applies to any payment made to a non-resident that is chargeable to tax in India, carries no minimum threshold, and requires the buyer to deduct tax at a rate meant to reflect the seller's actual capital gains liability, not a flat token percentage. The responsibility sits squarely on the buyer's shoulders too: get the deduction wrong, and the tax department can pursue the buyer for the shortfall, interest, and penalty, which is exactly why buyers tend to err on the side of deducting more rather than less.

How the Default Rate Gets Decided: LTCG vs STCG

The Real Problem: TDS Is Deducted on the Sale Price, Not the Profit

Here's where most NRI sellers get caught out. Say that same Mumbai flat was bought years ago for 90 lakh rupees and is now sold for 1.5 crore. The real taxable gain is roughly 60 lakh rupees, and the actual tax owed on that gain, once surcharge and cess are added, comes to somewhere around 9 lakh rupees. But the buyer, with no independent way to verify the original purchase price or confirm the real gain, usually has no safe option except to deduct tax on the entire 1.5 crore sale price instead, which can push the amount withheld past 22 lakh rupees, more than double what's actually owed. The buyer also needs a Tax Deduction Account Number to deposit this TDS and file the relevant quarterly TDS return, a step most individual buyers have never handled before, which adds its own delay and friction to a transaction that would otherwise be routine.

Fixing It Before the Sale: The Lower or Nil Deduction Certificate

The tool for this is Section 197, applied for using Form 13, filed online through the TRACES portal with the jurisdictional Assessing Officer handling international taxation. Instead of waiting a year to claim back the excess as a refund, the NRI seller applies before the transaction closes, submits the sale agreement, purchase documents, and a computation of the actual capital gain (net of any exemption being claimed under provisions like Section 54 or 54EC, where reinvestment is planned), and asks the department to certify the true, lower rate that should apply. Once issued, the certificate specifies the exact rate, and the buyer deducts only that amount instead of the default full-value withholding. It typically takes a few weeks to come through, so it needs to be applied for well before the sale is due to close, not after the agreement is already signed.

1. Work out the actual capital gain with a chartered accountant, factoring in the real acquisition cost and any exemptions you plan to claim.
2. File Form 13 online through the TRACES portal, attaching the sale agreement, title documents, prior tax returns, and the gain computation.
3. Wait for the Assessing Officer to review the application and issue a certificate specifying the lower or nil rate.
4. Hand the certificate to the buyer before the sale payment or registration, so it can be applied at source instead of the default rate.
5. File an Indian income tax return for the year regardless, to reconcile the TDS actually deducted against the real liability and claim any remaining refund.

None of this is optional paperwork for the overly cautious. Without a lower deduction certificate, the money withheld at the default rate sits with the government until a return is filed the following year, and refunds on large TDS amounts routinely take months to come through. Start the Form 13 application as soon as a sale is realistically on the table, not after the agreement is signed, and the difference shows up directly in how much of the sale proceeds actually reach your account on closing day.