NRI & Foreign Buyers
NRI Selling Property in India: The TDS Problem
The buyer must withhold tax on the entire sale price — not the profit. It is your money, and you will not see it again for a year unless you act before you sign.
The short answer
When an NRI sells, the buyer deducts TDS under SECTION 195 — not the 1% a resident seller faces.
And it is generally deducted on the WHOLE SALE CONSIDERATION, not on your gain.
On a ₹2 crore flat, that can be ₹25 lakh+ of your money, held by the government until you file a return and claim it back — which can take a year.
The fix is a Lower Deduction Certificate. Apply BEFORE you agree the sale.
The problem, in one calculation
A ₹2 crore flat, bought for ₹1.2 crore
- Sale price
- ₹2,00,00,000
- Your actual gain
- ₹80,00,000
- Tax actually due on the gain (12.5% + surcharge + cess)
- ≈ ₹11,00,000
- But TDS is deducted on the WHOLE ₹2 crore
- TDS withheld by the buyer
- ≈ ₹26,00,000
- Over-deducted, and stuck with the government
- ≈ ₹15,00,000
You will file an Indian income tax return, claim the refund, and wait. It can take a year. Sometimes longer.
Meanwhile the money is not in your account, not repatriated, not earning anything for you, and not available for whatever you sold the flat to do.
This is entirely avoidable — but only if you act BEFORE you agree the sale.
NRI seller vs resident seller — the gap
| Resident seller | NRI seller | |
|---|---|---|
| Section | 194-IA | 195 |
| Threshold | Applies at ₹50 lakh+ | NO threshold. From the first rupee. |
| Rate | 1% | The applicable capital gains rate + surcharge + cess |
| Deducted on | The sale consideration | The WHOLE sale consideration — unless a Lower Deduction Certificate says otherwise |
| Buyer needs a TAN? | No — PAN is enough | Yes, today. Changing from 1 Oct 2026 — see below. |
| Buyer files | Form 26QB | Form 27Q — renumbered Form 144 under the Income-tax Act 2025 |
| Indexation option | Available if bought before 23 July 2024 | NOT AVAILABLE. See below. |
And you get no indexation option — which residents do
The Finance (No. 2) Act 2024 abolished indexation and set LTCG at 12.5%.
It then gave resident individuals and HUFs a choice: for property bought before 23 July 2024, pay the lower of 12.5% without indexation, or 20% with it.
That option explicitly does not extend to NRIs. You are locked into 12.5% without indexation, however long you have held the property. No change since has touched this.
For an NRI who bought a Mumbai flat in 2008, that is materially worse than for the resident who bought the identical flat on the same day — because the resident can index away years of inflation, and you cannot.
What you DO still get: Sections 54, 54F and 54EC are available to NRIs. Reinvest in another residential house, or in specified bonds, and you can exempt the gain — exactly as a resident can. That is worth exploring before you sell.
The fix — and the timing is everything
Under Section 197, you apply to the Income Tax Department for a certificate directing the buyer to deduct TDS on your actual capital gain rather than the whole sale price.
On the example above, that takes the withholding from ₹26 lakh to about ₹11 lakh — and the ₹15 lakh difference stays where it belongs.
The catch: it takes WEEKS. Sometimes months.
And the certificate is issued for a specific buyer and a specific transaction — so you cannot get one 'just in case'. You need the deal identified.
Start the application as soon as you decide to sell. Not when the buyer is waiting at the sub-registrar's office.
Your buyer's problem is YOUR problem
Put yourself in the buyer's position. To buy your flat, they must:
• Obtain a TAN (today)
• Deduct a large, unfamiliar amount of TDS
• File Form 27Q / Form 144 quarterly
• Issue you Form 16A
• And carry personal liability for the shortfall if they get it wrong — while you are abroad
Many individual buyers, told this by their CA, simply prefer a resident seller's flat instead.
Which means an NRI seller has a smaller buyer pool, and a weaker negotiating position — unless you make it easy.
Get the Lower Deduction Certificate in hand before you market the flat. Then you can tell a nervous buyer exactly what to deduct, hand them a certificate that says so, and offer to have your CA walk theirs through it. That is worth real money at the negotiating table.
Today: a buyer of an NRI's property must obtain a TAN (Tax Deduction Account Number) and file a quarterly return. Many individual buyers find this alarming, and some walk away from the deal because of it.
From 1 October 2026: a resident INDIVIDUAL or HUF buyer may instead deposit the TDS using their PAN, with a challan-cum-statement — no TAN required.
What has NOT changed:
• The rate of TDS.
• The buyer's legal liability to deduct correctly.
• Companies, firms, LLPs and other entities still need a TAN.
It is a paperwork relief, not a tax cut. Confirm the current position with your CA before you transact — this is recent, and the practice will take time to settle.
The process
- Confirm your residential status with a CA. In writing.
- Compute the likely capital gain. Remember: no indexation option.
- Consider Sections 54 / 54F / 54EC. Can you exempt the gain by reinvesting?
- APPLY FOR THE LOWER DEDUCTION CERTIFICATE. Early. This is the whole game.
- Market the flat — with the certificate, or with a clear plan for it.
- The buyer deducts per the certificate, deposits the TDS, and files.
- Get Form 16A from the buyer.
- CHECK FORM 26AS. Did the TDS actually reach your PAN? If the buyer filed with a wrong PAN, you cannot claim the credit — and you may not find out for a year.
- File your Indian return. Required for repatriation, even if no tax remains payable.
- Repatriate — Forms 15CA and 15CB, and the source-of-funds file.
FEMA rules, tax rates and repatriation limits are amended by Budget, by RBI Master Direction, and by circular — sometimes more than once a year.
We have written this against the position as we understand it, and checked it. But we are not chartered accountants or lawyers, and this is not advice.
Before an NRI property transaction, engage a CA who does NRI work. On a transaction of this size, in a regime with a three-times penalty for getting it wrong, it is the cheapest insurance available.
Frequently asked questions
What TDS applies when an NRI sells property in India?
Section 195 — not the 1% a resident seller faces. There is no Rs 50 lakh threshold, the rate is the applicable capital gains rate plus surcharge and cess, and it is generally deducted on the WHOLE sale consideration rather than on your gain. On a Rs 2 crore flat that can be Rs 26 lakh, when the tax actually due might be Rs 11 lakh.
How do I avoid excess TDS as an NRI seller?
Apply for a Lower Deduction Certificate under Section 197, which directs the buyer to deduct on your actual capital gain rather than the whole sale price. But it takes weeks or months, and it is issued for a specific buyer and transaction — so start the application as soon as you decide to sell, not when the buyer is waiting at the sub-registrar's office.
Do NRIs get the indexation option on capital gains?
No. The Finance (No. 2) Act 2024 gave RESIDENT individuals and HUFs the choice to pay the lower of 12.5% without indexation or 20% with it, on property bought before 23 July 2024. That option explicitly does not extend to NRIs, who are locked into 12.5% without indexation however long they held the property. No change since has touched it.
Can an NRI claim Section 54 exemption?
Yes. Sections 54, 54F and 54EC are available to NRIs exactly as they are to residents. Reinvest in another residential house, or in specified bonds within six months, and you can exempt the gain. It is worth exploring before you sell, not after.
Why do buyers avoid NRI sellers?
Because buying from an NRI means obtaining a TAN, deducting a large and unfamiliar amount of TDS, filing quarterly returns, and carrying personal liability for any shortfall — while the seller is abroad. Many individual buyers, told this by their CA, simply prefer a resident seller's flat. Which means an NRI seller has a smaller buyer pool and a weaker negotiating position, unless you make it easy by having the Lower Deduction Certificate in hand before you market the flat.