TDS on Sale of Property by an NRI: Section 195, Rates, and the Form 13 Fix

When the seller of an Indian property is an NRI, the buyer must deduct TDS under section 195 of the Income-tax Act, 1961, now section 393(2), Table S.No. 17 of the Income-tax Act, 2025, at the capital gains rate plus surcharge and cess on the entire sale consideration. Not 1%. Not on the gain. On the full price, at 13 to 14.95% for long-term holdings, unless the seller holds a lower-TDS certificate.

Why this is not the 1% TDS everyone knows

Resident sellers fall under section 194-IA: the buyer deducts 1% of the price. That section excludes non-resident sellers by design. The moment the seller is an NRI, the deduction shifts to section 195, which covers all payments to non-residents. Two things change:

  1. The rate jumps from 1% to the tax rate on the gain, plus surcharge and cess.
  2. The base becomes the full sale consideration, because the buyer has no legal way to compute the seller's gain.

The Finance (No. 2) Act, 2024 cut the long-term capital gains rate on property to 12.5% without indexation for transfers on or after 23 July 2024. The Income-tax Act, 2025, in force from 1 April 2026, carries the same rate forward.

The effective rates, slab by slab

Surcharge depends on the sale consideration, and the surcharge on long-term capital gains is capped at 15%. Health and education cess adds 4% on tax plus surcharge.

Sale consideration Base LTCG rate Surcharge Effective TDS
Up to Rs 50 lakh 12.5% Nil 13.00%
Rs 50 lakh to Rs 1 crore 12.5% 10% 14.30%
Above Rs 1 crore 12.5% 15% (capped) 14.95%

For short-term holdings (24 months or less), the gain is taxed at slab rates and the deduction runs at the top rates plus surcharge and cess. Confirm the exact short-term deduction with a CA before the agreement is signed.

A worked example. Flat sold for Rs 1.8 crore, bought for Rs 1.5 crore three years ago. Actual gain: Rs 30 lakh. Actual tax at 12.5% plus surcharge and cess: about Rs 4.3 lakh. TDS without a certificate: 14.95% of Rs 1.8 crore, which is Rs 26.9 lakh. The seller waits a year or more to recover the Rs 22 lakh difference.

The buyer's compliance load

The buyer, not the seller, carries the legal duty. Every buyer purchasing from an NRI must:

  1. Obtain a TAN. A PAN is not enough. Section 194-IA purchases need no TAN; section 195 purchases do.
  2. Deduct the correct rate on each payment, including the advance and each instalment.
  3. Deposit the TDS by the 7th of the following month using the non-resident challan.
  4. File the TDS statement each quarter (Form 27Q under the old regime; quote the new section table codes for transactions on or after 1 April 2026).
  5. Issue Form 16A to the seller so the credit shows in the seller's 26AS and AIS.

Buyers who skip any step face interest, late fees, and "assessee in default" proceedings. Sellers should care because the withheld money is theirs, and a buyer who deposits late or files a wrong return delays the seller's credit.

Form 13, now Form 128: the lower or nil TDS certificate

The law has a pressure valve. Section 197 of the old Act, now section 395 of the Income-tax Act, 2025, lets the seller apply for a certificate directing the buyer to deduct at a lower rate, or nil, matched to the actual gain. The application form was Form 13. Under the 2025 Act it is Form 128. The Finance Act, 2026 added section 395(6), which puts the application route on an electronic footing.

The walkthrough:

  1. Get your documents ready: PAN, passport, purchase deed with cost proofs, the agreement to sell or a draft with the negotiated price, the buyer's name, PAN and TAN, your gain computation, and your prior return filings.
  2. Register on the TRACES portal as a taxpayer and file Form 128 (Form 13) online for the relevant year, naming the buyer as the deductor.
  3. The jurisdictional assessing officer for international taxation reviews the computation. Expect queries: proof of acquisition cost, inheritance documents, bank statements.
  4. The officer issues a certificate stating the rate the buyer must apply. It is buyer-specific and amount-specific.
  5. Hand the certificate to the buyer before any payment. Deductions made before the certificate date do not get the benefit.

Timelines run three to eight weeks depending on the city and the officer's queue. File as soon as a price is agreed. Do not wait for the sale deed date.

One candid note. Many CAs have never filed a Form 13. It is a niche, officer-facing process with city-specific practice. Ask your CA how many certificates they obtained in the last twelve months before you hand them your deal.

The refund route, if TDS was over-deducted

If the sale closed without a certificate, the excess is not lost. It is slow.

  1. Confirm the buyer deposited the TDS and filed the return. Check your 26AS for the credit.
  2. File your Indian income tax return for the year of sale, computing the actual gain and claiming exemptions.
  3. The excess TDS becomes a refund claim. Refunds for NRI sellers tend to arrive six to eighteen months after filing, with interest under the refund provisions.
  4. The refund lands in your pre-validated Indian bank account, then needs its own repatriation paperwork: see repatriating proceeds from NRO.

A certificate before the sale beats a refund after it, every time.

Where this goes wrong

FAQ

What is the TDS rate when an NRI sells property in 2026? For property held more than 24 months: 12.5% plus surcharge and cess, which works out to 13%, 14.3%, or 14.95% of the sale price depending on the consideration slab.

Is TDS calculated on the sale price or the capital gain? On the full sale price, unless the seller obtains a certificate under section 197 (now section 395) authorising deduction on the gain or at a lower rate.

Does the buyer need a TAN to buy from an NRI? Yes. Section 195 deductions require a TAN, deposit each month, and a TDS statement every quarter. This is the single biggest difference from buying from a resident.

How long does a lower-TDS certificate take? Three to eight weeks in most cities. File Form 128 (old Form 13) as soon as the price is agreed in principle.

Can the certificate cover an advance already paid? No. It applies from its date of issue. Sequence the payments after the certificate.

What if the buyer deducted only 1%? The liability for the shortfall sits on the buyer, but the seller's repatriation and refund position gets tangled. Fix it through a correction and a top-up deposit before registration if caught in time.

Is TDS the final tax? No. The actual tax is computed in your return. TDS is an advance collection. Excess comes back as a refund; shortfall is payable with interest.

Get the TDS right before the deal signs

66 MG Road manages the full sale-side sequence for NRI owners: Form 128 application, buyer TDS compliance, registration through POA, Forms 145/146, and repatriation. Teams in Mumbai, Pune, Bangalore, Hyderabad, Chennai, and Gurgaon. Itemized billing. See sale and purchase services.

Saurabh Garg, founder, 66 MG Road

Sources