When an NRI sells property in India, TDS is 12.5% plus surcharge and cess, not the outdated 20%, and it is withheld on the full sale price, not the gain. A Section 197 certificate is the fix.
TL;DR: When an NRI sells property in India, the buyer must deduct TDS under Section 195 of the Income-tax Act. For a long-term sale (property held more than 24 months, transferred on or after 23 July 2024), the rate is 12.5% without indexation plus surcharge and cess, an effective 13% to 14.95%. For a short-term sale it is 30% plus surcharge and cess. Two facts make this painful: the TDS is deducted on the entire sale price, not on the gain, and there is no ₹50 lakh threshold, so it applies even on a small sale. The fix is a Section 197 lower or nil TDS certificate, applied for before the sale, which lets the buyer deduct on the actual gain instead of the full value. The widely repeated 20% rate is out of date for long-term sales after Budget 2024.
When an NRI sells property in India, the tax that hurts is not the capital gains tax, it is the TDS the buyer is forced to withhold before the seller sees a rupee. Under Section 195 of the Income-tax Act, that deduction is calculated on the whole sale consideration unless the seller has a certificate saying otherwise. On a ₹2 crore sale, that can mean ₹30 lakh locked up with the tax department for over a year, even when the actual tax owed is a fraction of it. This guide explains the current rate, why so much is withheld, and exactly how to reduce it. It serves both the NRI seller and the resident buyer, who is the person legally responsible for getting the deduction right.
Many articles, online calculators, and even AI chat tools still state that TDS on an NRI property sale is 20%. That figure is from the tax regime that ended on 22 July 2024.
The Union Budget of 23 July 2024 changed the long-term capital gains rate on property from 20% with indexation to 12.5% without indexation (Finance (No. 2) Act 2024). Residents who bought before that date can choose the lower of the two regimes, a grandfathering option. Non-resident sellers do not get that choice: for an NRI, long-term gains are taxed at a flat 12.5% without indexation (rupeeflo, 2025; Assetly, 2026). So for a long-term sale today, the correct base rate is 12.5%, not 20%, and anyone quoting 20% is working from the old law.
The current TDS rates when an NRI sells property
TDS under Section 195 depends on how long the NRI held the property and the size of the gain. The rates below apply to transfers on or after 23 July 2024.
| Scenario | Base rate | Surcharge | Cess | Effective TDS rate |
|---|---|---|---|---|
| Long-term, gain up to ₹50 lakh | 12.5% | Nil | 4% | 13.00% |
| Long-term, gain ₹50 lakh to ₹1 crore | 12.5% | 10% | 4% | 14.30% |
| Long-term, gain above ₹1 crore | 12.5% | 15% | 4% | 14.95% |
| Short-term (held 24 months or less) | 30% | up to 15% | 4% | up to 35.88% |
| Seller gives no PAN | 20% minimum (Section 206AA) | at least 20% |
Long-term applies when the property was held for more than 24 months; otherwise the gain is short-term (multiple tax sources, 2026). The maximum effective long-term rate is 14.95%, being 12.5% plus a 15% surcharge plus 4% cess (ClearTax, 2025; ICICI Bank NRI resources, 2026). Short-term gains are taxed at the NRI's slab rate, and because the buyer cannot know the seller's total income, buyers conservatively deduct at 30% plus surcharge and cess, up to an effective 35.88% (Assetly, 2026). If the NRI does not furnish a PAN, TDS is deducted at a minimum of 20% under Section 206AA.
Here is the fact that catches every NRI seller. Unless a lower-deduction certificate is obtained, the buyer must deduct TDS on the entire sale consideration, not just the capital gain (TaxAdda, 2025; ICICI Bank, 2026). The actual tax the NRI owes is on the profit, but the withholding is on the whole price.
Consider an NRI selling a Bangalore flat for ₹2 crore, held since 2016, with an actual long-term gain of ₹90 lakh. Without a Section 197 certificate, the buyer deducts at the effective long-term rate on the full ₹2 crore. At 14.95%, that is ₹29,90,000 withheld at closing.
The tax the NRI actually owes is on the ₹90 lakh gain: 12.5% is ₹11.25 lakh, and with a 10% surcharge and 4% cess it comes to roughly ₹12.87 lakh. So about ₹30 lakh is withheld against a real liability of about ₹13 lakh. The extra ₹17 lakh is not lost, but it is locked with the tax department until the NRI files a return and claims a refund, which can take a year or more. This gap between what is withheld and what is owed is the single most expensive part of an NRI sale, and it is entirely avoidable.
A common and costly misconception is that TDS applies only above ₹50 lakh. That threshold belongs to Section 194-IA, which governs resident-to-resident sales and deducts just 1%. It does not apply when the seller is an NRI (TaxAdda, 2025; CAClubIndia, 2026).
Under Section 195, TDS is deductible on any payment to an NRI seller that is chargeable to tax in India, regardless of the sale value. A buyer purchasing a ₹25 lakh property from an NRI must still deduct TDS at the applicable rate (CAClubIndia, 2026). Assuming the resident-buyer ₹50 lakh exemption applies here is one of the most common reasons buyers end up in default.
The direct fix for the full-value withholding problem is a Lower or Nil TDS Deduction Certificate under Section 197, obtained through Form 13 (now Form 128 under the Income-tax Act 2025). This is the mechanism the search term "how to reduce TDS on NRI property sale" is really asking about.
The NRI seller applies to the Assessing Officer through the TRACES portal, before the sale closes, disclosing the purchase cost, the sale price, and the actual computed gain (ICICI Bank, 2026). The officer issues a certificate specifying the reduced rate or amount, and the buyer then deducts TDS on that certified figure rather than on the gross sale price. In the ₹2 crore example above, a certificate reflecting the real gain would cut the deduction from about ₹30 lakh to about ₹13 lakh, freeing up ₹17 lakh at closing rather than a year later.
My position on this is simple. Apply for the certificate before you sign, not after. Once the buyer has deducted on the full value, the money is with the tax department and the only route back is a refund on your next return. The Section 197 certificate is the difference between a clean exit and a year-long refund chase, and on any sale above ₹1 crore it is worth the effort every time.
Separately from the Section 197 certificate, an NRI can reduce the underlying capital gains tax, which in turn supports a lower certificate.
Section 54. If the NRI sells a long-term residential house and reinvests the gain in another residential house in India, within one year before or two years after the sale, or builds one within three years, the reinvested portion of the gain is exempt. NRIs are eligible.
Section 54F. If the NRI sells any other long-term asset, such as a plot, and reinvests the net sale consideration in a residential house in India, the gain can be exempt proportionately, subject to the conditions on holding and not owning multiple houses.
Section 54EC. The NRI can invest the capital gain, up to ₹50 lakh, in specified bonds such as those of the National Highways Authority of India or the Rural Electrification Corporation within six months of the sale, to claim exemption. NRIs are eligible.
Following Budget 2024, the exemption a seller can claim under Section 54 and 54F is capped at ₹10 crore. These provisions carry new section numbers under the Income-tax Act 2025, so confirm the current references before filing.
The resident buyer, not the NRI seller, is legally responsible for the deduction, which is why "TDS on purchase of property from an NRI" is such a heavily searched question. Getting it wrong exposes the buyer, not the seller.
The buyer must obtain a TAN (Tax Deduction Account Number) to deduct under Section 195, unlike a resident-to-resident purchase where a PAN suffices (CAClubIndia, 2026). The buyer deducts TDS at the time of each payment, deposits it with the government by the 7th of the following month, files the TDS return in Form 27Q (not Form 26QB, which is for resident sellers), and issues Form 16A to the NRI seller. If the buyer fails to deduct or under-deducts, the buyer can be treated as an assessee in default under Section 201 and made to pay the shortfall with interest and penalty (ClearTax, 2025). For a buyer, verifying the seller's residential status before closing is not optional.
Two further steps matter for an NRI seller. First, India has Double Taxation Avoidance Agreements with more than 90 countries, so the NRI can claim credit in their country of residence for the tax paid in India, using a Tax Residency Certificate and Form 10F, which prevents the same gain being taxed twice.
Second, repatriation. The sale proceeds are first credited to the NRI's NRO account, and repatriation abroad is permitted up to USD 1 million per financial year, supported by Form 15CA and a chartered accountant's certificate in Form 15CB. The mechanics of the USD 1 million limit and the NRE route are covered in our NRI guide to buying and holding Bangalore property, which is the buy-side companion to this sell-side guide.
For an NRI planning an exit from a Bangalore property, sequencing matters: apply for the Section 197 certificate, confirm the buyer's TAN and deduction process, and line up the repatriation route before closing. Our resale-market coverage shows who is buying at the top of the Bangalore market, and our advisory team handles the sale and the paperwork together, since for an NRI the two cannot be separated.
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