TDS on Sale of Property by NRI: Rates & How to Reduce It
When an NRI sells property in India, the buyer must deduct TDS before paying. This trips up a lot of deals, because the rate is higher and the rules are stricter than when a resident sells. Get it wrong and the buyer can face a penalty, while the NRI seller can lose a big chunk of money to excess deduction. This guide explains the current rates, how the process works, and how an NRI can legally reduce the TDS.
Quick takeaways:
- On a long-term sale, TDS is 12.5% plus surcharge and cess, roughly 13% to 15% of the sale value.
- TDS is deducted on the full sale price, not the profit alone, unless the seller gets a certificate.
- The buyer needs a TAN and must deposit the TDS and file the return.
- An NRI can apply for a lower deduction certificate to cut the TDS to the real tax on gains.
TDS rate when an NRI sells property
The rate depends on how long the NRI held the property. Property held for more than 24 months is long term, and gains are taxed at 12.5% under the rules that apply after 23 July 2024, without indexation. On top of the 12.5%, you add surcharge based on the sale value, plus 4% health and education cess. That lifts the effective TDS to roughly the levels below.
| Sale value | Base LTCG rate | Effective TDS (approx) |
|---|---|---|
| Up to ₹50 lakh | 12.5% | ~13.0% |
| ₹50 lakh to ₹1 crore | 12.5% + 10% surcharge | ~14.3% |
| Above ₹1 crore | 12.5% + 15% surcharge | ~14.95% |
If the property was held for 24 months or less, the gain is short term and taxed at the NRI's income tax slab rates, plus surcharge and cess. That can be much higher than the long-term rate.
TDS is on the full sale value, not the profit
This is the big catch. Under Section 195, the buyer must deduct TDS on the entire sale consideration, not only on the capital gain. So on a ₹1 crore sale, TDS near 14.95% means about ₹14.95 lakh is withheld, even if the actual gain and tax are far smaller. The NRI can claim a refund later by filing a return, but that money is locked up until then. This is why the next step matters so much.
How to reduce the TDS: lower deduction certificate
An NRI can apply to the income tax department under Section 197 for a lower or nil deduction certificate. This certificate tells the buyer to deduct TDS only on the actual gain, at the real tax rate, instead of on the full sale value. For most sellers whose gain is modest, this can cut the withheld amount dramatically and avoid locking up lakhs in a refund. Apply well before the sale, as the certificate takes time to process. Our NRI selling property guide covers the wider process.
The buyer's duties
- Get a TAN. The buyer needs a Tax Deduction Account Number to deposit TDS on an NRI purchase.
- Deduct at the right rate, or at the rate in the seller's Section 197 certificate if there is one.
- Deposit the TDS with the government and file the TDS return on time.
- Issue Form 16A to the seller as proof of the deduction.
Getting this wrong exposes the buyer to interest and penalty, so buyers should confirm the seller's residency status early. See our TDS on property purchase guide for the resident-seller rules, which are different.
How an NRI can plan the sale
Apply for the Section 197 certificate early. Keep records of the purchase cost and any improvement spends to prove the real gain. Consider the timing so the holding period crosses 24 months for the lower long-term rate. And use the reinvestment exemptions where they fit, for example putting gains into another house or into specified bonds. Our capital gains saving guide explains those options.
FAQs on TDS on sale of property by NRI
What is the TDS rate when an NRI sells property in India?
For a long-term sale, TDS is 12.5% plus surcharge and cess, giving an effective rate of roughly 13% to 15% of the sale value. Short-term sales are taxed at slab rates plus surcharge and cess.
Is TDS deducted on the sale price or the profit?
On the full sale price, not the gain alone, under Section 195. That is why the withheld amount can be large, and why a lower deduction certificate matters.
How can an NRI reduce this TDS?
By applying under Section 197 for a lower or nil deduction certificate, which lets the buyer deduct TDS only on the actual gain at the real rate, instead of on the full sale value.
What is the effective TDS on a ₹1 crore sale by an NRI?
For a long-term sale above ₹1 crore, the effective rate is about 14.95%, so around ₹14.95 lakh is withheld unless the NRI has a lower deduction certificate.
Does the buyer need a TAN to buy from an NRI?
Yes. Unlike a resident purchase, buying from an NRI requires the buyer to have a TAN, deduct TDS, deposit it and file the TDS return.
What is the holding period for long-term gains?
More than 24 months makes the gain long term, taxed at 12.5% plus surcharge and cess. Held for 24 months or less, it is short term and taxed at slab rates.
What happens if the buyer does not deduct TDS?
The buyer can face interest and a penalty, and may be treated as in default for the tax. So buyers must confirm the seller's NRI status and deduct correctly.
Can an NRI claim a refund of excess TDS?
Yes. If TDS on the full value exceeds the real tax, the NRI can claim a refund by filing an income tax return, but the money stays locked up until the refund is processed.
Does indexation still apply for NRIs?
Under the rules after 23 July 2024, the long-term rate is 12.5% without indexation. Take professional advice, as transitional choices can apply in some cases.
Can an NRI save tax by reinvesting the gains?
Yes. Exemptions allow reinvesting long-term gains into another residential house or into specified bonds within set limits and timelines, which can reduce or remove the tax.
When should an NRI apply for the Section 197 certificate?
Well before the sale closes, because the certificate takes time to process. Applying early avoids large TDS being withheld and locked up in a refund.
