When an NRI sells property in India, the transaction is governed by a materially different tax framework than the one applicable to resident sellers. Section 195 of the Income Tax Act requires the buyer to deduct TDS at the rate applicable to the seller’s actual capital gains, not the flat 1% that applies under Section 194IA for resident-to-resident sales. In practice, this means NRI sellers routinely see 13% to nearly 15% of the sale value withheld at source, and in many cases more, if the buyer applies the deduction to the full consideration rather than the computed gain.
This guide sets out the applicable TDS rates, the capital gains framework as it stands in 2026, the process for obtaining a lower or nil deduction certificate, and the regulatory requirements governing repatriation of funds outside India.
Why This Catches So Many NRIs Off Guard
Most NRIs assume selling property in India works the same way for everyone. It doesn’t. When a resident sells to another resident, the buyer deducts a flat 1% TDS under Section 194IA, and only if the deal is above ₹50 lakh. Clean and simple.
The moment the seller is an NRI, a completely different section kicks in. Section 195 applies, and the buyer, whether resident or another NRI, has to deduct tax at the rate the income is actually taxable at in India, not some token 1%. That’s the part people miss. It’s not a penalty. It’s just a different rulebook.
TDS Under Section 195: Why It’s Not a Flat 1%
Here’s the part that surprises people the most. Buyers are often nervous about getting this wrong, so many of them play it safe and deduct TDS on the entire sale value, not just your gain. If you sold your flat for ₹1.5 crore and your actual profit was ₹80 lakh, a cautious buyer’s accountant might still withhold tax as if the whole ₹1.5 crore was taxable income.
Useful information related:
- For long-term holdings (property owned more than 24 months), the base TDS rate lines up with the long-term capital gains rate, plus surcharge and 4% cess. In practice this works out to somewhere around 13% to just under 15% of the value, depending on your income bracket and the surcharge slab.
- For short-term holdings (24 months or less), TDS is based on slab rates, which can go as high as 30% before surcharge and cess.
- There is no ₹50 lakh threshold like there is for resident sellers. Section 195 applies regardless of the deal size.
How Capital Gains Are Actually Worked Out
The 24-month mark decides everything here. Hold the property for more than two years and it’s a long-term capital asset. Sell it before that and it’s short-term.
Long-term gains
Since the July 2024 Budget, long-term capital gains on property are taxed at a flat 12.5%, plus surcharge and cess. The catch is that indexation, the old benefit that adjusted your original cost for inflation, was removed for most property sales going forward. If you bought a flat decades ago for a modest amount, this change genuinely stings, because your “profit” on paper is now larger without inflation adjustment softening it.
Short-term gains
If you’re selling within two years of buying, the gain gets added to your total income and taxed at your regular slab rate, which tops out at 30% for higher earners, before surcharge and cess.
None of this is optional math you can skip. Get your acquisition cost, improvement costs, and sale expenses documented properly before you even list the property, because you’ll need every rupee of that when you file.
Getting a Lower or Nil TDS Certificate
This is honestly the single most useful thing an NRI seller can do, and the one most people find out about too late.
Under Section 197, you can apply through the TRACES portal for a Lower or Nil Deduction Certificate using Form 13, before you sign the sale agreement. A tax officer reviews your actual purchase cost, any improvements, exemptions you plan to claim, and issues a certificate telling the buyer to deduct TDS only on your real capital gain, or in some cases, not at all.
Useful information related:
- Apply well ahead of the transaction. This process takes time, and rushing it after the sale agreement is signed rarely works out.
- You’ll need your purchase deed, sale agreement, computation of capital gains, and proof of any reinvestment you’re planning under Section 54 or 54EC.
- Without this certificate, you’re relying on the government to refund the excess TDS when you file your return, which can take months.
“I sold a flat in Pune while living in Toronto and the buyer’s CA wanted to deduct nearly 15 lakh on the full sale price. We applied for a lower deduction certificate three weeks before closing and the number dropped to a fraction of that. I wish I’d known this was even possible before my first property sale.”
What’s Changing in 2026
A couple of things are worth flagging for anyone selling this year. Starting 1 October 2026, Budget 2026 simplifies how TDS on NRI property sales gets deposited. Buyers will use a PAN-based challan instead of needing a TAN and filing Form 27Q, which should cut down on paperwork delays that used to hold up deals.
Separately, the new Income Tax Act, 2025 has renumbered several sections, and what most of us have called Section 195 for decades now sits under a new section number in the fresh Act. Your CA should know which framework applies to your transaction date, so this isn’t something to figure out on your own.
Getting Your Money Out of India
Selling the property is only half the job. Getting the proceeds back to your country of residence involves its own paperwork under FEMA rules.
Useful information related:
- Form 15CA and Form 15CB need to be submitted to your authorized dealer bank before the money moves out. Form 15CB requires certification from a Chartered Accountant.
- Sale proceeds need to route through your NRO account first, since the property was purchased or held there.
- You can repatriate up to USD 1 million per financial year, including sale proceeds and other eligible funds, subject to documentation and tax compliance.
Exemptions That Can Genuinely Save You Money
If you’re reinvesting, you don’t have to pay tax on the entire gain.
- Section 54: Reinvest in another residential property in India within the specified timeline and your long-term gain can be exempt, up to certain limits.
- Section 54EC: Put your gains into specified capital gains bonds (like NHAI or REC bonds) within six months, up to ₹50 lakh, and that portion is exempt.
- Section 54F: Applies when you’re selling an asset other than a residential house but reinvesting in one.
These aren’t automatic. You need to act within the deadlines and keep the paperwork clean, or the exemption gets denied on a technicality.
Where JD Shah Associates Fits In
None of this is meant to scare you off selling property in India. It’s meant to help you go in prepared, so you’re not the person finding out about a lower deduction certificate two days after the sale agreement is signed. We help NRIs work through Section 195 compliance, capital gains computation, the Form 13 application, and the repatriation paperwork, all coordinated so nothing falls through the cracks between the buyer’s side and your bank.
We’re a chartered accountant firm based in Borivali, Mumbai, and one of the firms NRIs across the US, UK, UAE, and Canada turn to when they need someone on the ground in India who actually picks up the phone. A lot of our NRI clients don’t just need us for the property sale. They come back to us as their regular tax consultant in Mumbai for annual return filing and DTAA claims, and if they run a business here, our GST consultant and auditing firm teams keep that side compliant too. For clients further down the road, thinking about a public listing, our IPO consultancy desk is there when that conversation comes up.
If you’re planning to sell property in India this year, talk to us before you sign anything. It’s a lot easier to save money before the deal closes than to chase a refund after.
