Every month I receive calls from NRIs — often from the UAE, UK, USA, or Singapore — who are midway through a property sale and have just discovered that the buyer is going to deduct nearly 24% from the sale price as TDS. On a ₹1.5 crore apartment, that is ₹35.88 lakh locked up with the Income Tax Department.
The panic is understandable. But the situation is almost always manageable — if you act before the sale closes, not after.
Under Section 195 of the Income Tax Act, any person making payment to a non-resident must deduct TDS at the applicable rate. For long-term capital gains on property, the rate is 20% + 10% surcharge (if LTCG > ₹50L) + 4% health & education cess = 23.92%.
Here is the critical problem: this TDS is calculated on the entire sale consideration — not on your actual profit. If you bought a flat for ₹40L in 2010 and are selling it for ₹1.5Cr today, your indexed cost might be ₹80L, making your LTCG ₹70L. But the buyer still deducts TDS on ₹1.5Cr — not ₹70L. You are paying tax on money that is not your gain.
The buyer of your property is personally liable for TDS deduction under Section 195. If they fail to deduct and you don't pay tax, the buyer faces penalty equal to the TDS amount plus interest. This is why buyers are often more anxious about NRI TDS than the sellers themselves.
| Gain Type | Holding Period | Base Rate | With Surcharge + Cess |
|---|---|---|---|
| Short Term Capital Gain (STCG) | Less than 24 months | Income slab rate (30% max) | 34.32% (if slab is 30%) |
| Long Term Capital Gain (LTCG) — Sale value ≤ ₹50L | 24 months or more | 20% | 20.80% |
| Long Term Capital Gain (LTCG) — Sale value ₹50L–₹1Cr | 24 months or more | 20% + 10% surcharge | 23.92% |
| Long Term Capital Gain (LTCG) — Sale value > ₹1Cr | 24 months or more | 20% + 15% surcharge | 25.17% |
Note: Budget 2024 revised LTCG rules — the holding period remains 24 months for immovable property. The indexation benefit was removed for properties purchased after 23 July 2024, but properties bought before that date retain indexation. This is a critical planning point.
Your actual tax liability is on capital gains — not the sale price. Understanding this gap is where ₹3–8L in savings typically come from.
| Component | Amount |
|---|---|
| Sale Consideration | ₹1,50,00,000 |
| Less: Indexed Cost of Acquisition (bought 2010, ₹40L) | ₹80,00,000 (approx, with CII indexation) |
| Less: Indexed Cost of Improvement | ₹5,00,000 (if any renovation) |
| Less: Transfer Expenses (brokerage, registration) | ₹2,00,000 |
| Net LTCG (taxable) | ₹63,00,000 |
| Tax at 20% + surcharge + cess (23.92%) | ₹15,07,000 |
| TDS deducted at 23.92% on ₹1.5Cr | ₹35,88,000 |
| Excess TDS (refundable via ITR) | ₹20,81,000 |
This excess ₹20.81L can be refunded — but it is locked with the government, earns no interest beyond a point, and requires you to file an Indian ITR to get it back. The smarter approach: prevent the excess deduction in the first place using Form 13.
Section 197 of the Income Tax Act allows a non-resident to apply to the Assessing Officer (AO) for a Nil or Lower Deduction Certificate. This certificate, once issued, directs the buyer to deduct TDS at a lower rate — or not at all.
The application is made in Form 13 through the TRACES portal. Here is the process:
The CA prepares your application with all supporting documents — PAN, passport, sale deed draft, computation of capital gains, proposed tax liability.
Application submitted online on TRACES portal. Must be filed before the sale transaction is completed — not after. Allow 30–45 days for processing.
The AO reviews your computation, verifies that the lower TDS is consistent with your likely tax liability, and issues a certificate specifying the reduced rate.
Provide the certificate to your buyer. They deduct TDS at the lower certified rate instead of the default rate. Can save ₹5–20L+ depending on property value.
File your Indian ITR for the year of sale. If TDS was correctly reduced, minimal or zero refund expected. If not filed, refund claims may be delayed.
Form 13 must be applied for BEFORE the sale closes. Once TDS is deducted and deposited by the buyer, you cannot undo it — you can only claim a refund via ITR, which takes 6–18 months. Apply for Form 13 as soon as you sign the sale agreement or even earlier.
Even without Form 13, NRIs can eliminate capital gains tax entirely by reinvesting in another property in India under Section 54 or 54F.
If you sell a residential property and reinvest the entire LTCG amount in another residential property in India — within 1 year before or 2 years after the sale — your capital gains tax is entirely exempt.
If you sell any capital asset (not just residential property) and reinvest the entire net sale consideration (not just gains) in a residential property in India — within the same timelines — you get a proportional exemption.
| Section | Asset Sold | What to Invest | Timeline | Maximum Exemption |
|---|---|---|---|---|
| 54 | Residential house | LTCG amount | 1 yr before / 2 yrs after | 100% of LTCG |
| 54F | Any long-term asset | Entire sale proceeds | 1 yr before / 2 yrs after | Proportional |
| 54EC | Any long-term asset | LTCG in bonds (NHAI/REC) | Within 6 months | Up to ₹50L |
There is a common misconception that Section 54/54F exemptions are only for residents. NRIs are fully eligible to claim these exemptions — the new property purchased must be in India, and you cannot own more than 1 residential house (other than the one being purchased) at the time of sale.
India has Double Tax Avoidance Agreements (DTAAs) with 90+ countries. If you are an NRI resident in UAE, UK, USA, Singapore, Canada, or Australia, DTAA provisions may allow you to reduce your Indian tax liability — or claim credit for Indian taxes paid against your home country tax.
Under most DTAAs, capital gains on immovable property are taxable in the country where the property is situated — meaning India taxes take precedence. However, the tax paid in India is typically available as a foreign tax credit in your country of residence, avoiding double taxation.
UAE specifically: Since UAE has no capital gains tax, NRIs in UAE cannot use DTAA to reduce Indian tax — but they also don't pay UAE tax on the same income. Clean situation.
USA, UK, Canada: You will be taxed in both countries on the same capital gain. Indian tax paid is available as foreign tax credit in your home country return, but timing differences can create cash flow challenges. Plan carefully.
If you are buying property from an NRI seller, here are your obligations:
Failure to deduct or deposit TDS makes the buyer personally liable for the TDS amount plus interest at 1–1.5% per month, plus a penalty equal to the TDS amount under Section 271C.
If the sale has already closed and TDS at 23.92% has been deducted and deposited, your only route is to file an Indian ITR (ITR-2) for the year of sale and claim a refund of the excess TDS.
Without Form 13, this client would have waited 12–18 months for a ₹43L refund — with that money tied up, unable to earn returns, and the reinvestment funded from personal savings. With Form 13, zero TDS was deducted and the transaction closed cleanly.
Our fee for NRI property advisory — Form 13 application, capital gains computation, Section 54/54F planning, ITR filing — starts at ₹10,000. On a typical ₹1–2Cr property sale, this fee is recovered 50x over in TDS savings.