NRI Property Sale TDS Under Section 195

When an NRI sells property in India, the buyer must deduct TDS under Section 195 of the Income Tax Act on the sale amount, not just on the profit. This is very different from the resident seller route. The good news is that the NRI seller can apply under Section 197 for a lower or nil deduction certificate so tax comes off the actual gain instead of the whole price.

If you are the buyer, getting this wrong is your problem, not the seller's. The tax department recovers short deductions from the person who paid the money. So both sides need to understand the rules before the sale deed is signed.

When a resident sells property worth ₹50 lakh or more, the buyer deducts a flat 1 percent under Section 194-IA and files Form 26QB using only a PAN. It is simple.

When the seller is an NRI, that route does not apply at all. Instead:

• TDS is deducted under Section 195, which covers payments to non-residents.
• TDS is on the whole sale consideration at the capital-gains rate, unless a Section 197 certificate reduces it.
• The buyer must hold a TAN, not just a PAN.
• The buyer files Form 27Q, the quarterly return for payments to non-residents.

This is the trap most buyers fall into. They assume 1 percent like a normal sale, deduct too little, and later get a demand notice with interest and penalty.

1. Get a TAN. A Tax Deduction Account Number is mandatory before you deduct TDS for a non-resident. Apply through the NSDL or the income-tax e-filing portal.
2. Confirm the seller is an NRI and ask for the lower-deduction certificate, if any.
3. Deduct TDS at the correct rate on each payment or instalment.
4. Deposit the TDS by challan on or before the 7th of the next month.
5. File Form 27Q every quarter, by 31 July, 31 October, 31 January and 31 May.
6. Issue Form 16A to the seller as proof of deduction.

The rate depends on how long the NRI held the property.

• Held for more than 24 months: it is a long-term capital asset.
• Held for 24 months or less: it is short-term, and the gain is taxed at the seller's slab rate.

The 24-month threshold for land or building was set by amendment to Section 2(42A) and has applied since April 2018.

For transfers on or after 23 July 2024, long-term capital gains on property are taxed at 12.5 percent without indexation. Before that date the rate was 20 percent with indexation. This change came in through the Finance (No. 2) Act, 2024 under Section 112.

One important point for NRIs: the law gives a special relief letting the seller choose between the old 20 percent with indexation and the new 12.5 percent without indexation. That choice is only for resident individuals and HUFs. An NRI seller does not get the option. For an NRI, long-term gains on property are taxed at 12.5 percent without indexation, full stop.

On top of the base rate, the buyer must add surcharge (if the amount crosses the surcharge slabs) and health and education cess of 4 percent. So the effective deduction is higher than 12.5 percent. The exact effective rate depends on the size of the gain and the surcharge slab, so do not assume a single fixed all-in number.

Because TDS under Section 195 is charged on the full sale price rather than the gain, the amount held back can be far more than the seller's real tax. That is exactly why the next step matters.

This is the most useful part for any NRI seller. Under Section 197, the seller can apply for a certificate that tells the buyer to deduct tax at a lower rate or nil rate.

1. The NRI files Form 13 with the jurisdictional Assessing Officer (TDS), usually online through the TRACES portal.
2. The officer works out the actual capital gain and the real tax due.
3. If satisfied, the officer issues a certificate fixing the lower deduction amount.
4. The seller gives this certificate to the buyer, who then deducts only the lower amount.

Without this certificate, the buyer must deduct on the whole consideration, and the NRI seller waits for a refund after filing a return. The certificate avoids locking up a large sum for months. Apply for it before the sale closes, because it can take several weeks to issue.

For the bigger picture on dealing with government offices and your rights, see The RTI Playbook.

Ravi, an NRI in Dubai, sold his Pune flat in March 2026 for ₹90 lakh. He had bought it in 2015, so it was long-term. The buyer, worried about a notice, first planned to deduct 12.5 percent plus surcharge and cess on the full ₹90 lakh, around ₹13 lakh.

Ravi instead applied under Section 197 with Form 13. His actual gain was only about ₹30 lakh. The Assessing Officer issued a certificate, and the buyer deducted TDS on the gain rather than the whole price. Ravi saved several lakh rupees from being tied up until his refund.

Yes. Unlike a purchase from a resident, where only a PAN and Form 26QB are needed, buying from an NRI means the buyer must get a TAN and file Form 27Q under Section 195.

By default, Section 195 TDS is on the whole sale consideration, not the gain. To have tax deducted on the real capital gain, the NRI seller must get a Section 197 lower-deduction certificate first.

The NRI files Form 13 under Section 197 with the jurisdictional Assessing Officer, usually through the TRACES portal. The officer checks the actual gain and issues a certificate fixing a lower or nil deduction.

Property held for more than 24 months is a long-term capital asset. If held for 24 months or less, the gain is short-term and taxed at the seller's slab rate.

For transfers on or after 23 July 2024, long-term gains are taxed at 12.5 percent without indexation, plus surcharge and cess. The resident-only option to use 20 percent with indexation does not apply to NRIs.

• Buyers: get your TAN early, confirm the seller's residency, and ask for any Section 197 certificate before you pay.
• NRI sellers: apply for the Form 13 lower-deduction certificate well before closing so tax comes off your real gain.
• Both sides: keep the challan, Form 27Q acknowledgement and Form 16A safe for the seller's return and any refund.

By Dr. Shrawan Kumar Pathak