TDS on Property Sale by NRI: Rates, Lower Deduction Certificate and Buyer Steps

TDS on property sale by NRI sellers is the single most expensive surprise in an Indian real estate exit. When you sell a flat in Pune, Hyderabad or Ahmedabad as a non-resident, the buyer must withhold income tax before paying you. The rule is not the 1% deduction that applies to resident sellers; it is withholding at the rates in force for the gain, and in practice it is often applied to the whole sale price. A lower or nil deduction certificate from the tax officer lets the buyer deduct only on the real gain. This page explains the rate, the certificate on Form 128, the new PAN-based route for individual buyers from October 1, 2026, and the refund path.

How does TDS on property sale by NRI work?

Section 393(2) requires any person paying a sum chargeable to tax to a non-resident to deduct tax at rates in force when the amount is credited or paid, whichever is earlier. The Act's resident-seller rule is different: serial 3(i) of the TDS table deducts only 1% of the higher of the price or the stamp duty value where that figure is ₹50 lakh or more. That rule does not cover an NRI seller.

For a non-resident seller, "rates in force" means the capital gains rate: 12.5% on long-term gains with no indexation for an NRI, and slab rates on short-term gains. The buyer must also add surcharge, which begins at 10% for larger amounts, and the 4% health and education cess. CBDT confirms the 2025 Act left TDS rates and thresholds unchanged, so the same logic applied before April 1, 2026.

The buyer does not know your cost of purchase, so without a certificate the buyer normally applies the rate to the full consideration. Your final tax is the rate on the gain only. The difference is a refund, claimed when you file your return and paid after the return is processed. The calculation of the gain is covered in capital gains for NRIs.

What is the lower deduction certificate?

A lower or nil withholding certificate lets the tax officer fix the deduction rate based on your actual income. Under the 1961 Act it was Form 13 under section 197. Under the 2025 Act the corresponding power is section 395(1) and the application is Form No. 128 under the Income-tax Rules, 2026. CBDT's FAQs say the application is made through the TRACES portal or the e-filing portal, and the officer, on being satisfied that total income justifies a lower rate, issues a certificate stating the rate and its validity. A certificate issued under the old section 197 remains valid for tax year 2026-27 only if issued for lower deduction on projected receipts of that year.

Form 129 is a separate application under section 395(2), made by a person asking for the appropriate proportion of a sum chargeable to tax. Ask your CA which route suits the sale.

Step by step: from sale agreement to refund

1. Estimate the gain. Ask your CA to compute cost, improvements, expenses and the tax on the gain, with the stamp duty value rule in section 78 applied. Note any reinvestment plan.
2. Apply for the certificate before the first payment. File Form 128 online with the documents your CA lists. Apply early, since the buyer's advance payments may be credited before the certificate arrives.
3. Receive the certificate and give a copy to the buyer. The buyer deducts at the certificate rate on payments covered by it.
4. Buyer deposits the tax and reports the deduction. A buyer who is a resident individual or HUF can, from October 1, 2026, use a PAN-based challan-cum-statement (Form 141) and does not need a TAN; CBDT Notification No. 121/2026 added this for property sold by a non-resident. Other buyers use a TAN-based statement. The deposit deadline is set in rule 218 of the 2026 Rules; confirm with the buyer's CA.
5. Buyer issues a certificate to you (Form 132 for the PAN route; Form 131 for a TAN-based deduction). Check that the PAN and amounts match.
6. Check Form 26AS or Form 168 and the AIS. See the portal and AIS guide.
7. File your return in the year of sale, claim the credit and any refund, and pay any shortfall.

What the buyer needs from you

• Your PAN, spelled exactly as on the card. See PAN, TAN and Aadhaar for NRIs.
• Your status as a non-resident and a correct address
• The lower deduction certificate, if any
• Banking details for the NRO account that will receive payment; see NRE, NRO and FCNR accounts

Rates at a glance

Documents for the application

• Agreement to sell and draft sale deed
• Purchase deed and proof of cost and improvements
• Stamp duty value
• Capital gains computation and your last year's return
• PAN, passport and OCI card where relevant

A worked example

Meena lives in Aurora, Illinois and sells her Pune flat in October 2026 for ₹1.5 crore. She bought it in 2016 for ₹60 lakh, so the long-term gain is about ₹90 lakh. At 12.5% the buyer would deduct ₹18.75 lakh on the full price, before surcharge and cess. The actual tax on the gain is ₹11.25 lakh, before surcharge and cess. The excess of ₹7.5 lakh would sit with the government until the next return is processed. With a lower deduction certificate fixing the rate on the gain, the buyer withholds about ₹11.25 lakh and she receives the extra ₹7.5 lakh at completion.

Mistakes to avoid

• Assuming a 1% deduction. That is the resident-seller rule.
• Applying for the certificate after the money has moved.
• Sending the buyer an incorrect PAN or name, which breaks the credit in Form 26AS.
• Remitting the money abroad without Forms 145 and 146 (Form 15CA and 15CB under the old rules). See Form 15CA and 15CB.
• Letting the buyer pay the whole price before TDS is deposited.

U.S. side

Indian TDS is a prepayment, not final Indian tax. For the U.S. foreign tax credit you generally use the Indian tax actually due, not the excess deducted that you recover as a refund. The sale itself is reported on your U.S. return in dollars, and the NRO account that receives the proceeds counts toward FBAR and Form 8938. See India-US remittances, gifts and LRS and foreign tax credits across three countries.

How we can help

From our Aurora, Illinois office we model the U.S. tax on the sale, claims the credit and reports the accounts, and works with your Indian CA, who handles the certificate application and Indian return. We do not file with Indian authorities. See real estate investor tax and foreign account and asset reporting. See the India hub for related guides.

Frequently asked questions

General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.