Ask anyone who has bought a flat in India how much TDS the buyer deducts and they will say 1%. For a resident seller, that is right. For an NRI seller it is badly wrong, and the gap is not a few thousand rupees. On a typical flat it is lakhs of the seller's own money, held by the tax department until a refund comes through months later.
Why the buyer withholds so much from an NRI
When the seller is a non-resident, the buyer deducts tax under Section 393(2) of the Income-tax Act, 2025 — the provision that was Section 195 under the old Act. The 1% rule people remember (the old Section 194-IA) covers resident sellers only. The non-resident rule works differently in one important way: the buyer cannot see what you paid for the property, so by default the tax is deducted on the entire amount paid to you, not on your profit.
The rate, and why it changes above ₹50 lakh and ₹1 crore
- Held for more than 24 months: a long-term capital gain, so the base TDS rate is 12.5% (no indexation since the 2024 Budget).
- Held for 24 months or less: a short-term gain taxed at slab rates, so buyers normally deduct at the top slab of 30%.
- Surcharge is added on that tax: 10% when the amount crosses ₹50 lakh, and 15% when it crosses ₹1 crore (surcharge on capital gains is capped at 15%).
- A 4% health and education cess is then charged on the tax plus surcharge.
Because the surcharge depends on the size of the payment, the same seller can face a different effective rate on a ₹45 lakh flat and a ₹1.2 crore one. This is where most of the searches about 'above 50 lakhs' and 'above 1 crore' come from.
A worked example. An NRI sells a flat for ₹1 crore that cost ₹80 lakh six years ago, a long-term gain of ₹20 lakh. Without a certificate, the buyer deducts about 14.3% of the full ₹1 crore: roughly ₹14.3 lakh. Tax on the gain alone would be about ₹2.6 lakh. The difference, around ₹11.7 lakh, is not extra tax. It is the seller's money, locked up until a return is filed and the refund is processed.
The certificate that cuts it: Form 128
The fix is a lower or nil deduction certificate, applied for under Section 395 of the new Act on Form 128 — the old Form 13. The assessing officer looks at your actual cost and gain and issues a certificate telling the buyer to deduct at a lower rate, on the gain rather than the full price. Apply as soon as the deal is agreed, because it takes time to be issued and the buyer cannot use it retrospectively. Once TDS has been deducted on the full amount, the only route back is the refund.
What the buyer has to do
- Hold a TAN (Tax Deduction Account Number). A PAN is not enough when the seller is a non-resident.
- Deposit the TDS and file the quarterly return for payments to non-residents, Form 27Q, then issue the TDS certificate to the seller.
- If the buyer wrongly deducts only 1%, the shortfall, interest and penalty fall on the buyer. Many buyers learn this from a notice.
After the sale: the money and the final tax
- Sending the proceeds abroad needs Forms 15CA and 15CB, and remittances from an NRO account are capped at USD 1 million per financial year.
- TDS is not your final tax. Reinvesting in another house under Section 54, or in specified bonds within six months under Section 54EC, can bring the actual tax down — and the excess TDS comes back as a refund.
- File the Indian return for the year of sale even if you have no other Indian income. Without it, the excess TDS simply stays with the department.
Frequently asked questions
- Is TDS only 1% when an NRI sells property?
- No. The 1% rate applies only when the seller is resident. When the seller is an NRI, the buyer deducts under Section 393(2) of the Income-tax Act, 2025 (the old Section 195): 12.5% plus surcharge and cess for long-term gains, and up to 30% plus surcharge and cess for short-term gains, on the full sale value unless a lower deduction certificate is produced.
- What is the TDS on sale of property by an NRI above ₹50 lakh?
- The base rate stays the same, but a 10% surcharge is added on the tax once the amount crosses ₹50 lakh, and 15% once it crosses ₹1 crore, with 4% cess on top. For a long-term gain that takes the effective rate from 13% to about 14.3% and then 14.95%.
- How can an NRI reduce TDS on a property sale?
- Apply for a lower or nil deduction certificate on Form 128 under Section 395 before the sale is registered. With it, the buyer deducts on your actual gain at the rate the certificate specifies, instead of on the full sale price.
- Can an NRI get excess TDS on property back?
- Yes. File an Indian income-tax return for the year of the sale, showing the actual capital gain and any Section 54 or 54EC exemption. The difference between the TDS deducted and the tax actually due is refunded.