What actually gets deducted when an NRI sells

If you are an NRI selling a flat in Bengaluru, the single most expensive mistake is finding out about TDS after you have agreed a price. The buyer is required to withhold tax before paying you, the default calculation is punishing, and the fix has to be started weeks in advance.

This note explains what gets deducted, why the headline rate misleads almost everybody, and what to do about it.

1. The thing that catches people

Everyone focuses on the tax rate. The rate is not the problem.

The problem is what the rate gets applied to.

Under Section 195 the buyer must withhold tax on the amount chargeable to Indian tax, which is your gain. But the buyer has no way to know your gain. They do not know what you paid in 2011, what you spent on the kitchen, or what the brokerage was. They know one number: the sale price.

So unless you produce an order from the Income Tax Department telling them otherwise, buyers and their banks routinely deduct against the full sale consideration rather than the gain.

What that looks like. Sell for ₹1.5 crore on a property you bought for ₹80 lakh. Your gain is ₹70 lakh, and 12.5 percent of that plus surcharge and cess is a manageable number. Deducted against ₹1.5 crore instead, you are looking at a materially larger sum withheld, and you get it back only after filing an Indian tax return and waiting for a refund.

Nothing has been done wrongly. The money is not lost. But it is gone for a year or more, and it is gone at exactly the moment you were expecting to use it.

This is the reason to read the rest of this note.

2. Long term or short term

Twenty-four months, not thirty-six. Count from the date of acquisition.

3. The rates

Long-term gain: 12.5 percent, plus surcharge and 4 percent Health and Education Cess. Without indexation.

Surcharge on qualifying gains taxable under Section 112 is capped at 15 percent. The enhanced 25 and 37 percent rates do not apply to them. Which gives, as a rough guide:

Which surcharge band applies is decided by your total taxable income, not by the size of the gain. That distinction matters. Two people with an identical gain can sit in different surcharge bands because of their other income, and the effective rate on the same gain differs accordingly. Anyone quoting you a single effective percentage without asking about the rest of your income is guessing.

Short-term gain: taxed at your normal income tax rates. Not at the 12.5 percent long-term rate.

What gets withheld under Section 195 is a separate question from what you eventually owe, and the withholding can be at a higher rate than your final liability. The TDS is credited against that liability when you file, and any eligible excess can be claimed as a refund.

4. The bit that is unfair to NRIs, and worth knowing

A resident individual who bought property before 23 July 2024 can choose whichever is lower: 12.5 percent without indexation, or 20 percent with indexation.

That choice is not available to you. The grandfathering provision applies only to a resident individual or HUF. NRIs, companies and LLPs are excluded.

For an older property in a period of high inflation, indexation would often have produced the lower bill. So an NRI and a resident selling identical flats bought on the same day can end up paying different amounts of tax.

You cannot do anything about it. You should still know it, because plenty of general guidance online quotes the choice without mentioning that you do not have it.

5. What to do about it: the lower deduction certificate

This is the practical answer to Section 1, and the reason this note exists.

You apply to the Income Tax Department under Section 197 using Form 13 for a certificate directing the buyer to withhold at a lower rate, or nil. It is assessed on your actual computed gain rather than on the sale price.

Worth applying when:

• The gain is small relative to the sale price, which is most older properties
• You bought at a high cost
• You have eligible transfer expenses
• You have exemptions you intend to claim
• You have capital losses to set off

Start it before you sign anything. Processing takes time, and the certificate has to exist before the buyer makes payment. Applying after the sale agreement is how people end up funding a large interest-free loan to the government.

This is the single highest-value thing on this page. If you take nothing else from it, take this.

6. What the buyer has to do, and what changes on 1 October 2026

The buyer deducts the tax, not you. That is different from a resident sale, where Section 194-IA applies and the mechanics are simpler.

Until 30 September 2026: the buyer needs a TAN, a separate tax deduction account number. Many buyers have never heard of this and discover it mid-transaction.

From 1 October 2026: a resident individual or HUF buying immovable property from a non-resident will generally no longer need a separate TAN for this TDS obligation. They will be able to comply using their PAN, under the prescribed mechanism.

That relief is narrower than most coverage suggests. It applies to resident individual and HUF buyers. It is not a blanket removal of TAN requirements for every category of buyer, so a company or an LLP buying your flat is a different conversation.

If you are selling around that date, it is worth knowing which side of it your transaction falls on, because it changes what your buyer has to arrange.

Also worth knowing: Section 195 has no minimum threshold. Unlike the resident rules, there is no value below which TDS does not apply.

7. TDS is not your final tax

Said plainly because it is the second most common misunderstanding after Section 1.

TDS is money withheld on account. Your actual liability is worked out when you file your Indian return. If more was withheld than you owed, you claim the difference back.

Which means you will need to file an Indian tax return to recover an over-deduction. If nobody has told you that, now you know.

8. Section 54, and the thing people get wrong about it

NRIs can claim Section 54. Reinvestment exemptions under Sections 54 to 54GB are available to residents and non-residents alike.

What Section 54 actually covers:

• The asset sold is a residential house property
• The gain is a long-term capital gain
• You reinvest in a qualifying residential house in India, either bought within one year before or two years after the transfer, or constructed within three years after it

Three things that catch people out:

It is not "sell any property, buy any property, pay no tax". Section 54 is specifically about a residential house sold and a residential house bought. Sell commercial property, land or a plot and you are looking at different provisions, such as Section 54F, on different conditions.

The new property must be in India. You cannot sell a flat in Bengaluru, buy a house in Dubai or London, and expect Section 54 to apply.

There is a two-house option in certain circumstances, subject to statutory conditions and a ₹2 crore limit. Worth knowing it exists. Not worth planning around without advice.

Section 54EC is a separate route, into specified bonds rather than property.

Do not commit sale proceeds on the assumption that an exemption applies. The conditions are specific and the time limits are strict. Ask before, not after.

9. Getting the money out is a separate problem

Paying your Indian tax does not by itself mean the proceeds can be sent abroad. Repatriation is its own process, governed by FEMA and your bank.

It can involve:

• Form 15CA, now Form 145 for remittances made on or after 1 April 2026
• Form 15CB, now Form 146, a certificate from a Chartered Accountant
• Evidence that Indian tax has been paid
• Property acquisition documents and source of funds
• NRO and NRE account requirements, and applicable limits

A CA certificate is not required for every remittance. Which form applies, and whether Form 146 is needed at all, depends on the nature and amount of the remittance and the route taken. Broadly, the CA certificate route becomes relevant for taxable remittances above ₹5 lakh in a tax year where no Assessing Officer certificate has been obtained. Where that certificate route is used instead, Form 146 is not additionally required.

Both the old and new form numbers appear above deliberately. Banks, portals and search results still refer to 15CA and 15CB, and you will meet both sets of names.

Confirm the exact procedure with the bank handling the remittance. They are the ones who will refuse the transfer if a document is missing.

10. If you live in a country with a tax treaty

Living abroad does not stop India taxing a gain on Indian property. India generally has taxing rights over it.

The Double Taxation Avoidance Agreement between India and your country of residence may still matter, for foreign tax credit and for what you have to report at home. If the amounts are significant, get advice on both sides rather than one.

11. What to have ready before you start

Property: sale deed, previous purchase agreement, Khata or e-Khata, property tax receipts, Encumbrance Certificate, approved plans, occupancy documents.

Tax and identity: PAN, passport, overseas address proof, original purchase value documentation, stamp duty and registration records, improvement and renovation invoices, previous tax records.

Sale: sale agreement, sale deed, brokerage and legal invoices, TDS documentation, bank statements for the transaction.

The purchase value documentation is the one people cannot find. A 2009 sale deed in a cupboard in Bengaluru is what stands between you and proving your cost of acquisition.

12. The order to do things in

1. Confirm your residency status under Indian tax rules
2. Get the property documents together, especially proof of what you paid
3. Establish the holding period
4. Have your gain computed properly
5. Apply for the lower deduction certificate under Form 13
6. Only then agree terms and sign
7. Buyer deducts and deposits the TDS
8. File your Indian return and claim credit or refund
9. Arrange repatriation with your bank

Steps 4 and 5 are the ones people skip, and skipping them is what turns a clean sale into a year of waiting for a refund.

13. Six mistakes we see

Assuming 12.5 percent means 12.5 percent of the sale price. It is a rate on the gain, and the withholding may still be computed against the full price unless you have a certificate saying otherwise.

Assuming TDS is the final tax. It is withholding. File the return.

Assuming the resident rules apply. Different section, different mechanics, no threshold.

Ignoring surcharge and cess. The headline rate is not the effective rate.

Assuming the proceeds can simply be wired abroad. Repatriation is separate, and has its own paperwork.

Leaving TDS until after the sale is agreed. By then the lower deduction certificate is no longer available to you in time.