TDS on sale of property by an NRI: Section 195, Form 13, and the refund trap

An NRI friend sold his Pune flat for ₹2 crore last year, expecting the buyer to deduct the usual 1% TDS he’d read about — ₹2 lakh. Instead the buyer’s CA deducted nearly ₹30 lakh and he couldn’t complete the sale until he understood why. He wasn’t being cheated. He’d just walked into the single most misunderstood rule in NRI finance: when the seller is a non-resident, property TDS is a completely different animal. If you’re an NRI planning to sell, this is the one thing to get right before you sign anything. Run your own numbers through the NRI property-sale TDS calculator as you read.

The 1% rule doesn’t apply to you

When a resident sells property in India, the buyer deducts a flat 1% TDS under Section 194-IA on any sale above ₹50 lakh, files a simple Form 26QB, and everyone moves on. Almost every “property TDS” article online describes this. None of it applies when the seller is an NRI.

For an NRI seller, the buyer deducts under Section 195, at the capital-gains tax rate, not 1%. That means:

Long-term (property held over 24 months): 12.5% (post 23 July 2024, without indexation), plus surcharge and 4% cess.
Short-term (24 months or less): the seller’s slab rate — and for an NRI, the buyer typically deducts at the maximum 30%, plus surcharge and cess.

So the very first thing to establish in any NRI property sale is that the buyer knows they’re buying from an NRI and must use Section 195. A buyer who wrongly deducts 1% is personally liable for the shortfall plus interest — which is why this gets discovered, painfully, at the last minute.

The trap: TDS is on the whole sale price, not your gain

Here’s the part that shocks people. The 12.5% (or slab) rate is a capital-gains rate — it’s meant to apply to your profit. But the buyer usually has no way to verify what you originally paid, and under Section 195 they’re the one on the hook if they under-deduct. So to protect themselves, they apply the rate to the entire sale consideration, not the gain.

Walk through my friend’s ₹2 crore flat, bought years earlier for ₹1.2 crore, held long-term:

His actual gain was ₹80 lakh. Tax on that, at roughly 14.3% (12.5% + 10% surcharge + 4% cess), is about ₹11.4 lakh.
But without a certificate, the buyer deducted on the full ₹2 crore, where the surcharge tier rises to 15% — about ₹29.9 lakh.

That extra ~₹18.5 lakh wasn’t a tax. It was his own money, deducted and parked with the Income Tax Department, recoverable only by filing a return and waiting months — often into the next financial year — for a refund. For an NRI who needs the proceeds abroad, having ₹18 lakh frozen for a year is a real cost.

Form 13: the fix almost nobody applies for in time

There is a clean, legal way to stop the over-deduction: Form 13, the application for a lower or nil TDS certificate under Section 197. You file it online on the TRACES portal. The Assessing Officer reviews your actual computed gain — and any exemptions you’re claiming — and issues a certificate directing the buyer to deduct on that lower figure instead of the full sale value.

With a Form 13 certificate in my friend’s case, the buyer would have deducted about ₹11.4 lakh instead of ₹29.9 lakh. Same eventual tax; ₹18.5 lakh that never leaves his hands.

Two things make or break this:

Apply before the sale is executed. A certificate can take two to four weeks, and it cannot be applied to TDS that’s already been deducted. Once the buyer has deducted on the full value, your only route is the refund. Start Form 13 as soon as the sale is likely.
Compute your gain properly and claim exemptions in the application. Section 54 (reinvest long-term gains in another Indian house) and Section 54EC (invest up to ₹50 lakh in NHAI/REC bonds within six months) reduce the gain the certificate is based on — sometimes to near zero.

Surcharge and cess: the headline rate isn’t the real rate

The 12.5% you’ll see quoted is only the base. On top:

Surcharge, tiered by amount: nil up to ₹50 lakh, 10% from ₹50 lakh to ₹1 crore, 15% above ₹1 crore for long-term gains (surcharge on long-term capital gains is capped at 15%). For short-term sales taxed at slab, the surcharge isn’t capped and can climb to 25% or more on very large amounts.
Health and education cess: 4% on the tax-plus-surcharge.

So the effective long-term rate runs from about 13% on smaller sales to about 14.95% once you cross ₹1 crore. The calculator applies the right tier automatically, for both the full-value and the gain-based figures.

Inherited or jointly-held property

Two common situations that usually work in your favour:

Inherited property carries the previous owner’s holding period and cost. A flat you inherited two years ago but your father bought in 2005 is still long-term, and its cost is his cost (or the fair market value as on 1 April 2001 for older assets), not zero. This often makes the real gain far smaller than the sale value — which is exactly why a Form 13 certificate saves so much.
Jointly-held property: TDS applies to each seller’s share according to ownership. Each NRI co-owner can file their own Form 13.

The buyer’s paperwork (and why it’s your problem too)

Unlike a resident sale, an NRI-property buyer must: obtain a TAN (a PAN isn’t enough to deduct TDS), deposit the TDS, file Form 27Q quarterly, and issue you Form 16A. If the buyer gets this wrong, the transaction can stall or the buyer can face penalties that they’ll try to renegotiate onto you. It’s worth making sure — politely, early — that your buyer or their CA has done this before, or is getting advice. A smooth sale depends on the buyer’s compliance as much as your own.

After the sale: getting the money out

TDS is only half the NRI story. Moving the sale proceeds abroad is governed by FEMA repatriation rules — broadly up to USD 1 million per financial year from your NRO account — and needs a chartered accountant’s certification via Form 15CA/15CB. Plan this alongside the sale, not after, especially if the amount is large or you’re on a deadline abroad.

The short version

NRI property TDS is Section 195 at the capital-gains rate, never the 1% resident rule.
By default it’s deducted on the entire sale value, so far more is taken than your actual tax.
Form 13, filed before the sale, moves the deduction to your real gain and keeps lakhs from being locked up as a refund.
Effective long-term rate is ~13–15% with surcharge and cess; short-term is at slab.
Inherited/jointly-held property usually means a smaller real gain — all the more reason to get the certificate.

Model your exact numbers — full-value TDS, gain-based TDS, and the locked-up excess — with the NRI property-sale TDS calculator, and check the underlying capital-gains maths with the capital gains calculator.

This is general information, not tax advice. NRI property sales turn on specifics — get a qualified chartered accountant to file your Form 13 and return.