TDS on sale of property by an NRI: rates, Form 27Q, the Section 197 certificate, and refunds

An NRI selling property in India is usually braced for capital-gains tax. What catches sellers off guard is how much the buyer is required to withhold at the point of sale, on what base, and how long it can take to get the excess back. Unlike a sale by a resident — where TDS is a flat 1% of the price under Section 194IA — a sale by a non-resident falls under Section 195, a separate and far heavier regime. This guide is written from the seller's side: what will be deducted, and what you can do about it.

Why an NRI sale is taxed under Section 195, not 194IA

Section 194IA — the familiar 1% TDS on property above ₹50 lakh — applies only when the seller is a resident of India. The moment the seller is a Non-Resident Indian for income-tax purposes, the transaction shifts to Section 195 of the Income Tax Act, 1961. Two consequences follow immediately: the rate is much higher, and the ₹50 lakh threshold disappears. TDS under Section 195 applies regardless of the sale value.

The default rate is on the whole sale price, not the gain

This is the single most expensive misunderstanding for NRI sellers. By default, the buyer deducts TDS on the entire sale consideration, not on your actual capital gain. For property held longer than 24 months — a long-term capital asset — the base TDS rate is 12.5% (the post-2024 long-term capital-gains rate), plus surcharge and cess. For property held 24 months or less, the gain is short-term, taxed at slab rates, and TDS is deducted at a higher effective rate.

On a long-term sale, surcharge stacks on top by sale value: broadly 10% where consideration is between ₹50 lakh and ₹1 crore, 15% between ₹1 crore and ₹2 crore, and higher slabs above that, with 4% health-and-education cess on the total. The effective long-term TDS therefore runs to roughly 13–15% of the full sale price depending on the value — which is why 'TDS on sale of property by NRI above ₹1 crore' is a question of its own. On a ₹2 crore sale, that is in the region of ₹28–29 lakh withheld even if your actual taxable gain is a fraction of that.

The fix: a Section 197 lower / nil-deduction certificate

Section 197 lets an NRI seller apply to the income-tax Assessing Officer for a certificate directing TDS to be deducted on the actual capital gain rather than the gross price — or at a reduced rate. The application is made online (Form 13 through the TRACES system) before the sale is completed. The officer computes the expected gain, factors in your cost of acquisition and any exemptions you plan to claim (such as reinvestment under Section 54 / 54EC), and issues a certificate stating the lower amount the buyer should withhold.

Done in time, this is the difference between the buyer withholding a few lakh on the real gain and withholding tens of lakh on the whole price. The trade-off is lead time — the certificate is not instant, and many NRI sellers start it too late. If you are planning a sale, begin the Section 197 application well before you expect to close.

The buyer's obligations — and why they affect you

• The buyer must obtain a TAN (Tax Deduction Account Number) to deduct under Section 195 — a PAN-only Form 26QB, used for resident sales, is not valid here.
• The buyer files Form 27Q, the quarterly TDS return for payments to non-residents, and issues you Form 16A as the deduction certificate.
• The buyer deposits the deducted tax with the government and reports it against your PAN — so your PAN must be correct in the paperwork, or the credit will not reflect in your Form 26AS / AIS.
• If the buyer under-deducts because they treated you as a resident, the liability and interest fall on the buyer — which is why informed buyers insist on confirming residential status. As the seller, expect this question and answer it accurately.

Claiming a refund of excess TDS

If TDS was deducted on the gross price without a Section 197 certificate, you are not out of pocket permanently — but you are out of liquidity. You recover the excess by filing an income-tax return in India for that financial year, declaring the actual capital gain, and claiming a refund of the difference. The refund is processed after the return is assessed, which typically means waiting until after the financial year ends and the return is processed — often a year or more from the date of sale. A correctly-timed Section 197 certificate avoids this wait entirely; a refund claim is the fallback when the certificate was not obtained.

Repatriating the sale proceeds abroad is a separate FEMA step, generally requiring Forms 15CA and 15CB and subject to repatriation limits — covered in PropWatch's broader NRI buyer-and-seller guidance linked below.

SourceIncome Tax India — TDS and the Income Tax Act, 1961 (official portal)

SourceTax2win — Section 195: TDS on sale of property by an NRI, rates and Form 27Q

SourcePropWatch — TDS on a property purchase (Section 194IA): Form 26QB and the NRI-seller trap (the buyer's side)

SourcePropWatch — NRI buying property in India: FEMA rules, documents and payment