If you’re buying property from an NRI seller and a generic article — or an AI tool — told you to deduct 20% TDS, that figure is outdated. It hasn’t been accurate since the 2024 capital gains changes, and yet it’s still the number most casually written guides repeat.
NRI property sale TDS under Section 195 is deducted at the rate the income is actually taxable, not a fixed standard rate. For long-term property (held over 24 months) without a lower deduction certificate, that’s generally 12.5% on long-term capital gains, plus surcharge and cess — not 20%.
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Why the 20% Figure Is Wrong Now
Before Budget 2024, long-term capital gains on property were taxed at 20% with an indexation benefit. Budget 2024 removed the indexation benefit for many long-term assets, including real estate, and rationalized the rate down to 12.5%. The mechanics changed, and the rate most people remember — 20% — simply doesn’t reflect the current framework. Section 195’s core principle hasn’t changed: deduct TDS at the rate the income is actually taxable. What changed is what that rate now is.
The Detail Most Buyers Miss: It’s the Full Sale Value, Not Just the Gain
Unless the NRI seller has obtained a lower deduction certificate under Section 197, TDS is deducted on the entire sale consideration — not just the capital gains portion. A property sold for ₹80 lakh with a ₹25 lakh gain still has TDS calculated on the full ₹80 lakh unless that certificate exists. This single point causes more disputes between buyers and NRI sellers than almost anything else in the transaction, because sellers often expect TDS only on their actual profit.
Form 27Q, Not Form 26QB
Resident-to-resident property transactions use Form 26QB. NRI transactions use Form 27Q instead, and this requires the buyer to have a TAN, not just a PAN — a step that often gets missed because buyers assume the simpler resident-transaction process applies.
⚠️ One recent update worth flagging cautiously: some 2026 sources indicate a move toward depositing NRI property TDS using the buyer’s PAN rather than requiring a separate TAN, simplifying this specific step. This wasn’t uniformly confirmed across sources at the time of writing — verify current TAN/PAN requirements directly before assuming either process applies to your transaction.
Short-Term Gains Work Differently
If the NRI seller held the property for 24 months or less, the gain is short-term, and TDS is deducted at the NRI’s applicable income tax slab rate instead of the flat long-term rate — which can be considerably higher than 12.5% depending on the seller’s total income level.
How a Lower Deduction Certificate Changes Things
An NRI seller can apply to the Income Tax Department (via Form 13) for a Section 197 certificate, which allows TDS to be calculated on the actual capital gains rather than the full sale value — relevant if exemptions under Sections 54, 54EC, or 54F reduce the real tax liability significantly below what flat-rate TDS on the full amount would deduct. This needs to be applied for well before the transaction closes; it’s not something arranged at the last minute.
What Goes Wrong Most Often in Practice
The single biggest source of post-transaction disputes we see isn’t the rate itself — it’s the buyer and seller not agreeing in advance on whether TDS will be calculated on the full sale value or the actual gain. A seller who assumes a lower-certificate process is already underway, only to discover at closing that no certificate was actually obtained, ends up receiving thousands less than expected with no immediate recourse beyond filing for a refund and waiting months. Settling this question explicitly, in writing, before the sale agreement is finalized avoids almost all of the friction that otherwise surfaces at the worst possible moment — the day money is supposed to change hands.
Documents Required for NRI Property Sale TDS Compliance
Both buyers and sellers should keep the following documents ready before completing the transaction:
- Seller’s PAN Card
- Buyer’s PAN Card
- Sale Agreement
- Property Purchase Documents
- Capital Gain Computation
- Tax Residency Certificate (if DTAA benefit is claimed)
- Form 13 / Lower Deduction Certificate (if obtained)
- Form 16A (TDS Certificate)
- Form 27Q Filing Details
Many delays occur because parties discuss TDS only after the agreement is signed. Having these documents ready early helps avoid last-minute disputes and payment delays.
Frequently Asked Questions
Does the ₹50 lakh threshold for TDS apply to NRI property sales?
No — that threshold belongs to Section 194-IA, which applies only to resident sellers. Section 195 has no minimum threshold; TDS applies to NRI property transactions regardless of value.
What if the buyer doesn’t deduct TDS correctly?
The buyer is treated as an “assessee in default” and becomes liable for the TDS amount, plus interest and penalties — this risk sits with the buyer, not the seller, which is exactly why getting the calculation right matters from the buyer’s side.
Can DTAA reduce the TDS rate further?
Potentially, if a Double Taxation Avoidance Agreement exists between India and the NRI’s country of residence and offers a more favorable rate — this needs case-by-case verification, not a general assumption.
How long does an NRI’s refund take if TDS deducted exceeds actual tax liability?
Refunds typically take several months after the return is filed and verified — this is worth factoring into the seller’s expectations, since the full sale-value deduction (without a lower certificate) often results in TDS well above actual liability.
References
- Section 195, Income Tax Act, 1961 (applicable for property transactions completed on or before 31 March 2026)
- Finance Act 2024 (capital gains rate changes)
⚠️ New Act transition note: The Income Tax Act, 2025 came into force on 1 April 2026. For property transactions completed on or after that date, the withholding obligation is governed by the corresponding renumbered provision under the new Act, not Section 195 of the 1961 Act. Confirm the current section reference for your specific transaction date at incometax.gov.in. NRI taxation also involves residency-status determination and DTAA provisions that shift periodically — this post is educational, not a substitute for case-specific advice given how much depends on the seller’s exact residency status, holding period, and transaction date.
If you’re advising on the buyer side of one of these transactions and also handle the seller’s broader compliance, our post on outsourcing bookkeeping for overseas-connected businesses covers a related angle for firms managing NRI and overseas client relationships.
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