NRI Property TDS Under Section 195: Why the Buyer Withholds Far More Than Your Tax Bill, and the Form 13 Fix That Stops It (2026)

Sell property in India as an NRI, and the buyer doesn't just deduct tax on your profit. They deduct it on the entire sale price — even the part that's simply your original investment coming back to you.

That's not a mistake. It's the law. And unless you take one specific step before your sale is registered, you could watch one and a half to two and a half times your real tax bill get withheld and locked up with the government for months, and far more than that if the gain is small relative to the price.

Here's exactly how Section 195 TDS works, why it's structured this way, and how Form 13 (now officially Form 128) fixes it — with the real numbers behind each step.

What Section 195 Actually Requires

Section 195 of the Income Tax Act (renumbered Section 393(2) under the Income-tax Act, 2025, effective April 1, 2026) governs how buyers must handle payments to non-residents, including anyone purchasing property from an NRI. Two features make this fundamentally different from a resident-to-resident property sale:

• Resident sellers face a flat 1% TDS. NRI sellers don't get this simplicity — the buyer must apply the actual capital gains tax rate.
• The deduction applies to the full sale consideration by default, not your profit. Unless a lower deduction certificate is in hand, the buyer has no legal basis to calculate your actual gain — so they withhold tax on the entire transaction value as a protective default.

The current TDS rates buyers apply

Adding surcharge and cess, most NRIs see an effective LTCG TDS figure quoted around 14–15%, and never above 14.95% on a long-term gain, because surcharge on gains taxed under section 112 is capped at 15% for individuals however large the gain (12.5% × 1.15 × 1.04). A quote north of that is a short-term computation or a mistake.

One important clarification worth flagging honestly: you'll find some sources claiming NRIs can still elect a "20% with indexation" alternative for property bought before 23 July 2024 — a benefit the 2024 Finance Act amendment introduced. Read the proviso itself: it gives the choice to a "resident individual or a Hindu undivided family". A non-resident is not in it, so an NRI pays the flat 12.5% on the unindexed gain whatever the purchase date. Sources that say otherwise are reading the resident rule across; ask anyone who quotes you the indexed figure to show you the words of the proviso.

The Real Problem: Sale Price vs. Actual Profit

Here's where the numbers get painful if you haven't planned ahead.

Example: You bought a flat in 2012 for ₹40 lakh. You sell it in 2026 for ₹1.2 crore.

• Your actual capital gain: ₹80 lakh.
• Your real tax liability at 12.5% (plus cess): roughly ₹10–12 lakh.
• Without any advance planning, the buyer is legally required to deduct TDS on the full ₹1.2 crore sale price — which can mean ₹18–24 lakh withheld at closing.

That's potentially ₹10 lakh or more of your own money sitting with the Income Tax Department, not because you owe it, but because the buyer had no authorized way to apply the lower, correct figure. And getting it back means filing for a refund and waiting through India's standard assessment and refund cycle — commonly six months to over a year.

Form 13 (Form 128): The Certificate That Fixes This Before It Happens

This is the single most valuable, most underused tool available to NRI property sellers.

Under Section 197 of the Income Tax Act (renumbered Section 395 under the 2025 Act), any taxpayer expecting their actual tax liability to be lower than the standard TDS rate can apply for a Lower or Nil Deduction Certificate. The application form is Form 13 — now officially Form 128, though most search traffic and most professionals still refer to it by the older name.

What the certificate actually does

You submit your real numbers — cost of acquisition, expected sale price, computed capital gain, expected tax liability — to your Jurisdictional Assessing Officer before the sale is registered. If approved, the certificate legally authorizes the buyer to deduct TDS on your actual estimated tax liability, not the full sale price.

In the ₹1.2 crore example above, an approved Form 13/128 certificate could mean the buyer deducts roughly ₹10–12 lakh instead of ₹18–24 lakh — the correct amount, withheld at the correct point, with no year-long refund wait.

How to file it, step by step

1. Register on the TRACES portal using your PAN — this is the only official channel; Form 13/128 is filed exclusively online, not on paper, following the government's move to online-only applications.
2. Complete the application, entering: type of payment (sale of property), expected sale value, cost of acquisition, capital gains computation, and requested TDS rate.
3. Upload supporting documents: purchase deed, sale agreement, PAN, prior years' income tax returns, and computation working papers.
4. The application routes automatically to your Jurisdictional Assessing Officer, based on your PAN.
5. The Assessing Officer reviews your computation — they may request additional documents or, in some cases, a hearing.
6. If satisfied, the AO issues the certificate, specifying the approved lower (or nil) rate and its validity period — typically until the end of that financial year.
7. You hand the certificate to the buyer, who is then legally authorized to deduct TDS at the approved rate instead of the default full-price rate.

What it costs, and how long it takes

• There is no government fee for filing Form 13/128 — the only cost is professional fees if you engage a CA to prepare the computation.
• Official processing guidance targets around 30 days, though in practice, approval timelines commonly range from a few weeks to a couple of months, depending on the Assessing Officer's workload and how complete your documentation is.
• Timing is everything: this must be approved before your sale is registered. Filing it the week before signing is too late — start the moment you decide to sell, not once a buyer is finalized.

What Happens If You Skip Form 13/128

If you don't apply, or don't get approval in time, here's your realistic path:

• The buyer deducts TDS on the full sale consideration at the applicable LTCG or STCG rate, plus surcharge and cess.
• You then file your Income Tax Return, declaring your actual capital gain and claiming a refund for the excess TDS withheld.
• The refund is processed through the standard assessment cycle — meaning your excess money is genuinely inaccessible to you for many months, sometimes over a year, even though it was never actually owed.

For a moderate transaction, that's a meaningful chunk of working capital sitting idle when it could have funded your next investment, your relocation costs, or simply stayed liquid.

Two Ways to Reduce the Underlying Tax, Not Just the TDS Timing

Form 13/128 fixes the cash-flow problem — getting the right amount withheld at the right time. These two provisions can reduce the actual tax owed:

Section 54 — Reinvesting your long-term capital gain (not necessarily the full sale proceeds) into one new residential property in India, purchased within 1 year before or 2 years after the sale, or constructed within 3 years, can make that gain exempt.

Section 54EC — Investing your long-term gain into specified capital gains bonds (such as NHAI or REC bonds) within 6 months of the sale gives an exemption of up to ₹50 lakh per financial year, without requiring you to buy property at all.

Combine either exemption with a Form 13/128 application, and the certificate calculation should reflect the reduced liability after exemption — meaning even less gets withheld at source in the first place.

Quick Reference: Section 195 vs. Form 13/128 at a Glance

Bottom Line

Section 195 isn't designed to overcharge NRIs — it's designed as a protective default for a situation where the tax department can't otherwise verify your real gain at the point of sale. Form 13 (Form 128) is the mechanism that replaces that default with your actual number, but only if you file it before the sale closes. Skip it, and the "extra" tax isn't lost — it's just stuck, doing nothing for you, for a year you didn't need to wait.

If you're planning to sell property in India, start your Form 13/128 application the day you decide to sell — not the week you're signing. Share this with any NRI you know who's mid-way through a property sale; this single step is the difference between getting the right amount at closing and fighting for a refund next year.

Read alongside: the longer piece on selling property in India as an NRI works through the rates, the surcharge ceiling and the sections 54, 54F and 54EC reinvestment routes in more detail, and the NRI Income Tax Calculator settles the residential status that decides whether section 195 applies to you at all.

This article reflects Section 195 (now Section 393(2)) and Section 197 (now Section 395) of the Income Tax Act, TRACES filing procedures, and applicable TDS rates as understood through September 2026. Tax rates, form numbers, and indexation eligibility are subject to ongoing clarification under the Income-tax Act 2025 transition — confirm your specific computation and eligibility with a qualified Chartered Accountant before filing Form 13/128 or relying on any figure here for an actual transaction.