Selling Property in India as an NRI: Why the Buyer Withholds Tax on the Whole Price, and How to Stop It (2026)

You sell a flat in India. The buyer is ready, the price is agreed, and then at closing you are handed a figure you were not expecting: a large slice of the sale price — not of your profit — withheld and paid to the Income Tax Department.

Nothing has gone wrong. This is the law working exactly as written. But the amount withheld frequently runs to several times the tax you actually owe, and the difference is yours only in the sense that you will get it back eventually, through a refund cycle that is measured in months rather than weeks.

The gap is avoidable, and the thing that avoids it has to be applied for before the sale is registered. This piece is about that gap: why it opens, how large it typically is, and what closes it.

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Why does the buyer withhold so much?

When a resident sells property in India, the buyer deducts 1% TDS under section 194-IA on anything above ₹50 lakh, and everyone moves on.

When the seller is a non-resident, section 194-IA does not apply at all. Section 195 does, and it works differently. The buyer must deduct tax at the rates in force on the income embedded in the payment — and that is where the problem starts, because the buyer has no way of knowing what your income is.

Your gain depends on what you paid for the property, when, what you spent improving it, and what the transfer cost you. The buyer knows none of that and cannot verify any of it. So, absent an instruction to the contrary from the department, the buyer does the only safe thing available: deducts on the full sale consideration.

That is the mechanism. Not a scam, not a penalty, not the buyer being difficult — simply a withholding obligation applied to a figure the buyer can see, because the figure that ought to be used is one they cannot.

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What rate actually applies to your gain?

Two questions decide it: how long you held the property, and what the sale consideration is.

Held for more than 24 months — long-term. Since 23 July 2024, long-term gains on land and buildings are taxed at a flat 12.5%, without indexation. Surcharge and cess sit on top, but surcharge on long-term gains under section 112 is capped at 15%, which puts a hard ceiling on the whole thing:

• No surcharge: 12.5% × 1.04 = 13.00%
• 10% surcharge (consideration ₹50 lakh to ₹1 crore): 14.30%
• 15% surcharge (above ₹1 crore): 14.95%

That 14.95% is a ceiling, not a step on the way to something worse. It does not keep climbing as the sale price rises, because the surcharge cap holds. If someone has quoted you an effective long-term TDS rate north of 20%, ask them to show you the computation — either they have applied the wrong surcharge, or they are computing a short-term sale.

Held for 24 months or less — short-term. Short-term gains on property carry no special rate. They are added to your total income and taxed at slab rates, and here the surcharge cap does not apply, so a large short-term gain genuinely can be taxed at well over 30% once surcharge and cess are counted. The holding period is not a detail; on a property near the two-year line it is the single most valuable date in the file.

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Can you still choose 20% with indexation?

You will find this asserted confidently in a good deal of online material, and it is worth being direct about it, because acting on it would produce a wrong number.

When the Finance (No. 2) Act 2024 removed indexation, it left a transitional option: for land or buildings acquired before 23 July 2024, the seller may compute the tax at 20% with indexation or 12.5% without, and pay the lower. That relief is real.

It is available only to resident individuals and Hindu Undivided Families. The proviso says "resident", and that word is doing the work. As a non-resident you are outside it, and your long-term gain is computed at the flat 12.5% without indexation whatever the purchase date.

This matters most for a property bought long ago, where indexation would have lifted the cost base substantially. A flat bought in 2005 gets no inflation adjustment at all on a 2026 sale — the gain is the full nominal difference. Any calculation that starts from an indexed cost is starting from a number you are not entitled to use.

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How much money is actually caught in the gap?

Take a concrete case. You bought in 2012 for ₹40 lakh, and you sell in 2026 for ₹1.2 crore.

• Your gain is ₹80 lakh, with no indexation available.
• Tax on that: 12.5% is ₹10,00,000; surcharge at 10% adds ₹1,00,000; cess at 4% adds ₹44,000. Your actual liability is about ₹11.4 lakh.
• What the buyer withholds, absent a certificate: 14.95% of the full ₹1.2 crore — about ₹17.9 lakh.

So roughly ₹6.5 lakh of your money sits with the department until you file a return for the year, it is processed, and the refund is issued. On a sale in, say, May, that money is realistically out of reach until the following year. It is not lost. But it is not available for the deposit on the house you were buying with the proceeds, either.

The gap widens the more of the price is your original cost — which is to say, it is worst for people who did not make a spectacular profit.

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How do you stop the over-deduction?

By asking the department to tell the buyer a different number, before the sale happens.

Under section 197 you can apply for a certificate for deduction at a lower rate, or no deduction at all. The application is made in Form 13 under Rule 28, online through the TRACES portal, to your Jurisdictional Assessing Officer.

What you are doing is showing your working in advance: purchase deed, cost of acquisition, cost of improvement, expected sale consideration, and the resulting computation of the gain. If the officer accepts it, the certificate authorises the buyer to deduct on your estimated tax liability rather than on the sale price. In the example above, that is roughly ₹11.4 lakh withheld instead of ₹17.9 lakh — the difference stays with you at closing rather than joining a refund queue.

Three practical points, in order of how often they cost people money:

• Timing. The certificate has to be in the buyer's hands before they make the payment. Once tax has been deducted and deposited, section 197 cannot help you; your only route back is the refund. Applications commonly take several weeks, and longer if the officer asks for more. Start when you decide to sell, not when you have a buyer.
• The buyer needs a TAN. A buyer deducting under section 195 must have a Tax Deduction and Collection Account Number and file the TDS return. Many individual buyers have never needed one. If your buyer discovers this at the registration desk, your sale stops there.
• Form numbering is in flux. The Income-tax Act, 2025 restates a good deal of the procedural framework, and form numbers are being renumbered as the rules are notified. Confirm the current form and portal route at the time you apply rather than relying on a number quoted in an article, this one included.

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Can you reduce the gain itself?

The certificate fixes the cash-flow problem. These provisions reduce the tax.

Section 54 — you sold a residential house and buy another. Reinvest the gain (not necessarily the whole consideration) in one residential house in India, bought within one year before or two years after the sale, or constructed within three years. Two limits worth knowing: the deduction is capped at ₹10 crore, and while the reinvestment is normally into one house, there is a once-in-a-lifetime option to buy two where the gain does not exceed ₹2 crore. The new property must be in India.

Section 54F — you sold something that is not a residential house. A plot of land, for instance. Here the exemption is proportionate and it is the net consideration, not merely the gain, that has to be reinvested in a residential house — a materially harder condition than section 54, and one people routinely confuse with it.

Section 54EC — you would rather not buy property at all. Invest the long-term gain from land or buildings in specified bonds — NHAI, REC, PFC, IRFC — within six months of the transfer. The cap is ₹50 lakh, and read that carefully: it applies across the year of transfer and the following year taken together, so it cannot be doubled by straddling a March sale. The bonds carry a five-year lock-in and pay modest interest, which is the price of the exemption.

Whichever route applies, decide before you sign. Every one of these clocks starts from the date of transfer, and the reinvestment evidence is also what supports your section 197 application.

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What does it take to get the money out of India?

Selling is one job; remitting is another, under FEMA rather than the Income-tax Act.

• Sale proceeds go first into your NRO account. They cannot be credited directly to an account abroad.
• Remittance out of the NRO balance is subject to the USD 1 million per financial year limit, which covers everything you repatriate from NRO sources in that year, not this sale alone.
• Your bank will require Form 15CA (your declaration) and, in most cases, Form 15CB — a certificate from a Chartered Accountant confirming the nature of the remittance and that tax has been properly dealt with.
• Where the property was itself bought with funds remitted from abroad through banking channels, there are narrower routes with their own conditions. Worth asking about if that is your history, because the answer changes the paperwork.

Banks apply these rules literally. A remittance without the forms does not get processed while somebody investigates; it simply does not get processed.

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What should you do, in order?

1. Establish the holding period from the documents, not from memory. More than 24 months puts you on the long-term rate; less puts you at slab rates.
2. Compute the gain on the flat 12.5% basis, without indexation. As a non-resident that is the only basis available to you.
3. Apply under section 197 before you have a buyer at the table. This is the single largest cash-flow decision in the transaction, and it is the one that expires.
4. Confirm your buyer has a TAN, early enough that obtaining one is not on the critical path.
5. Decide on section 54, 54F or 54EC before signing — the reinvestment clocks run from the transfer date.
6. Get the NRO account and the 15CA/15CB route arranged in advance, not at the point of remitting.
7. Assemble the file: purchase deed, sale deed, proof of improvement costs, past returns, PAN, passport, and your gain computation. Missing documents are what delays the certificate, and the certificate is what protects the money.

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Frequently Asked Questions

How much TDS is deducted when an NRI sells property in India? For a long-term sale, tax is deducted at 12.5% plus surcharge and cess — an effective 13% to 14.95% depending on the consideration — applied to the full sale price rather than the gain, unless a certificate under section 197 says otherwise. For a short-term sale, deduction is at slab rates.

Is the TDS really on the sale price and not the profit? In practice, yes. Section 195 requires deduction on the income embedded in the payment, but the buyer cannot compute your gain, so the safe course is to deduct on the whole consideration. A section 197 certificate is what replaces that with your actual estimated liability.

Can an NRI use the 20% with indexation option on a property bought before July 2024? No. That transitional option is available only to resident individuals and Hindu Undivided Families. A non-resident computes long-term gains at a flat 12.5% without indexation regardless of when the property was bought.

What is Form 13 and when should I file it? It is the application under section 197 for a lower or nil deduction certificate, filed online to your Jurisdictional Assessing Officer. It must be approved before the buyer makes payment — once tax has been deducted, the only route back is a refund. Allow several weeks.

Does the surcharge keep rising on a very large property sale? Not on long-term gains. Surcharge on gains under section 112 is capped at 15%, so the effective long-term rate stops at 14.95% however large the sale. The cap does not apply to short-term gains taxed at slab rates.

Can I avoid the tax by reinvesting? You can reduce or eliminate the gain under section 54 (residential house into residential house), section 54F (other asset into a residential house, reinvesting the net consideration) or section 54EC (up to ₹50 lakh into specified bonds within six months). Each has its own clock running from the date of transfer.

How much money can I send abroad after selling? Up to USD 1 million per financial year from your NRO account, covering all NRO repatriation that year, with Form 15CA and generally Form 15CB in place.

Does the buyer need anything special to deduct the tax? Yes — a TAN, and the obligation to file the TDS return and issue you Form 16A. A buyer who has only ever purchased from residents will not have one, and sorting it out late can hold up registration.

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Sourcing note

This article reflects section 195, section 197 and the capital gains provisions as they stand in September 2026, including the flat 12.5% long-term rate and the 15% surcharge cap under section 112. Two things move faster than an article can: procedural form numbers, which are being restated as the Income-tax Act, 2025 rules are notified, and the FEMA remittance conditions attached to particular purchase histories. Both the rate that applies to you and the route your remittance takes depend on facts specific to your file. Have a qualified professional confirm your computation and your section 197 application before you rely on either.