TDS Rate on NRI Property Transactions

An NRI sells a flat in India, expecting a clean transfer of sale proceeds. Then the buyer deducts a chunk of money before any payment arrives, and the seller is left wondering why a transaction that felt straightforward suddenly involves the tax department holding a significant share of their money. This is the TDS mechanism at work, and understanding the TDS rate on NRI property transactions properly before you sell can save lakhs of rupees and months of refund waiting.

For years, this deduction lived under Section 195 of the Income Tax Act, 1961. With the new Income Tax Act, 2025 taking effect from April 1, 2026, the relevant provision now sits under Section 393. The underlying principle remains the same: when a buyer purchases property from a non-resident seller, the buyer must deduct tax before making payment, and there is no minimum transaction value below which this obligation disappears. Unlike transactions involving resident sellers, where deduction only kicks in above a fifty lakh rupee threshold, NRI sellers face TDS regardless of sale value.

The rate depends entirely on how long the property was held. If the holding period crosses 24 months, the gain is treated as long-term and taxed at 12.5 percent, without the benefit of indexation, plus applicable surcharge and a 4 percent health and education cess. Hold the property for 24 months or less, and the gain is short-term, taxed instead at the seller's applicable income slab rate plus surcharge and cess.

Surcharge can push the effective long-term rate as high as 14.95 percent for sellers in higher income brackets once cess is layered on. This combined figure is the number that actually gets withheld at the time of payment in most straightforward transactions.

Here is where many NRI sellers lose significantly more money than necessary. Unless a specific certificate has been obtained in advance, the buyer is required to deduct TDS on the entire sale consideration, not merely on the profit portion. A property sold for one and a half crore rupees with only thirty lakh rupees of actual gain can still see TDS calculated on the full one and a half crore figure if no certificate exists. That locks up a substantial sum with the tax department until a refund is processed after filing returns.

The remedy is the lower or nil deduction certificate, formerly issued under Section 197 and now governed under Section 395(1) of the new Act, with applications filed using a form now designated as Form 128. This certificate, once granted by the Assessing Officer, instructs the buyer to deduct TDS only at the rate specified, calculated against the actual capital gain rather than the full sale value. For sellers whose real tax liability is modest relative to the sale price, this single step prevents a large sum from sitting unproductively for months awaiting refund.

Because TDS is deposited differently for non-resident sellers, the buyer must obtain a Tax Deduction Account Number rather than relying solely on PAN, and deposit must happen using Form 27Q rather than the Form 26QB used for resident transactions. A 2025 Delhi High Court matter highlighted exactly why this distinction matters: a buyer who mistakenly filed the resident form on an NRI transaction caused the TDS credit to vanish from the seller's tax records, triggering a reassessment notice years later despite the tax having been correctly paid.

Beyond the certificate route, NRIs can claim exemptions on long-term gains by reinvesting proceeds into another residential property or into specified capital gains bonds, under provisions now renumbered as Sections 82, 85, and 86 of the 2025 Act, previously known as Sections 54, 54EC, and 54F.

The TDS rate on NRI property transactions in India currently stands at 12.5 percent for long-term gains and applicable slab rates for short-term gains, both subject to surcharge and cess that can push the effective figure close to 15 percent. How to reduce TDS on property sale by NRI in India comes down almost entirely to securing a lower deduction certificate before the sale closes. TDS rules for NRI selling property under the new Income Tax Act 2025 have changed section numbers and form references, even where the underlying rates remain familiar. Getting the paperwork right before signing the sale deed protects far more money than fixing it afterward through a refund claim.