In Brief
An NRI selling a flat in India often receives less than the sale deed amount because of withholding tax, usually higher than the actual tax liability. This outcome is by design under Section 195 (now Section 393(2) of the Income-tax Act, 2025). Understanding these rules and the recent renumbering in the new Act is essential to avoid lengthy refund claims and ensure a smooth transaction.
01. Two Withholding Regimes, Not One
Confusion often arises from comparing resident-to-resident property sales with NRI transactions. Section 194-IA (now Section 393(1), Table Serial 3(i)) applies a flat 1% TDS above ₹50 lakh, deducted using the buyer's PAN without requiring a TAN.
For non-resident sellers, these provisions do not apply. There is no ₹50 lakh threshold, no flat 1% rate, and no PAN-only option. Buyers must follow a stricter regime based on the seller's actual income-tax liability.
| Description | Resident seller | NRI seller |
|---|---|---|
| Threshold | Applies only above ₹50 lakh | None — applies from the first rupee |
| TDS computed on | 1% flat on full consideration | Rate applied to the estimated gain, in practice, the full consideration |
| Buyer's TAN | Not required — PAN suffices | Mandatory |
| Statement / challan | Form 26QB → Form 141 | Form 27Q → Form 144 (quarterly) |
| Certificate to seller | Form 16B → Form 132 | Form 16A → Form 131 |
A relaxation permitting resident individual/HUF buyers to use PAN instead of TAN for NRI-seller transactions takes effect only from 1 October 2026; TAN remains mandatory for deals closing before that date.
02. What the Seller Actually Owes
The core tax liability is based on capital gains. Property held for more than 24 months is considered a long-term asset; otherwise, it is short-term.
Long-term gains (held over 24 months) are taxed at a flat 12.5% without indexation for transfers after 23 July 2024. Unlike residents, NRIs cannot opt for the older 20% with indexation regime for property acquired before this date. Short-term gains (held 24 months or less) are taxed at the applicable slab rate, and non-residents are not eligible for the Section 87A rebate under either regime.
Surcharge and Cess
Surcharge applies according to standard income slabs: 10% above ₹50 lakh, 15% above ₹1 crore, 25% above ₹2 crore, and 37% above ₹5 crore.
For long-term capital gains under Section 112 (now Section 197), the surcharge is capped at 15%, regardless of total income. A 4% health and education cess applies to the total tax and surcharge.
Illustration — NRI Selling a Gurugram Flat, FY 2026-27
| Sale consideration | ₹1,80,00,000 |
| Cost of acquisition (2012, no indexation available) | ₹45,00,000 |
| Long-term capital gain | ₹1,35,00,000 |
| Tax @ 12.5% | ₹16,87,500 |
| Surcharge @ 15% (capped for LTCG) | ₹2,53,125 |
| Cess @ 4% | ₹77,625 |
| Actual tax liability | ₹20,18,250 |
| TDS deducted by buyer, absent a certificate (~14.95% on full consideration) | ₹26,91,000 |
Roughly ₹6.73 lakh is withheld over and above the real liability — money that sits with the department until the NRI files a return and claims the refund, typically many months later.
03. The Renumbering: Section 195 Becomes Section 393(2)
All NRI property transactions closing on or after 1 April 2026 are governed by the Income-tax Act, 2025, not the 1961 Act still referenced by many advisories and banks. The underlying policy remains unchanged, but all section and form references have been updated. Incorrect references on sale deeds, TDS challans, or CA certificates now cause compliance errors.
| Provision | Income-tax Act, 1961 | Income-tax Act, 2025 (from 1 Apr 2026) |
|---|---|---|
| TDS on non-resident payments | Section 195 | Section 393(2), Table Sl. No. 17 |
| LTCG rate provision | Section 112 | Section 197 |
| Lower / nil TDS certificate | Section 197 | Section 395 |
| Application for that certificate | Form 13 | Form 128 |
| Quarterly TDS return, non-resident payments | Form 27Q | Form 144 |
| TDS certificate issued to seller | Form 16A | Form 131 |
| Remitter's self-declaration (repatriation) | Form 15CA | Form 145 |
| CA certificate for remittance (repatriation) | Form 15CB | Form 146 |
Transactions with a credit or payment event on or before 31 March 2026 continue to be governed by the 1961 Act and its original form numbers. We treat the mapping above as current based on the Act and CBDT notifications available at the time of writing, and verify it against the latest circulars before relying on it for a specific filing.
04. Why the Deduction Is Almost Always Higher Than the Liability
Section 393(2), like Section 195 before it, requires TDS on "any sum chargeable to tax," meaning only the capital gains component. In practice, buyers rarely have the information to confidently compute an NRI seller's actual gain, cost of acquisition, or holding period. An under-deduction exposes the buyer, not the seller, to interest and penalties.The safe default, without documentary intervention, is to withhold on the entire sale consideration at the applicable rate plus surcharge and cess. Unlike Section 194-IA, there is no ₹50 lakh floor below which this does not apply.
That gap between deduction and liability is not a drafting flaw the seller has to absorb — it's precisely what the lower deduction certificate exists to close, provided it's obtained before the sale deed is signed rather than after.
05. Closing the Gap: The Lower/Nil Deduction Certificate
During the drafting stage of the Income-tax Bill, 2025, several commentators flagged that the proposed Clause 395 appeared to drop the "nil" option entirely, leaving only lower-rate certificates. That concern did not survive into the enacted Act. Section 395(1)(b) of the Income-tax Act, 2025, as notified, explicitly empowers the Assessing Officer to certify deduction "at a lower rate or no deduction of tax" — the nil-rate route for a taxpayer with no net Indian tax liability remains available, now applied for through Form 128, which replaces the erstwhile Form 13.
Practical Sequencing
The certificate must be in the buyer's hands before the deduction happens. It does not apply retroactively to amounts already withheld. For a sale under negotiation, the application (Form 128, addressed to the jurisdictional or International Taxation Assessing Officer) should be filed well before the sale deed is finalised. It must include the computation of gain, proof of cost, TRC if a treaty claim applies, and return-filing history for preceding years.
Certificates are usually issued for a specific Tax Year and transaction value. A certificate obtained too early or for different terms can still cause a mismatch at closing.
06. What the DTAA Actually Does Here — and What It Doesn't
Clients often assume a favourable tax treaty — India-UAE, India-USA, India-UK, India-Singapore — will shrink the Indian withholding on a property sale. It generally won't. Almost every Indian DTAA's immovable property article gives the situs country (India, where the property sits) the unrestricted right to tax gains on its transfer. The treaty's real function here is downstream: it allows the NRI to claim a foreign tax credit for the Indian tax paid when filing a return in the country of residence, preventing the same gain from being taxed twice, rather than reducing the amount withheld in India.
It’s also worth distinguishing property from listed securities on one specific point. Section 48’s second proviso lets non-residents compute gains on shares and debentures acquired in foreign currency by working in that foreign currency and converting only at the end — neutralising pure rupee depreciation from the taxable gain. That relief is specific to shares and debentures; there is no equivalent foreign-currency computation available for immovable property, however much of the seller’s “gain” is really currency movement rather than real appreciation.
07. Reducing the Liability Lawfully
Exemptions under Sections 54, 54EC and 54F are open to NRIs on the same footing as residents, and critically should be built into the lower deduction certificate application itself rather than left for the refund stage.
Section 54
Available where the asset sold is a residential house held long-term. The LTCG (not the full consideration) must be reinvested in one residential property in India, purchased within one year before or two years after the transfer, or constructed within three years.
Section 54EC
The gain up to a ₹50 lakh cap can instead be parked in specified capital gains bonds (NHAI, REC, PFC and similar), within six months of transfer, with a five-year lock-in. Useful where reinvesting in another property doesn't fit the client's plans.
Section 54F
Where the asset sold is not itself a residential house — a plot, a commercial unit — the exemption instead requires reinvesting the entire net sale consideration (not just the gain) into one residential house, with proportionate exemption if only part is reinvested.
08. After the Sale: Repatriating the Proceeds
Transferring the net sale proceeds out of the NRO account is a FEMA process that comes after the tax process. It also follows the same renumbering of forms.
The remitter's self-declaration, formerly Form 15CA, is now Form 145. The Chartered Accountant's certificate for the remittance, which was Form 15CB, is now Form 146.
One Important Detail
If the remitter already has a Section 395(1) lower- or nil-deduction certificate and files the correct part of Form 145, a separate Form 146 is not required for that remittance. The AO's certificate covers what the CA's Form 146 would normally do. But sometimes banks still ask for the Chartered Accountant's certificate for remittance, i.e. Form 146.
Before the Sale Deed Is Signed
Before signing the sale deed, confirm the seller's residential status for the right tax year, rather than relying on their passport or address. Document the holding period and cost of acquisition, including any inherited property details that affect the holding period. The buyer must have both a TAN and PAN, and the NRI seller's PAN must be valid and linked. If the estimated tax is much less than the full sale price, file the Section 128 (lower/nil deduction certificate) application early enough to have it before signing. If you plan to use Section 54, 54EC, or 54F reinvestment, include this in the certificate application instead of waiting for a refund. Plan the repatriation process (Form 145/146) and how it works with the Section 395 certificate before the sale, so funds do not get stuck in the NRO account.
Pre-Signing Checklist
- Residential status of the seller confirmed for the relevant Tax Year, not assumed from the passport or address on file.
- Holding period and cost of acquisition documented, including any inherited-property lineage that affects the holding period.
- Buyer has a TAN and PAN in place; NRI seller's PAN is valid and linked.
- Section 128 (lower/nil deduction certificate) application filed early enough to be in hand before signing, if the estimated liability is materially below a full-consideration deduction.
- Section 54 / 54EC / 54F reinvestment intent, if any, factored into the certificate application rather than left for the refund.
- Repatriation route (Form 145/146) and any interplay with the Section 395 certificate mapped out before the sale, not after funds are stuck in the NRO account.
Key Takeaways
- NRI property sales are never governed by the resident 1%-and-₹50-lakh rule — Section 195/393(2) applies from the first rupee, with no threshold.
- Indexation for property is gone for non-residents entirely; the 12.5% rate is flat regardless of how old the acquisition is.
- Deals closing from 1 April 2026 sit under the Income-tax Act, 2025 — Section 393(2), Section 395, and Forms 128/144/131/145/146 replace the familiar 1961-Act references.
- Absent a certificate, TDS is typically withheld on the full sale price, not the gain — the excess is recoverable only through a refund claim.
- The nil-rate certificate survived the transition to the new Act — Section 395(1)(b) still permits "no deduction," despite early concern to the contrary.
- A DTAA rarely reduces Indian withholding on property gains; it mainly enables a foreign tax credit at the residence-country return stage.
- Sections 54, 54EC and 54F remain fully open to NRIs and should be built into the certificate application, not just claimed on refund.
- A Section 395 certificate, correctly filed with Form 145, can remove the need for a separate Form 146 on the same repatriation.
Scope note: This article explains the general legal framework as understood at the time of writing; it is not a substitute for a transaction-specific opinion, and rates, thresholds, and form numbers are subject to notification and amendment. Sandeep Singla & Associates, its partners, and staff disclaim all liability for any loss, damage, or expense incurred by any person in connection with reliance on this article. This article has been prepared for informational purposes only. Not professional or legal advice. Laws subject to notification and amendment. Consult a qualified professional before acting.