TDS on sale of property by NRI, and how to claim it back

Selling a flat in India from abroad comes with a shock for most NRIs: the buyer holds back a large slice of the price as tax deducted at source (TDS), often far more than the tax you actually owe. On a ₹1.5 crore sale, ₹20 lakh or more can be held back until you file a return and claim it.

That money isn't lost. But knowing the rules before you sign can cut the deduction, or get it back faster. This guide covers the rates, the new rule for buyers from 1 October 2026, the lower deduction certificate and the refund, as checked on 26 October 2026.

Key points

• When the seller is a non-resident, the buyer must deduct TDS on the whole sale price, with no ₹50 lakh threshold (unlike the 1% on resident sellers).
• For property held more than 24 months, the rate is 12.5% plus surcharge and cess, up to about 14.95%. For shorter holdings, up to about 39%.
• A lower deduction certificate from the tax department lets the buyer deduct only on your real gain.
• From 1 October 2026, resident individual and HUF buyers can pay this TDS against their PAN, without a separate TAN.
• Excess TDS comes back as a refund when you file an Indian return.

Why NRI sellers face a bigger deduction

When a resident sells property worth ₹50 lakh or more, the buyer deducts just 1%. When the seller is a non-resident, the rule is different. Under the Income-tax Act, 2025 (Section 393(2), which replaced Section 195 of the old Act from 1 April 2026), the buyer must deduct tax at the rate that applies to the seller's capital gain, and in practice they deduct it on the entire sale price, because they can't know your purchase cost.

Why it matters: NRIs own a large share of flats in Indian cities, many bought years ago with savings from the Gulf, the US or the UK. As families sell to fund homes abroad or care for parents, this deduction decides how much money arrives on time. For buyers in India, getting it wrong carries interest and penalties, so many sales stall at the registration office over TDS.

The rates

Surcharge depends on the size of the income: 10% when it's above ₹50 lakh and 15% above ₹1 crore for capital gains. So on a sale above ₹1 crore, long-term TDS works out to 14.95% of the amount it's applied to.

No indexation for NRIs. Since 23 July 2024, long-term gains on property are taxed at 12.5% without adjusting the cost for inflation. Residents got a choice for property bought before that date (20% with indexation, or 12.5% without). Non-residents didn't.

A worked example

Rahul lives in Dubai. He bought a Mumbai flat in 2015 for ₹80 lakh and sells it in November 2026 for ₹1.5 crore.

• His real tax: the long-term gain is ₹70 lakh. Tax at 12.5% is ₹8.75 lakh; with a 10% surcharge and 4% cess, about ₹10 lakh.
• TDS without a certificate: the buyer applies 14.95% to the full ₹1.5 crore, about ₹22.4 lakh.
• The gap: roughly ₹12.4 lakh of Rahul's money sits with the tax department until he files a return and gets a refund, often a year or more later.

At about ₹94.9 to the dollar in late October 2026, that gap is about $13,000 locked up.

How to reduce the deduction: the lower deduction certificate

The fix is a lower or nil deduction certificate from your Assessing Officer. Under the new Act it's applied for on Form 128 under Section 395 (it was Form 13 under Section 197 of the old Act), online through the TRACES portal.

You'll usually need:

• your PAN and proof of non-resident status (passport pages with travel stamps);
• the sale agreement and the original purchase deed;
• a working of your capital gain, with costs of improvement and any reinvestment you plan;
• details of the buyer.

Apply well before the sale date: processing can take weeks. The certificate names the buyer and a rate, so the buyer deducts only on your actual gain.

What the buyer has to do

1. Deduct TDS when paying, including on any advance or instalment.
2. Deposit it within seven days from the end of the month of deduction.
3. File the TDS statement for non-resident payments and give the seller a TDS certificate.

The 1 October 2026 change. Until 30 September 2026, every buyer, including an ordinary family buying a flat, had to get a TAN (Tax Deduction Account Number) before paying the TDS. The Finance Act, 2026 removed that for resident individuals and HUFs: from 1 October 2026 they can deposit the TDS against their PAN using a challan-cum-statement, much like the 1% TDS on resident sellers. The rates and the duty to deduct haven't changed. Many sub-registrar offices still ask for proof of TDS payment at registration, so keep the challan.

Getting your money back

1. File an Indian income tax return for the tax year of the sale (usually ITR-2 for NRIs). Report the gain, claim the TDS shown in your tax credit statement, and claim any exemption.
2. Reinvestment reliefs can cut the tax itself. The old Act's reliefs for buying another home in India (known as Section 54), and for investing in specified bonds within six months (Section 54EC, up to ₹50 lakh), continue in the new Act under new section numbers.
3. The refund goes to your Indian bank account once the return is processed. Pre-validate the account on the e-filing portal.
4. Use the treaty. Most countries where NRIs live let you credit Indian tax against your local tax on the same gain. See our guides to the India US tax treaty and tax for Indians in the UK.

Sending the money abroad

Sale proceeds usually go to your NRO account. From there you can send up to $1 million a financial year abroad, with a chartered accountant's certificate (Form 15CB) and your declaration (Form 15CA). Money from up to two homes bought with foreign funds can go back under a separate route. Our explainer on whether OCI cardholders can buy property covers repatriation in detail, and NRE, NRO and FCNR accounts explains the accounts.

The deduction on an NRI sale is designed to protect the tax department, not to guess your real bill. Sellers who plan three months ahead, with a certificate in hand before the agreement, usually get most of their money on the day of sale.

Last checked: 26 Oct 2026. This explainer is general information, not tax advice. Consult a qualified chartered accountant before you sell.