Selling Property in India as an NRI: The TDS Trap, the Section 197 Fix, and Getting Your Money Out

You agree to sell your Pune flat for Rs 2,50,00,000. You bought it in 2015 for Rs 90,00,000, so on paper the gain is Rs 1,60,00,000 and the tax, even at the new long-term rate, should land under Rs 24,00,000. Then the buyer's bank tells you it must withhold roughly Rs 37,37,500 before a single rupee reaches you. That is not a mistake, and it is not the bank being difficult. It is Section 195 TDS working exactly as designed, and it is the single biggest reason NRI property sales go sideways.

The whole story of selling Indian property as a non-resident lives in the gap between what you owe and what gets deducted at the table. Close that gap before completion and you walk away with your money. Ignore it and you have handed the Income Tax Department a large interest-free loan that takes a return and the better part of a year to claw back.

The 30-second answer: When an NRI sells Indian property held over 24 months, the buyer must deduct TDS under Section 195 at 12.5% plus surcharge and cess on the long-term gain (transfers on or after July 23, 2024), a maximum effective 14.95%. In practice the buyer deducts on the entire sale value, not the gain, unless you obtain a Section 197 certificate on Form 13 before the sale. Unlike residents, NRIs get no 20%-with-indexation option, so a flat 12.5% without indexation applies. Shelter the gain with Section 54, 54EC (Rs 50 lakh bond cap) or 54F. Net proceeds repatriate up to USD 1 million per financial year via Form 15CA and 15CB. Reclaim excess TDS by filing ITR-2 by July 31, 2026.

Filing your return this year? This guide is part of our hub on filing your Indian tax return as an NRI for AY 2026-27. Read that for the full ITR-2 walkthrough, deadlines, and how property gains slot into the return.

This guide assumes you already know your residency status and which account your proceeds will land in; if not, start with the residency guide. What follows is the part that costs real money: why the buyer over-withholds on your full sale value, the Section 197 lever that fixes it, the indexation option residents get and you do not, the three exemptions that genuinely move the bill (Sections 54, 54EC and 54F), and how to get the net proceeds out of India.

The buyer carries the liability, which is why they over-deduct

The first thing to internalise is that the deduction is not your obligation, it is the buyer's, and that single fact explains every over-withholding story you will hear. When you sell to a resident buyer, the buyer is legally responsible for deducting tax at source under Section 195 and depositing it against your PAN. If the buyer deducts too little, the department pursues the buyer, with interest and penalty, not you. So the buyer's incentive is never to deduct your true tax. It is to deduct enough that they can never be accused of shortfall.

This is a completely different regime from a resident-to-resident sale. There the buyer deducts a flat 1% under Section 194-IA on deals of Rs 50 lakh or more and the matter ends. The instant the seller is an NRI, Section 194-IA falls away and Section 195, the catch-all withholding provision for any taxable payment to a non-resident, takes over, with far higher rates and far more paperwork. Many buyers do not even realise the rules switch until their bank or CA flags it mid-deal, which is one reason NRI sales stall at the registration stage.

One piece of friction is finally going. Until now the buyer had to obtain a TAN (a tax deduction account number) to deposit Section 195 TDS, a step that intimidated resident buyers and delayed deals. From October 1, 2026, under the Finance Act 2026, that requirement is being removed for these transactions: the buyer deposits the TDS on a simple PAN-based challan, much like the resident 194-IA process. This is a genuine simplification, but read it correctly. It changes only the deposit mechanism. The rate, the base, and the over-deduction problem are all untouched. A buyer who no longer fears the TAN paperwork is, if anything, slightly more likely to just deduct on the full value and move on.

The rate is fine. The base is where the money disappears

For property held more than 24 months the gain is long-term, and for any transfer registered on or after July 23, 2024 it is taxed at 12.5% without indexation. Add the surcharge, capped at 15% on long-term gains under Section 112, and 4% health and education cess, and the maximum effective rate is 14.95%. That is the number that should come off your gain. It rarely does.

Here is the mechanics of why. The law lets the buyer deduct on the gain, but the buyer cannot compute your gain. They do not have your purchase deed, your record of capital improvements, or your acquisition history, and they are not permitted to simply trust the figure you write on a napkin. Personally liable for any shortfall, the buyer's only safe move is to deduct 14.95% on the entire sale consideration. So on the Rs 2,50,00,000 Pune sale, the 14.95% comes off Rs 2,50,00,000, producing roughly Rs 37,37,500 withheld, against a true liability of about Rs 23,92,000. The difference, more than Rs 13 lakh, is your own money sitting with the government.

That over-deduction is not lost. You reclaim it when you file your return. But "reclaim it next financial year" is a poor plan when the trapped sum runs into double-digit lakhs and you are managing it from another country. There is a cleaner route, and it is the most valuable thing an NRI seller can do.

Section 197: deduct on the gain, not on the whole sale

Section 197 lets you apply to the Assessing Officer for a certificate that authorises the buyer to deduct at a lower rate, computed on your actual gain rather than the gross sale value. Most NRIs discover it exists only after the deal has closed and the money is already gone. Apply before the sale and the over-deduction simply never happens.

You apply on Form 13 through the income-tax e-filing or TRACES portal, ahead of completion. You submit the full computation of your capital gain, the purchase deed, proof of cost and improvements, the draft sale agreement, and the buyer's details. The Assessing Officer reviews it and, if satisfied, issues a certificate specifying the exact rupee amount or rate of TDS the buyer must apply. If your computation shows a Rs 1,60,00,000 gain, the certificate caps the deduction at the tax on that gain, and the buyer deducts strictly to the certificate.

Two things decide whether this works for you. The first is timing. The process realistically runs four to eight weeks, sometimes longer if the officer raises queries, so start it well before your expected completion date. A certificate that arrives after registration is worthless. The second is that you can fold your exemptions into the same application. If you intend to claim Section 54, 54EC or 54F, build them into the Form 13 computation, and the officer can certify a deduction on the net taxable gain after exemptions. In many sales that brings the certified TDS close to nil, which is the difference between repatriating almost your whole proceeds now versus next year.

Put the two scenarios side by side with Priya, an NRI in London selling that Pune flat. Her actual tax, with no exemption claimed, runs through cleanly: 12.5% of the Rs 1,60,00,000 gain is Rs 20,00,000; the gain crosses Rs 1 crore so 15% surcharge adds Rs 3,00,000; 4% cess on the Rs 23,00,000 subtotal adds Rs 92,000; total Rs 23,92,000, which is exactly 14.95% of her gain. Now the fork. Without a Section 197 certificate, the buyer's bank applies 14.95% to the full Rs 2,50,00,000 and withholds Rs 37,37,500. Priya receives Rs 2,12,62,500 at the table, and Rs 13,45,500 of her own money is locked with the department until ITR-2 is filed and the refund processes, with no interest for the cash she could not deploy. With a certificate, the officer certifies TDS at Rs 23,92,000, the buyer deducts exactly that, and Priya receives Rs 2,26,08,000. The certificate changed her tax by zero rupees. It changed her cash flow by Rs 13,45,500, hers now rather than a year from now. That is the entire point: Section 197 is not a tax saving, it is a liquidity instrument, and on a deal this size the few weeks of paperwork are the best-paid hours of your year.

Why you pay more than the resident selling the flat next door

Now the structural disadvantage, the one no amount of paperwork fixes. When Finance (No. 2) Act 2024 cut the long-term property rate from 20% to 12.5%, it also removed indexation, the adjustment that inflated your cost of acquisition for inflation and shrank the taxable gain. After the public backlash, the government added a grandfathering choice for property acquired before July 23, 2024: compute under both methods, 20% with indexation or 12.5% without, and pay whichever is lower.

That choice was written for resident individuals and HUFs only. As an NRI or OCI you are excluded by the statute itself. You pay 12.5% without indexation, full stop, even on a flat you have owned for fifteen years where indexation would have erased most of the gain. There is no argument around it; it is in the section.

The gap is easiest to see on one flat in two different hands. A flat bought in 2010 for Rs 50,00,000 sells in 2026 for Rs 1,50,00,000, and assume the indexed cost, had indexation applied, would be about Rs 1,15,00,000. A resident gets to choose: 12.5% on the unindexed gain of Rs 1,00,00,000 is Rs 12,50,000, or 20% on the indexed gain of Rs 35,00,000 is Rs 7,00,000. They pick the lower and pay roughly Rs 7,00,000 plus surcharge and cess. An NRI has no such choice and pays Rs 12,50,000 plus surcharge and cess on the same flat. That is roughly Rs 5.5 lakh more, purely from being denied the indexation option. The longer you have held and the more modest the real appreciation, the wider this gap opens. It is reason enough to think hard about whether to sell a long-held Indian property at all, or to let it out and revisit later. See the capital gains guide for shares and mutual funds for how the same no-indexation logic plays out across asset classes.

Computing the gain, and the surcharge that bites without indexation

The computation itself is mechanical once you have the inputs. Take the full value of consideration, which is your sale price or the stamp-duty (circle-rate) value if that is higher. Subtract the cost of acquisition, the cost of improvement (genuine capital additions, not repairs), and transfer expenses like brokerage and sale-related legal fees. What remains is your long-term capital gain, taxed at 12.5% plus surcharge and cess.

The consequence of losing indexation is not just a higher base. It is that the surcharge bites earlier. Because your cost is frozen at the historical figure, the headline gain on a long-held property can be large even when your real, inflation-adjusted profit is modest, and a large gain pushes you across the surcharge thresholds: 10% above Rs 50 lakh of total income, 15% above Rs 1 crore. The 15% cap on long-term gains under Section 112 protects you from the punitive 25% and 37% bands, but the 10% and 15% layers still apply, and indexation used to keep many sellers under those lines entirely. That interplay is exactly what the exemptions can defuse.

The three exemptions that actually move the bill

NRIs claim the same long-term exemptions as residents, and three matter for property.

Section 54 applies when you sell a residential house and reinvest the gain in another residential house in India. Buy the replacement one year before or two years after the sale, or construct within three years, and the gain is exempt to the extent reinvested. The reinvestment exemption under Sections 54 and 54F together is capped at Rs 10 crore.

Section 54F applies when you sell a long-term asset that is not a residential house, a plot of land or shares, for example, and reinvest the entire net sale consideration, not merely the gain, in one residential house in India. Because it keys off the whole sale value, the conditions are stricter: you must not own more than one other residential house on the date of sale, and partial reinvestment gives only proportionate relief.

Section 54EC is the one to reach for when you do not want to buy more property. Invest the gain, up to Rs 50 lakh per financial year, in capital-gains bonds issued by NHAI or REC within six months of the sale, and that slice of the gain is exempt. The bonds carry a five-year lock-in and a modest coupon. The Rs 50 lakh ceiling is per financial year, so a sale that falls close to March 31 can sometimes be sheltered across two financial years, up to Rs 1 crore, but only if the timing genuinely straddles the year-end.

Watch the surcharge interaction, because that is where 54EC earns its keep beyond the headline saving. Take Arjun, an NRI in Dubai, selling an inherited plot held well over 24 months: sale Rs 1,20,00,000, cost Rs 40,00,000, long-term gain Rs 80,00,000. Left unsheltered, his gain crosses the Rs 50 lakh surcharge line, so tax at 12.5% is Rs 10,00,000, 10% surcharge adds Rs 1,00,000, and 4% cess on Rs 11,00,000 adds Rs 44,000, for Rs 11,44,000. Now he puts Rs 50,00,000 into REC 54EC bonds within six months. His taxable gain drops to Rs 30,00,000, which falls below the Rs 50 lakh surcharge threshold entirely, so tax at 12.5% is Rs 3,75,000, surcharge is nil, and cess is Rs 15,000, for Rs 3,90,000. The Rs 50 lakh investment cut his tax from Rs 11,44,000 to Rs 3,90,000, a saving of Rs 7,54,000, partly because it sheltered Rs 50 lakh of gain and partly because it knocked him out of the surcharge band. The trade-off is real: Rs 50,00,000 is locked for five years at a modest coupon, and whether that beats paying the tax and deploying the freed cash elsewhere depends on the return you can earn over five years. For an NRI who wants a low-effort shelter and does not need the liquidity, 54EC is clean. For someone with a high-return use for the money, paying the tax can be the smarter call.

The two tools stack, and that is the move most sellers miss. If Arjun folds the 54EC investment into a Section 197 application, the Assessing Officer can certify TDS on the net Rs 30,00,000 gain, so the buyer withholds close to Rs 3,90,000 rather than 14.95% of the full Rs 1,20,00,000, which would be Rs 17,94,000. Exemption plus certificate together collapse a near-Rs-18-lakh withholding to under Rs 4 lakh, with nothing trapped and nothing to reclaim.

One note on the legal numbering. The Income Tax Act, 2025 replaces the 1961 Act from April 1, 2026 and renumbers these provisions, with Sections 54, 54EC and 54F carried into the new Act under fresh numbers. The substance for FY 2025-26 and FY 2026-27 is unchanged, so this guide keeps the familiar labels. Read the dedicated Sections 54, 54EC and 54F guide for the reinvestment timelines and the capital gains account scheme that parks proceeds while you find a replacement house.

A decision table for the seller deciding what to do

Your situation	The default outcome	What to do instead
Any sale large enough to matter	Buyer withholds 14.95% on full sale value	Apply for a Section 197 certificate on Form 13 before completion
You will buy another house in India	Pay tax, then reinvest with no relief	Claim Section 54 (house) or 54F (other asset); fold into Form 13
You do not want more property	Pay the full 12.5% plus surcharge and cess	Section 54EC bonds, up to Rs 50 lakh, within six months, five-year lock-in
Long-held flat, modest real gain	Flat 12.5% no indexation; resident pays less	No indexation fix exists; weigh selling vs letting out
Sale straddling March 31	One year's Rs 50 lakh 54EC cap	Split 54EC across two FYs for up to Rs 1 crore shelter
Co-owned with spouse	Single PAN bears the whole gain	Split gain across two PANs, two USD 1 million limits, two Form 13s

Getting the money out: the repatriation rules

Selling is half the job. Moving the net proceeds abroad runs on its own rules and trips people who assumed the hard part was over. Proceeds from property you bought while resident, or inherited, generally land in your NRO account first. From there the RBI permits repatriation of up to USD 1 million per financial year (April 1 to March 31). This is a per-person ceiling that pools everything you remit from the NRO account that year, not just property proceeds but also rent, dividends and interest. Two people who co-owned a flat each have their own USD 1 million limit on their share, which is one more reason joint ownership helps.

For any outward remittance above Rs 5 lakh in a financial year, two forms are mandatory. Form 15CB is a certificate from a chartered accountant confirming the income being remitted has borne the applicable Indian tax. Form 15CA is your own online declaration to the department, drawing on the 15CB. The bank will not move the money without both. The logic is simple: India wants proof the tax was paid before the funds leave the country. This is exactly why getting the TDS and exemptions right at the sale stage pays off twice, because if your gain was sheltered or your tax fully discharged, the CA issues the 15CB without friction. If there is unpaid tax, repatriation stalls until it is settled. Need more than USD 1 million in a single year and you must apply specifically to the RBI, granted in defined circumstances but never automatic. For most single-property sales the ceiling sits comfortably above the net proceeds, and the real bottleneck is the 15CA and 15CB paperwork, not the limit. The full mechanics are in the NRO repatriation process.

Then file ITR-2 and close the loop

Whether or not you obtained a Section 197 certificate, you file your Indian return for the year of sale. NRIs with capital gains cannot use ITR-1 or ITR-4; the correct form is ITR-2, which handles capital gains, multiple house properties, non-resident status and foreign assets. You report the sale, the computed gain, any exemptions under 54, 54EC or 54F, and the TDS already deducted, which you cross-check against Form 26AS and the annual information statement. If TDS exceeded your liability, the excess returns as a refund to your bank account. For FY 2025-26 (AY 2026-27) the due date for individuals not subject to audit is July 31, 2026. File on time; late filing can cost interest on the refund and, in some cases, the ability to carry forward losses. The mechanics of recovering over-deducted tax are in TDS for NRIs and how to claim refunds.

Edge cases worth pricing in

Short-term sales. Held the property 24 months or less and the gain is short-term, taxed at your slab rate rather than 12.5%, with TDS typically deducted at the highest slab, roughly 30% plus surcharge and cess. None of the long-term exemptions apply. Where feasible, holding past the 24-month mark changes the entire tax character of the sale.

Inherited property. On inheritance your holding period and cost of acquisition step back to the previous owner's. A flat your father bought in 2005 and you inherited in 2022 is long-term in your hands, and your cost is his cost. This helps the holding period and hurts the base, since his low historical cost becomes yours with no indexation cushion to soften it.

Stamp-duty value above the agreement price. If the agreed price is below the circle-rate value, the higher stamp-duty value is generally treated as the consideration for computing your gain, subject to a tolerance band. Selling below circle rate does not shrink your taxable gain; it can enlarge it.

NRE versus NRO routing. Funds in an NRE account repatriate freely without the USD 1 million cap, but property proceeds from assets bought with resident or inherited funds belong in NRO, where the cap and the 15CA/15CB process apply. Do not assume your proceeds qualify for free NRE repatriation; confirm the routing before you plan around it. See NRE, NRO and FCNR accounts compared.

The honest read

The tax on selling Indian property as an NRI is not the monster most sellers fear. At 12.5% plus surcharge and cess the rate is lower than it was. The real problem is the machinery: a buyer forced to deduct on your full sale value because the law makes them personally liable, a stack of forms standing between your money and your foreign account, and a refund cycle that can park lakhs with the government for a year. And layered on top is the one disadvantage you cannot paperwork your way out of, the lost indexation option that makes your gain heavier than the resident's on the identical flat.

So here is the recommendation, and it holds for almost every NRI seller. Apply for the Section 197 certificate before you sell, every time the deal is large enough to matter, and fold any 54, 54EC or 54F exemption into that same application so the certified TDS reflects your true, post-exemption gain. Line up your chartered accountant for the 15CB before completion, not after. Do those two things and you walk away with your net proceeds in hand, abroad, within weeks, having paid exactly what you owed and not a rupee more on loan to the department. The one seller who should pause longer is the owner of a long-held, modestly-appreciated flat: run the no-indexation number first, because the tax may be heavy enough that letting the property out beats selling it this year. Skip the preparation and the law will still let you sell. It will just make you wait a year to see your own money.

Related guides

• Buying property in India as an NRI
• Repatriating investment proceeds from India
• Building an India corpus as an NRI
• Capital gains tax for NRIs on shares and mutual funds
• Capital gains exemptions: Sections 54, 54EC and 54F
• TDS for NRIs and how to claim refunds
• The lower-TDS certificate (Form 13, Section 197)
• Tax on Indian rental income for NRIs
• Filing your ITR as an NRI for AY 2026-27
• NRI residency and RNOR rules
• The NRO repatriation process, step by step
• NRE, NRO and FCNR accounts compared
• All investment guides
• All taxation guides

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This guide is general information for Indian expats, not personal tax, legal or investment advice. Tax rates, surcharge thresholds, exemption limits and repatriation rules change, and your own position depends on your residency status, holding period, and the year of sale. Section 197 outcomes are at the discretion of the Assessing Officer. Confirm the current rules and your specific facts with a qualified chartered accountant before acting, particularly on the timing of a Section 197 application and any 15CA/15CB remittance.