TDS on Sale of Property by NRI: The 2026 Rules, Rate and Refund Trap

If you are a non-resident selling property in India, the buyer is required to deduct tax on the entire sale consideration, not on your profit, and there is no ₹50 lakh threshold to hide behind. A certificate under section 395 is the only thing that changes that number before the money moves.

Last verified: 5 September 2026 · Applies to: Tax Year 2026-27 (Income-tax Act, 2025)

Contents

• The buyer's lawyer is probably right, and that is the problem
• Why section 194-IA and Form 26QB do not apply to you
• The rate the buyer will actually deduct
• The indexation gap: why the resident in the next flat pays less
• The fix: a certificate under section 395, on Form 128
• Illustrative example: a ₹2 crore flat bought in 2012
• TAN, the challan, and the 1 October 2026 change
• Exemptions that reduce the gain itself
• What the buyer must file after paying you
• Frequently asked questions
• How BVACA can help

The buyer's lawyer is probably right, and that is the problem {#the-buyers-lawyer-is-probably-right}

The call usually goes like this. You are in New Jersey, Slough, Brampton, Dubai or Melbourne. A flat in Mohali or a plot in Panchkula that came to you from your father is finally under offer, and the buyer's advocate has sent a one-line email: "TDS at 14.95% on the full sale consideration." On a ₹2 crore sale that is ₹29.9 lakh withheld before you see a rupee.

Most sellers assume this is a mistake, because a friend who sold a similar flat had 1% deducted. It is not: the friend was resident in India. Arguing rarely helps either, because the buyer carries the personal liability for under-deduction. The only thing that moves the number is a certificate from the Income-tax Department, in hand before the deed is registered.

Why section 194-IA and Form 26QB do not apply to you {#why-194-ia-does-not-apply}

Under the Income-tax Act, 2025, in force from 1 April 2026, the two provisions sit in different places within the same section:

The ₹50 lakh threshold everybody has heard of lives in s.393(1). Your sale is governed by s.393(2). A ₹35 lakh sale by an NRI attracts TDS; the same sale by a resident does not. Section numbers moved wholesale on 1 April 2026, so keep the old-to-new section mapping to hand when reading anything drafted before then.

Form 26QB (the challan-cum-statement for TDS on purchase of property from a resident seller) has been renumbered Form 122 under the Income-tax Rules, 2026. Nothing about its mechanics has changed — the buyer files it and pays TDS via the same route.

The rate the buyer will actually deduct {#the-rate-the-buyer-will-actually-deduct}

The statute states a base rate; what the buyer deducts is a composite. Property held for more than 24 months is a long-term capital asset (s.2(101)), and long-term gains on immovable property carry a base rate of 12.5% under s.197(1)(b), for residents and non-residents alike. On top sits surcharge, which is set by the seller's total income for the year and not by the sale price, capped at 15% where it applies to capital gains, then 4% cess on tax plus surcharge.

Three points matter more than the arithmetic.

The composites are effective rates, not statutory ones, and they are illustrations rather than a lookup table. The statute states 12.5%. Each composite is that base grossed up for a particular surcharge level and cess, so it shows what the arithmetic comes to at that level. It is not a rate to be read off the sale value. If a buyer's lawyer writes "14.95% under section 195", both halves need correcting: section 195 is now s.393(2) Table Sl. No. 17, and 14.95% is the 12.5% base grossed up at the 15% surcharge cap plus cess.

Surcharge follows your total income; the deduction base is the consideration. These are two separate points and they are routinely muddled. Surcharge is a function of the seller's total income for the year, not of the price on the agreement. What the sale price does control in practice is the base: a deductor who has no certificate under s.395 applies the rate to the full sale consideration rather than to the gain, because the buyer cannot know your cost of acquisition and carries the risk of getting it wrong. A rate designed for a gain, applied to a gross sale price, is what traps the cash.

The PAN point is absolute. No PAN, or an inoperative PAN, means 20% on the full consideration. Sorting a PAN takes far less time than recovering the difference as a refund.

Short-term sales are worse. A property held for 24 months or less produces short-term gains at slab rates, and buyers routinely deduct 30% plus surcharge and cess on the full consideration.

The indexation gap: why the resident in the next flat pays less {#the-indexation-gap}

This one surprises even well-advised sellers.

Section 197(3) gives an individual or HUF the lower of (a) 12.5% without indexation or (b) 20% with indexation, on land or a building acquired before 23 July 2024. For a property bought in the 2000s or early 2010s, indexation usually wins by a wide margin. But s.197(3) is expressly limited to "an individual or a Hindu undivided family, being a resident". An NRI gets no indexation at all, on any property, however long held.

On identical flats in the same tower, your resident neighbour computes a smaller indexed gain while you compute the full nominal gain. Either can produce the higher tax on the numbers. What is certain is that any online calculator which does not ask your residential status is giving you the resident answer. Status is decided tax year by tax year, and a long stay in India during the year of sale changes the answer: the day-count tests are in our guide to NRI residential status and the 182 and 120 day rules.

The fix: a certificate under section 395, on Form 128 {#the-fix-section-395}

This is the single most important number-change available to you. Under the 1961 Act you applied on Form 13 under section 197. Under the Income-tax Act, 2025 that moved twice over:

• The application is now made under section 395(1)
• On Form 128 (which replaced Form 13)
• Under Rule 213 of the Income-tax Rules, 2026 (which consolidated the old Rules 28, 28AA, 28AB, 29, 37G and 37H)

The trap to watch for: under the 2025 Act, section 197 now means "tax on long-term capital gains" (the old section 112). It is no longer the lower-TDS section. Anyone drafting "a Section 197 certificate" for a post-1-April-2026 transaction is citing the wrong provision, which usually means the document has not been updated.

What the certificate does is simple: instead of deducting on the gross consideration, the buyer deducts on the proportion of the payment that the Assessing Officer determines represents your taxable income. The rest reaches you at closing rather than eighteen months later. Two related routes: the buyer may apply under s.395(2) (old s.195(2)/(3)) to have that proportion determined, and the Finance Act 2026 introduced automated, rule-based lower and nil TDS certificates under s.395(6) for straightforward cases.

Under the s.395(6) automated, rule-based certificate route introduced by Finance Act 2026, practical turnaround is currently 2 to 4 weeks on a clean file (PAN active, no open demands, prior returns filed) — down from 6 to 8 weeks under the old officer-discretion route. Files with any complication still route to manual review at officer-timeline pace.

Plan the application around the buyer's timeline. Form 128 needs your PAN, the purchase deed, proof of cost, the draft agreement and a computation, much of which sits in a cupboard in India while you are eight to twelve hours away. Start collecting it the week the offer is accepted. The mechanics are in our note on how a section 395 certificate is applied for on Form 128.

Illustrative example: a ₹2 crore flat bought in 2012 {#illustrative-example}

Illustrative example. An NRI resident in Canada sells a flat in Zirakpur for ₹2,00,00,000 (₹2 crore), bought in 2012 for ₹1,10,00,000. Held over 24 months, so long-term, with no indexation available under s.197(3). Her actual gain is ₹90,00,000.

The ₹17,03,000 difference is not extra tax. It is her own money, recoverable once she files her Indian return for Tax Year 2026-27. That return is due 31 July 2027 for a non-audit case, with the refund following processing, so realistically she is without the money for well over a year. Figures are illustrative and rounded. The composites are effective rates at different surcharge levels, not rates keyed to the sale price, and the surcharge that actually applies depends on her total income for the year.

TAN, the challan, and the 1 October 2026 change {#tan-and-the-challan}

Because your sale falls under s.393(2) and not s.393(1), the buyer cannot use the simple challan-cum-statement route that applies to purchases from residents. The buyer has needed a TAN and must file a quarterly TDS return.

This is a common cause of a deal stalling in week three: a first-time individual buyer discovers they need a TAN and the registration date slips. Relief is coming, and if your sale completes in the last quarter of 2026 it matters.

From 1 October 2026, a resident individual or HUF buying from a non-resident may deposit the tax using their PAN-based challan instead of obtaining a TAN. This was inserted as s.397(1)(c)(iii) by the Finance Act 2026.

Two limits: it applies to resident individual and HUF buyers only, so companies, LLPs and firms still need a TAN; and it is a deposit mechanism, so confirm the buyer's continuing return obligations before assuming the whole burden has gone.

Exemptions that reduce the gain itself {#exemptions}

Three capital gains exemptions are available to non-residents. They reduce the tax and support a lower figure in the Form 128 application.

The condition that catches NRIs: under s.82 and s.86 the new house must be in India. A house in Toronto or Dubai does not qualify; a flat in Chandigarh does. Timelines are unchanged: purchase one year before or two years after the transfer, construction within three years, with the Capital Gains Deposit Scheme available where reinvestment is incomplete by the return due date.

s.85 (old s.54EC) IS available to an NRI, capital gains bonds route included — the section is drafted for "any assessee" and does not carve out non-residents, and the NHAI / REC / PFC bond issuers accept NRI investors within the ₹50 lakh per financial year cap.

What the buyer must file after paying you {#what-the-buyer-must-file}

Your refund depends on the buyer's compliance, so know the sequence and chase it.

1. Deposit the tax by the 7th of the following month (30 April for a March deduction).
2. File Form 144, the TDS return for non-resident payees that replaced Form 27Q. Tax Year 2026-27 due dates: Q1 31 July, Q2 31 October, Q3 31 January, Q4 31 May.
3. Issue Form 131, the non-salary TDS certificate that replaced Form 16A.

Until Form 144 is filed the credit does not appear against your PAN and you cannot claim it. Ask for the acknowledgement, not a promise. Getting the money out of India afterwards is a separate FEMA regime, covered in our guide to moving the sale proceeds out of India.

Frequently asked questions {#frequently-asked-questions}

Is there a ₹50 lakh threshold for TDS when an NRI sells property?

No. The ₹50 lakh threshold sits in s.393(1) Table Sl. No. 3(i), which applies to a resident seller. A sale by a non-resident falls under s.393(2) Table Sl. No. 17, which carries no monetary threshold at all. TDS applies to a ₹20 lakh sale by an NRI just as it does to a ₹5 crore one.

Can an NRI claim indexation on a property bought in 2012?

No. Section 197(3), which gives the lower of 12.5% without indexation or 20% with indexation on land or building acquired before 23 July 2024, is expressly restricted to "an individual or a Hindu undivided family, being a resident". A non-resident computes the gain on the actual cost and pays 12.5% plus surcharge and cess.

Is it still called a Section 197 certificate?

Not for transactions after 1 April 2026. The lower or nil deduction certificate is now applied for under section 395(1) on Form 128, under Rule 213 of the Income-tax Rules, 2026. Under the 2025 Act, section 197 means tax on long-term capital gains, the old section 112. The old references were Form 13 and section 197.

I have never filed an Indian return. Do I have to file one now?

If tax has been deducted on your sale you will need to file to claim the credit and recover any excess, and to report the capital gain. You will also need an operative PAN before the sale, because without one the deduction rate goes to 20% on the gross consideration.

How BVACA can help {#how-bvaca-can-help}

Bachhal Vijender & Associates handles the India side of an NRI property sale from a Panchkula base covering Chandigarh, Mohali, Zirakpur and the wider Tricity, as well as property elsewhere in Punjab, Haryana and Delhi NCR. That work usually means computing the real gain, preparing and filing the Form 128 application under s.395(1), answering the Assessing Officer's queries, and briefing the buyer's side so the deduction, the challan and Form 144 are handled correctly.

We work remotely as a matter of routine: documents by email, calls scheduled to your evening in North America, the UK, the Gulf or Australia, and a specific power of attorney where registration in India needs physical presence. Where you have an adviser abroad, we act as the India-side partner and coordinate with them.

If a sale agreement is already signed, the certificate application is time-critical. See our NRI property sale and lower TDS certificate support page, or our wider cross-border tax consultancy work.

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Author box: CA Vijender Singh Bachhal, Managing Partner, Bachhal Vijender & Associates (FRN 028355N), Panchkula. About the firm

Disclaimer: This article is general information current as at 5 September 2026, not advice for a specific situation. Tax and corporate law in India changed materially on 1 April 2026; verify the position before acting. Illustrative examples are not client matters.