TDS on Sale of Property by NRI: Rates, Form 128, and How to Avoid the Gross-Value Trap

Selling property in India as an NRI sounds straightforward until you discover that the buyer is required to withhold 12.5% to 30% of the entire sale price — not your profit — before handing you a single rupee.

This is Section 195 of the Income Tax Act, and it blindsides thousands of NRI sellers every year. The good news: a specific certificate, now filed through Form 128, legally reduces that withholding to match your actual tax liability. Here is exactly how it works.

Why TDS on NRI Property Sales Is Unusually Harsh

When a resident Indian sells property worth more than ₹50 lakh, the buyer deducts 1% TDS under Section 194-IA. Simple.

When an NRI sells property — any property, any amount — the rule shifts to Section 195. Two things change dramatically:

No minimum threshold. There is no ₹50 lakh exemption. Even a ₹10 lakh plot triggers the full TDS obligation.

Withholding on gross consideration, not profit. The buyer must deduct TDS on the entire sale price. If you sell a flat for ₹1 crore that you bought for ₹85 lakh, your actual long-term capital gain is ₹15 lakh. But the buyer is legally required to withhold 12.5% of ₹1 crore — that is ₹12.5 lakh — before paying you.

The result: ₹12.5 lakh blocked with the Income Tax Department, even though your actual tax liability on ₹15 lakh of gains works out to roughly ₹1.88 lakh. You eventually get the excess back as a refund, but only after filing an ITR and waiting months.

What Are the Actual TDS Rates?

Following the Union Budget 2024, long-term capital gains (LTCG) for properties held more than 24 months are taxed at 12.5% — down from the earlier 20% with indexation. The indexation benefit was simultaneously removed.

For short-term capital gains (property held 24 months or less), the rate is the NRI's applicable income tax slab rate, which frequently defaults to 30% because the buyer cannot determine the seller's total Indian income.

Adding surcharges and the 4% health and education cess pushes the effective LTCG rate to 14.95% in high-value transactions. On a ₹2 crore sale, the buyer may need to withhold nearly ₹30 lakh even if the NRI's real profit is far less.

The 2026 Changes: Form 128 Replaces Form 13

Until March 2026, NRI sellers could apply for a Lower or Nil TDS Certificate using Form 13 under Section 197. Effective April 1, 2026, Form 13 was replaced by Form 128 under Section 395(1) of the new Income Tax Act, 2025.

The mechanism remains the same — you apply to your Assessing Officer, provide a CA-verified capital gains computation, and receive a certificate specifying the actual, lower TDS rate. The buyer then uses that rate instead of the statutory maximum.

What also changed in Budget 2026: resident buyers of NRI-owned properties no longer need a Tax Deduction Account Number (TAN). Previously, acquiring a TAN was a separate compliance hurdle for anyone buying from an NRI. Buyers can now deduct and deposit TDS using a PAN-based challan. This removes a significant friction point in secondary market transactions involving NRI-owned properties.

How to Apply for a Lower TDS Certificate (Form 128)

The application must be filed and approved before the sale deed is registered. You cannot apply retroactively.

Step 1: Compute your actual capital gains. Engage a Chartered Accountant to calculate your genuine profit — purchase price, improvement costs, brokerage fees, and applicable deductions under Sections 54 or 54EC if you plan to reinvest.

Step 2: File Form 128 on the TRACES portal. The application includes the draft sale agreement, acquisition cost proofs, and the CA's computation. Your jurisdictional Assessing Officer reviews this.

Step 3: Receive the certificate. The AO issues a certificate specifying the reduced TDS rate. If you are reinvesting the entire gain into another residential property (Section 54) or eligible bonds (Section 54EC), you may qualify for a Nil (0%) certificate. The process typically takes 2 to 4 weeks.

Step 4: Share the certificate with the buyer. The buyer deducts TDS at the certified rate, files Form 27Q, and the remaining proceeds are released to your NRO account.

Get the NRI Property Buying and Selling Guide for the complete Form 128 checklist, Section 54 reinvestment timeline, and the repatriation steps after the sale closes.

What Happens After the Sale: NRO Account and Repatriation

Property sale proceeds must be credited to your NRO account — not directly to an NRE account. From the NRO account, you can repatriate up to USD 1 million per financial year (April to March) after satisfying the documentation requirements.

As of April 2026, the outward remittance process uses new Forms 145 and 146 — replacements for the legacy Forms 15CA and 15CB. Form 146 is a Chartered Accountant certification verifying that all taxes have been paid. Form 145 is your self-declaration on the income tax e-filing portal. Your authorized dealer bank will not process the SWIFT transfer without both forms, along with the property title deed, tax clearance certificates, and Form A2. With complete documentation, the transfer typically clears in 5 to 15 working days.

Capital Gains Reinvestment Exemptions

Two legitimate routes allow NRIs to reduce or eliminate LTCG tax entirely:

Section 54 — Residential reinvestment. If you reinvest the long-term capital gain (not the entire sale proceeds, just the profit) into another residential property in India, the gain is proportionally exempt. The new property must be purchased within 1 year before or 2 years after the sale, or constructed within 3 years. The new property carries a 3-year lock-in.

Section 54EC — Bond reinvestment. You can invest up to ₹50 lakh of capital gains into NHAI or REC infrastructure bonds within 6 months of the sale. These bonds carry a 5-year lock-in and cannot be liquidated early without losing the exemption.

Both exemptions are available to NRIs and OCIs on identical terms as resident Indians.

Common Mistakes NRI Sellers Make

Ignoring Form 128 until it is too late. The application must precede the sale deed. Missing the window means the buyer withholds at the maximum rate, your capital is blocked, and you are waiting for a refund for the next 12 to 18 months.

Assuming the buyer handles everything. Under Section 195, the legal burden falls on the buyer to deduct correctly. But if the buyer under-deducts because they believed you obtained a certificate when you did not, penalties fall on the buyer — and the deal can unravel.

Selling without a PAN. Without an Indian PAN, penal TDS rates of 20% apply. NRIs must register for a PAN well before initiating the sale process.

Not using DTAA to reduce double taxation. If you are resident in the US, UK, or Canada, taxes paid in India generate Foreign Tax Credits you can claim against your home-country tax liability. Skipping this analysis results in paying tax twice on the same gain.

The complete transaction roadmap — from pre-sale Form 128 application through repatriation via Forms 145 and 146 — is covered in the NRI/OCI Property Guide.

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