Section 195 TDS on NRI property sale: 12.5% LTCG rate, surcharge math, and the 197 lower-rate certificate route

When a non-resident sells a flat in Bengaluru or a plot in Pune, the buyer is not a passive remitter — under Section 195 of the Income-tax Act 1961, the buyer becomes a withholding agent for the Government of India. Get the rate wrong and the seller loses years of liquidity to a refund queue; get the section wrong and the buyer wears a personal disallowance under Section 40(a)(i). After the Finance (No.2) Act 2024 reset long-term capital gains on land and buildings to 12.5% without indexation with effect from 23 July 2024, the lower-rate certificate route under Section 197 is no longer optional — for most NRI sellers it is the difference between cash flow today and a refund queue eighteen months from now.

This deep-dive walks through the FEMA framework, the post-Budget 2024 capital gains regime, the surcharge cap under Section 112, the Form 13 application on TRACES, and the repatriation chain. Every figure is anchored to a statute, a CBDT notification, or the central rate file at oquilia.com.

FEMA / DTAA Position

FEMA 1999 and the Income-tax Act 1961 are separate statutes, and an NRI property sale touches both. FEMA governs the right to remit sale proceeds; the Income-tax Act governs the quantum that travels net of tax. Confusing the two is the most common error our advisory desk sees in conveyance drafts.

Under FEMA 21(R)/2018 (Acquisition and Transfer of Immovable Property in India), an NRI or OCI may sell residential or commercial property in India to a resident, another NRI/OCI, or a Person of Indian Origin without prior Reserve Bank approval. Agricultural land, plantation property and farmhouses sit outside this permission — these can only be sold to a resident Indian and only with RBI consent on a case-by-case basis. The relevant master direction is the RBI Master Direction on Acquisition and Transfer of Immovable Property dated 1 January 2016.

Once the sale is complete, FEMA permits repatriation of up to USD 1 million per financial year from the seller's NRO account. We have covered the Form 15CA/15CB chain in our companion piece on NRO to NRE 1m remittance. On the treaty side, India's DTAAs with the United States, UK, UAE, Singapore, Canada and Australia all preserve India's primary right to tax capital gains on Indian-situs immovable property under the situs-of-property rule in Article 13. The treaty does not override Section 195 — it only fixes the rate, and for immovable property the rate that travels is the domestic 12.5% plus surcharge and 4% cess.

Capital gains on Indian property are never exempt under any DTAA — India retains the primary taxing right and the foreign jurisdiction allows a credit for tax paid in India, not an exemption. Any conveyance lawyer telling an NRI client that the UAE treaty makes Indian property gains tax-free is reading the dividend article instead of the immovable property article.

Tax Treatment in India

The Finance (No.2) Act 2024, notified on 16 August 2024, rewrote Section 112 for long-term capital gains on land and buildings. Three numbers anchor the new regime: a 24-month holding period to qualify as long-term, a 12.5% rate without indexation, and a grandfathering proviso for assets acquired before 23 July 2024.

Where the asset was acquired before 23 July 2024, the seller has a choice: pay 12.5% on the gain without indexation or pay 20% on the indexed gain using the Cost Inflation Index notified by CBDT (FY 2025-26 CII is 376, notified vide CBDT Notification No. 44/2025 dated 1 May 2025). For assets acquired on or after 23 July 2024, only the 12.5% without indexation route is available. Short-term capital gain — held 24 months or less — is taxable at slab rate, which for any meaningful sale value sits at the top 30% bracket under both regimes once total income crosses Rs 24 lakh; model the gross liability on the Oquilia NRI tax calculator.

Surcharge is where the arithmetic gets sharp. The standard schedule applies 10% above Rs 50 lakh, 15% above Rs 1 crore, 25% above Rs 2 crore, and 25% in the new regime above Rs 5 crore (the legacy 37% top band under the old regime was capped at 25% in the new regime by the Finance Act 2023). For long-term capital gains taxed under Section 112, surcharge is statutorily capped at 15% irrespective of gain size, per the Finance Act 2022 amendment. This is the single most under-claimed relief in NRI property sales, because most buyers' tax cells default to the slab-based surcharge schedule.

Section 195 obliges the buyer to deduct TDS at the time of credit or payment, whichever is earlier, on any sum chargeable to tax in India. The Supreme Court in GE India Technology Centre v. CIT [(2010) 327 ITR 456 (SC)] clarified that the deduction is only on the chargeable portion — the gain, not the gross sale value — but only if the seller produces a Section 197 lower-rate certificate. Without such a certificate, the buyer is in practice required to deduct on the full sale consideration. The buyer must obtain a TAN under Section 203A, deduct, deposit within seven days of the end of the month of deduction, and file Form 27Q quarterly under Rule 31A(4) of the Income-tax Rules 1962.

The Section 197 lower-rate certificate is therefore the lever the NRI seller pulls. Application is made on Form 13 via the TRACES portal and decided by the jurisdictional Assessing Officer (International Taxation). The certificate specifies the rate at which the buyer must deduct — typically the effective capital gains rate on the actual gain — and is valid up to the financial year end or transaction value specified. Realistic turnaround is 4 to 8 weeks; the Bombay High Court in Tata Teleservices v. CBDT [WP 3486/2018] confirmed the AO must dispose of a Form 13 application within a reasonable period.

Tax Treatment Abroad

Once tax is withheld in India, the seller's home jurisdiction comes into play. India has the primary taxing right; the residence country grants a foreign tax credit under Article 23/24 of the relevant DTAA.

In the United States, a US tax resident reports the Indian property sale on Schedule D of Form 1040 at long-term capital gains rates — 0%, 15% or 20% depending on AGI under IRC Section 1(h) — plus 3.8% Net Investment Income Tax under IRC Section 1411 for high earners. Indian tax paid is claimed on Form 1116 under IRC Section 901 in the passive category basket. The Indian financial year (April-March) does not align with the US calendar year, so a March 2026 closing with TDS deposited 7 April 2026 lands in US tax year 2026, not 2025.

In the United Kingdom, CGT runs at 18% on residential property and 24% above the higher-rate threshold under the Taxation of Chargeable Gains Act 1992 as amended by the Finance Act 2024. The India-UK DTAA Article 24 grants unilateral credit for Indian tax up to the UK liability. UK residents also factor the Annual Exempt Amount of £3,000 for 2025-26, which is a near-zero shelter on large NRI sales.

In the UAE, there is no personal income tax on capital gains — the 9% Corporate Tax under Federal Decree-Law No. 47 of 2022 from June 2023 applies only to business profits above AED 375,000. UAE-resident NRIs have no residence-country tax to credit, and the 12.5% Indian rate is the effective economic burden. See our note on the FEMA-based NRI / PIO / OCI distinction for the Tax Residency Certificate chain. In Canada, capital gains are taxed at the resident's marginal rate on 50% of the gain under the Income Tax Act (Canada); the 2024 federal budget proposed an increase to 66.67% for individuals on annual gains above CAD 250,000.

Repatriation Mechanics

Proceeds must first land in a Non-Resident Ordinary (NRO) Rupee account; direct credit to a Non-Resident External (NRE) account is not permitted because NRE balances are deemed fully repatriable and may only be funded by current-income remittances from outside India.

From the NRO account, the seller may repatriate up to USD 1 million per financial year net of Indian taxes, under RBI's NRO repatriation facility codified in Schedule 3 to the FEMA (Remittance of Assets) Regulations 2016. The remittance requires a Form 15CA self-declaration and a Form 15CB CA certificate confirming taxes paid. Rule 37BB of the Income-tax Rules 1962 frames the chain; for any single remittance above Rs 5 lakh, Form 15CB is mandatory.

Where the property was inherited, repatriation is capped at the FEMA USD 1 million ceiling without special RBI permission. Where the property was acquired from NRE/FCNR balances, the original consideration may be repatriated to the NRE account on a 1:1 basis, with only the capital gains portion subject to the USD 1 million cap. The Oquilia repatriation calculator helps model the net-of-tax amount before instructing the bank.

The seller's residual obligation is to file ITR-2 by 31 July of the following financial year. Where TDS was deducted at the gross rate without a Section 197 certificate, the ITR is the refund vehicle — refunds typically land in 3 to 6 months if Aadhaar-based e-verification is completed and the bank account is pre-validated. Where the gain is invested in another residential property under Section 54 (within 2 years for purchase or 3 years for construction) or in 54EC bonds of NHAI, REC, IRFC or PFC (within 6 months, capped at Rs 50 lakh per financial year), the exemption is claimed in ITR-2 Schedule CG. For rental income from the same property in the run-up to sale, refer to our NRI rental income tax calculator.

FAQ

Is the buyer personally liable for under-deducted TDS on an NRI property sale?

Yes. Section 201(1) treats the buyer as an "assessee in default" for any short-deduction, with interest at 1% per month under Section 201(1A). Section 40(a)(i) can disallow the entire purchase consideration as a deductible cost if the property is later sold by the buyer as stock-in-trade. The Karnataka High Court in Smt. K. Padmavathi v. ITO [WP 13950/2019] affirmed buyer-side liability where the seller's NRI status was overlooked at closing.

Can the NRI seller claim Section 54 exemption to reduce the TDS?

Section 54 is a post-sale ITR claim but can be reflected at the TDS stage via a Section 197 certificate. The Form 13 working typically requires a CA computation of the re-investment plan, a draft sale agreement of the new house, or a Capital Gains Account Scheme deposit confirmation under Section 54(2). Without the 197 certificate, TDS is deducted on the full sale value and the exemption is claimed at the ITR stage as a refund.

Does the 1% TDS under Section 194-IA apply when the seller is an NRI?

No. Section 194-IA (1% on resident property sales above Rs 50 lakh) does not apply where the seller is a non-resident — Section 195 applies instead and has no minimum threshold. Even a Rs 5 lakh sale by an NRI seller triggers Section 195. CBDT Press Release dated 13 March 2014 clarified this carve-out. The buyer must obtain a TAN; PAN-only payments are not permitted under Section 195.

How is the indexation grandfathering computed?

For property acquired before 23 July 2024 and sold on or after, the seller computes capital gain twice: 12.5% on (sale minus actual cost) without indexation, and 20% on (sale minus indexed cost using FY 2025-26 CII of 376). The seller pays the lower of the two tax amounts per the proviso to Section 112(1)(c) inserted by the Finance (No.2) Act 2024. Older properties with high indexation uplift usually favour the 20% indexed route; post-FY 2018-19 properties typically favour the 12.5% non-indexed route.

Can the seller use the DTAA to claim a lower TDS rate than 12.5%?

For immovable property, no. The standard DTAAs assign the primary taxing right to the country of situs (India) without capping the rate below the 12.5% domestic rate. The treaty only helps in foreign tax credit computation in the residence country. A UAE Tax Residency Certificate is useful for FTC purposes but does not reduce the Indian withholding.

What is the time limit for the buyer to deposit TDS and file Form 27Q?

TDS must be deposited within seven days of the end of the month of deduction, with 30 April as the deadline for March deductions. Form 27Q is due 31 July, 31 October, 31 January and 31 May for Q1-Q4 respectively. Late filing attracts Section 234E fee of Rs 200 per day capped at the TDS amount, and Form 16A cannot be issued to the seller until Form 27Q is filed.