The Section 195 TDS trap on the full sale price, and how to fix it with a lower-deduction certificate
When a non-resident sells property in India, the tax mechanics differ sharply from a resident sale. The buyer must deduct TDS under Section 195 on the entire sale consideration, not just on the capital gain, at the long-term capital-gains rate (12.5% plus surcharge and cess) for a long-term asset, or at slab rates for short-term. Because that withholds far more than the actual tax on the gain, the seller should apply for a lower or nil deduction certificate under Section 197, so TDS is computed on the gain rather than the gross price. Repatriating the proceeds abroad then needs Form 15CA and 15CB and is subject to limits.
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The full-value TDS trap
For a resident seller, the buyer deducts a small 1% TDS under Section 194-IA on sales of Rs 50 lakh or more. For a non-resident seller, that section does not apply, instead the buyer deducts under Section 195 on the entire sale consideration at the capital-gains rate (12.5% plus surcharge and cess for a long-term asset). Deducting on the gross price, not the gain, often withholds many times the actual tax, tying up a large sum until the NRI files and claims a refund.
The Section 197 lower-deduction certificate
The fix is to apply to the Assessing Officer for a certificate under Section 197 for deduction at a lower (or nil) rate, computed on the actual capital gain rather than the gross consideration. With the certificate, the buyer deducts only the tax on the gain, freeing up the rest of the proceeds at the point of sale instead of locking them up until a refund. The NRI should apply for this well before completing the sale, as it takes time to obtain.
tipApply for the Section 197 lower-deduction certificate before the sale completes. Without it, TDS is computed on the full price, and recovering the excess means waiting for a refund after filing, sometimes a year or more.
Repatriation and the forms
To remit the net proceeds abroad, the NRI generally needs Form 15CA and a Chartered Accountant's certificate in Form 15CB, and the bank will require these. Repatriation of sale proceeds is subject to limits (broadly up to USD 1 million a year from NRO accounts, subject to conditions) and to the property having been acquired in compliance with the relevant rules. This is a genuinely technical area combining income tax and exchange-control rules, professional help is strongly advised.
warningThe buyer carries the Section 195 deduction risk: deduct too little and the buyer can be treated as in default. So buyers of NRI property are right to insist on correct withholding or a valid Section 197 certificate before completing.
How is TDS deducted when an NRI sells Indian property?+
The buyer deducts under Section 195 on the entire sale consideration, not just the gain, at the long-term capital-gains rate (12.5% plus surcharge and cess) for a long-term asset, or slab rates for short-term. This is different from a resident sale, where only 1% is deducted under Section 194-IA on the gain-bearing price above Rs 50 lakh.
How can an NRI reduce the over-deducted TDS?+
By applying to the Assessing Officer for a lower or nil deduction certificate under Section 197, computed on the actual capital gain rather than the gross sale price. With the certificate, the buyer deducts only the tax on the gain. Apply before the sale completes, as obtaining it takes time.
Can an NRI take the sale proceeds abroad?+
Yes, subject to limits and documentation. Repatriation generally requires Form 15CA and a CA certificate in Form 15CB, and is broadly capped at around USD 1 million a year from NRO accounts, subject to conditions and to the property having been acquired in line with the rules. It combines income-tax and exchange-control requirements, so professional help is advised.
Who is responsible if the wrong TDS is deducted on an NRI sale?+
The buyer carries the risk under Section 195. If the buyer deducts too little, they can be treated as an assessee-in-default for the shortfall, plus interest. That is why buyers of NRI-owned property are right to insist on correct withholding on the full consideration, or a valid Section 197 lower-deduction certificate, before completing.