NRI selling property in India: the TDS trap and how to avoid it
Most NRI sellers discover too late that the buyer must deduct tax on the entire sale price, not on the profit. Here is why that happens, what it costs you in blocked cash, and the application that prevents it if you plan far enough ahead.
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The trap, stated plainly
When a resident sells property in India to another resident, the buyer withholds a small percentage of the sale consideration as TDS. It is a modest amount and nobody loses much sleep over it.
When the seller is a non-resident, a different provision applies entirely. The buyer must deduct tax under Section 195, and the deduction is computed on the whole sale consideration, not on your gain.
What that means in practice. Imagine selling a flat for Rs 2 crore that your father bought in 1985. Your actual taxable gain, once the 1 April 2001 value is properly established, might be a fraction of that. But the deduction is applied to the full Rs 2 crore, not to the gain. A very large sum goes to the department, and you wait until you file your return and the refund is processed to see it again.
That money is not lost. It is, however, out of your hands for a long time, which is a serious problem if you were relying on the proceeds to buy something else, repay a loan or move funds abroad on a schedule.
Why the rule is built this way
It is not designed to punish NRIs. The department's practical difficulty is that once a non-resident receives sale proceeds and remits them overseas, collecting any shortfall later is close to impossible. Deducting at source on the gross amount, from a buyer who is within reach, is the mechanism that protects revenue.
Understanding that logic helps, because it explains why the remedy is what it is. The department will accept a lower deduction, but only if you demonstrate in advance what the real gain is going to be.
The fix: a lower deduction certificate
Section 197 allows you to apply to the Assessing Officer for a certificate authorising deduction at a lower rate, or none at all. The application is made in Form 13, usually by your chartered accountant on your behalf.
The application has to show the officer what your actual capital gain is likely to be. That means establishing the sale consideration, and critically, the cost of acquisition. Where the property was acquired before 1 April 2001, or was inherited from someone who acquired it before that date, the cost side rests on a registered valuer's report establishing the fair market value as on 1 April 2001. Our guide to that rule explains how the figure is arrived at.
Without a supportable cost figure, the officer has no basis to certify a lower deduction, and the default position applies. The valuation is not paperwork for its own sake. It is the evidence the entire application rests on.
The order you should do things in
Almost every NRI who ends up with a large sum blocked got the sequence wrong rather than the substance. The right order is:
- Before you market the property, speak to a chartered accountant who handles NRI matters, and establish whether the 1 April 2001 option applies to your property.
- Commission the valuation early. A report takes a few working days once access is arranged, and it needs to exist before the Form 13 application is made.
- File the Section 197 application and allow genuine time for it to be processed. This is not same-week work.
- Agree the sale with the certificate in hand, so the buyer knows exactly what to deduct.
- Ensure the buyer has a TAN and understands their obligation. Deduction for a non-resident seller is reported differently from a resident sale, and buyers frequently do not know this. A buyer who gets it wrong creates problems for both of you.
Trying to unwind a deduction after it has been made is far harder than arranging the certificate in advance. At that point the route is a refund claim through your return, which runs on the department's timetable rather than yours.
Getting the money out of India
Selling is one step. Moving the proceeds abroad is another, governed by exchange control rules rather than tax law.
Proceeds are typically credited to an NRO account, and remittance abroad from that account is permitted within the annual limit prescribed under the applicable rules, subject to documentation. Your bank will require certification from a chartered accountant confirming that taxes have been dealt with, which in practice means the Form 15CA and Form 15CB process.
The relevance to valuation is straightforward. Where the property was inherited or held for decades, the bank and the certifying chartered accountant need a credible basis for the cost of acquisition, and the valuation report supplies it. Our NRI valuation service is built around exactly this sequence.
This is a mechanism guide, not tax advice. TDS rates, capital gains rates, remittance limits and the treatment of your particular position all depend on the current law and on your residential status for the relevant year. Take advice from a chartered accountant who handles NRI transactions before you commit to a sale. We establish the value of the property. They handle everything downstream of it.
Common questions
The certificate governs deduction going forward, so obtaining it after the buyer has already deducted does not undo what was withheld. At that stage the route is to claim the excess as a refund when you file your return. This is precisely why the sequence matters so much, and why we tell NRI clients to start the valuation before the sale is agreed rather than after.
Yes. A buyer deducting tax for a non-resident seller needs a TAN and reports the deduction differently from an ordinary resident sale. Many individual buyers have never encountered this and assume the simpler resident procedure applies. Raise it early, because a buyer who deducts incorrectly creates a problem that lands on both of you.
Not for the valuation, which runs entirely remotely with a local contact providing access to the property. Whether the sale itself requires your presence, or can be handled through a power of attorney, is a question for your advocate. Many NRI sales are completed without the seller travelling.
The title has to be transferred before it can be sold, which is a legal process your advocate will handle. For valuation purposes it changes very little, since we work from the title chain and succession documents. It does affect timing, so start it early. It is the most common reason an NRI sale takes longer than expected.
Usually four to five working days from the site visit. The variable is arranging access, so nominate your local contact as early as you can. Documents can be sent as phone photographs and the signed report reaches you by email, with a hard copy couriered internationally if you need the original.
Related reading
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