TDS on Sale of Property by an NRI: The Full 2026 Guide

Selling Indian property as an NRI puts you in a different TDS regime from resident sellers — higher rates, deduction on the full sale price, and a different form for the buyer. This guide walks through the 2026 rules: the rates with surcharge and cess, who deducts and how, Form 27Q, and the two legal routes to keep your money from sitting with the tax department.

The default rule: TDS on the full sale price, not the gain

When a buyer purchases property from a resident seller, the rule is gentle: 1% TDS, and only where the consideration or stamp-duty value is ₹50 lakh or more. That deduction is reported on Form 141 from April 2026 (it replaced Form 26QB), and the buyer does not need a TAN.

When the seller is an NRI, none of that applies. The payment falls under Section 393(2)/(3) of the Income-tax Act, 2025 (earlier Section 195 of the 1961 Act) — tax must be deducted at the "rates in force" on the entire sale consideration. There is no ₹50 lakh threshold. A ₹30 lakh flat and a ₹3 crore villa are treated the same way: TDS on every rupee paid.

Two things follow from this. First, the buyer carries the legal duty — if they deduct short, the tax department pursues the buyer, which is why buyers' lawyers insist on full deduction. Second, the deduction usually far exceeds the seller's actual tax, because tax is ultimately payable only on the gain, not the price. The gap is your money, locked up until you either reduce the deduction in advance or claim it back in a return.

The rates that actually apply in 2026

The rate depends on how long you held the property. The dividing line is 24 months.

Held more than 24 months — long-term

For transfers on or after 23 July 2024, long-term capital gains on property are taxed at a uniform 12.5% without indexation. That regime continues unchanged under the Income-tax Act, 2025. TDS is deducted at this base rate, plus surcharge based on the consideration, plus 4% health and education cess:

• Consideration up to ₹50 lakh — 12.5% + 4% cess = 13.0%
• ₹50 lakh to ₹1 crore — with 10% surcharge = 14.30%
• Above ₹1 crore — with 15% surcharge (the cap on long-term gains) = 14.95%

So 14.95% is the maximum effective long-term TDS rate, however large the sale.

Held 24 months or less — short-term

Short-term gains on property are taxed at slab rates — up to 30%, plus surcharge and cess. TDS on a short-term sale is therefore deducted at materially higher effective rates than the long-term 13–14.95% band.

One more point on rates: the option to pay 20% with indexation on pre–23 July 2024 property is available only to resident individuals and HUFs. NRIs cannot use it. For an NRI the long-term computation is 12.5% without indexation, full stop.

A worked example

Say you sell a Hyderabad flat for ₹1.2 crore. You bought it eight years ago for ₹75 lakh, so your long-term gain is ₹45 lakh.

• TDS without a certificate: the consideration is above ₹1 crore, so the buyer deducts at the top effective long-term rate of 14.95% — about ₹17.9 lakh — on the full price.
• Your actual tax: 12.5% on the ₹45 lakh gain is ₹5.63 lakh; with 4% cess and no surcharge at that income level, roughly ₹5.9 lakh.
• The gap: around ₹12 lakh of your money sits with the department until your return is processed and refunded.

The numbers are illustrative and every computation needs its own working — but the shape is typical: deduction two to three times the real tax. That gap is what the certificate route exists to close.

What the 2025 Act changed here — and what it did not

Because the Income-tax Act, 2025 came into force on 1 April 2026, the labels around this transaction have changed even though the economics have not:

• Sections: the non-resident withholding rule moved from Section 195 to Section 393(2)/(3); the lower-deduction certificate from Section 197 to Section 395.
• Forms: Form 13 became Form 128; Form 26QB (resident sellers) merged into Form 141.
• Terminology: a single "tax year" replaces the old previous-year/assessment-year pair.
• Unchanged: the 12.5% long-term rate, the 24-month holding test, the no-threshold rule for NRI sellers, and the duty on the buyer to deduct on the full consideration.

Which form, and who files what

The mechanics sit with the buyer, and this is where most transactions go wrong.

• TAN. The buyer must obtain a Tax Deduction Account Number before deducting. The PAN-based route used for resident sellers does not apply here.
• Deduct at payment. TDS applies to every payment — advance, instalments, final settlement — not just the closing amount.
• Deposit and report. The buyer deposits the deducted tax with the government and reports it in the quarterly TDS statement Form 27Q — the non-resident statement. Form 26QB (now Form 141) is only for resident sellers; using it for an NRI seller is the single most common filing error we see corrected.
• TDS certificate. After filing, the buyer issues the TDS certificate to the seller, who uses it to claim credit in the return.

Sellers should not treat this as the buyer's problem alone. If the buyer files the wrong form, your TDS credit will not appear correctly against your PAN, and your refund stalls. Agree the mechanics — TAN, rate, form — before the sale deed is signed.

Route one: reduce the deduction before the sale

The cleaner answer is to never let the excess leave your hands. Section 395 of the 2025 Act (earlier Section 197) lets the NRI seller apply for a lower or NIL TDS certificate using Form 128 (earlier Form 13) on the TRACES portal. You show the Assessing Officer your actual capital-gains computation; the certificate then authorises the buyer to deduct at a rate that matches your real liability — sometimes nil, where exemptions absorb the gain.

The application takes weeks, not days, so it has to be started before the sale closes. We have set out the process, documents and timelines in a separate guide: how an NRI gets a lower or NIL TDS certificate.

On a ₹2 crore sale with a ₹40 lakh actual gain, the difference between deduction with and without a certificate can be over ₹20 lakh of cash flow — for the same final tax bill.

Route two: pay now, claim the refund later

If the sale closes without a certificate, all is not lost — the excess is recoverable, just slowly. You file an income-tax return for the year of sale, compute the actual gain and tax, claim credit for the full TDS, and receive the difference as a refund.

Timing matters. A sale during FY 2025-26 is reported in the return due 31 July 2026 for non-audit cases (these returns are still governed by the 1961 Act). A sale during the tax year 2026-27 — the first year under the Income-tax Act, 2025 — goes into a return filed in 2027. Either way, expect months between deduction and refund; that is exactly the delay the certificate route avoids.

Checklists: what each side should have in hand

For the buyer

• Confirmation of the seller's residential status — in writing, before the agreement. The deduction regime turns entirely on it.
• A TAN, obtained before the first payment, including any advance.
• The TDS rate worked out for the correct band — or a copy of the seller's Form 128 certificate if one has been issued.
• Challan records of each deposit, and Form 27Q filed for the relevant quarters.
• The TDS certificate issued to the seller after filing.

For the seller

• PAN, and a capital-gains computation supported by the purchase deed and improvement bills.
• A decision, made early, between the certificate route and the refund route — the certificate takes weeks and cannot be rushed at signing.
• A written agreement with the buyer on rate, form and timing of deduction.
• After the sale: the TDS certificate from the buyer, checked against the credits appearing on your PAN.

After the sale: moving the money out

The proceeds land in your NRO account. Repatriating them abroad runs through the USD 1 million per financial year scheme, with a CA certificate in Form 146 (earlier 15CB) where required. The full chain — bank, forms, limits — is covered in our guide to repatriating money from India. And if the property came to you by inheritance, the cost and holding-period rules differ; see selling inherited property in India as an NRI.

S. K. Lahoti Associates advises NRI sellers and their buyers on the entire sequence — computation, certificate, Form 27Q mechanics and repatriation. The scope of this work is described under our NRI services. If you would like to discuss a planned sale, you can reach the firm here.