“Synopsis”
NRIs selling property in India often face high TDS (Tax Deducted at Source) deductions—20% or more—on the entire sale value, not just the profit. This affects their cash flow, even if their actual capital gain is small. However, by applying for a Lower TDS Certificate (under Section 197), NRIs can reduce this burden and ensure TDS is deducted only on the net capital gains. This blog explains the full process, eligibility, documents, timelines, and practical tips to obtain this certificate in 2025.
Why NRIs Face High TDS on Property Sales
Under Section 195 of the Income Tax Act, when an NRI sells property in India:
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TDS is deducted by the buyer
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Rate is 20% for long-term capital gains (LTCG)
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30% for short-term capital gains (STCG)
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Surcharge + cess increases this to 23%–34%
This TDS is on the total sale value, not just on the gain, which often leads to:
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Excessive tax deduction
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Cash flow issues for the NRI
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Delay in fund repatriation
What Is a Lower TDS Certificate?
A Lower TDS Certificate is issued by the Income Tax Department under Section 197, allowing the buyer to deduct tax only on the estimated capital gain, not the full transaction amount.
Eligibility to Apply for a Lower TDS Certificate
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Seller must be an NRI
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Selling residential or commercial property
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Should have accurate cost & sale documentation
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Must calculate genuine capital gain on the sale
Steps to Apply for Lower TDS Certificate (Form 13)
1. Appoint a Chartered Accountant (CA)
You’ll need a CA to handle your tax calculation and online filing process.
2. Compute Capital Gains
Your CA will calculate short-term or long-term capital gains using:
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Indexed cost of acquisition
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Sale consideration
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Associated costs like brokerage, legal fees, etc.
3. File Form 13 on TRACES Portal
Form 13 must be filed online on the TRACES (TDS Reconciliation Analysis and Correction Enabling System) website.
4. Submit Supporting Documents
Upload the following:
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PAN card (of seller)
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Sale agreement or draft
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Purchase deed
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Cost details (registry, stamp duty, indexation, etc.)
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Estimated date of transaction
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Past income tax returns (if any)
5. Assessment by the Income Tax Officer
Your application will be reviewed. The officer may:
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Ask for more documents
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Call for a virtual hearing
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Cross-verify your gain calculation
6. Certificate Issued Electronically
If approved, you’ll receive a digital certificate specifying:
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Buyer’s PAN
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Seller’s PAN
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Property details
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Approved TDS rate (typically 3%-5%)
How the Buyer Uses the Certificate
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Buyer deducts TDS as per certificate (e.g., 5% instead of 23%)
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TDS is deposited using Form 26QB
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The certificate must be attached as part of tax compliance
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Helps avoid penalties for under-deduction
Timelines and Best Practices
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Apply at least 30–45 days before the sale date
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Ensure all cost-related proofs are valid
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Keep communication with the assessing officer prompt
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If not approved in time, the buyer will have to deduct full TDS
Benefits of Obtaining a Lower TDS Certificate
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Improved Cash Flow: No unnecessary deduction
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Avoid Refund Delays: No need to wait for TDS refund via ITR
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Legally Compliant: Protects buyer and seller under tax law
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Smooth Repatriation: Easier to transfer funds abroad post-sale
Common Mistakes to Avoid
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Applying after the sale agreement is signed
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Incomplete or missing documents
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Ignoring indexation in LTCG calculation
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Not informing buyer about NRI status
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Using resident PAN or bank accounts
Conclusion
NRIs selling property in India should not lose a big chunk of their money to excess TDS. With a proper plan and by applying for a Lower TDS Certificate via Form 13, they can ensure only the actual gains are taxed. This smart move improves cash flow, avoids refund hassles, and ensures full legal compliance.
