TDS on NRI property sale without a lower TDS certificate — how much buyers deduct by default
Without a lower TDS certificate, buyers of property from an NRI are expected to deduct tax on the computed capital gain at the rate prescribed for non-residents, plus applicable surcharge and cess — but in practice many buyers, unwilling to risk personal liability for under-deduction, withhold on the full sale consideration instead, well beyond what the seller actually owes.
The buyer's dilemma
A resident buying property from an NRI is personally on the hook if they under-deduct TDS — the tax department can pursue the buyer, not just the seller, for the shortfall. Faced with that risk and no independent way to verify the seller's true capital gains, a cautious buyer's rational move is to deduct on the entire sale price rather than attempt (and possibly get wrong) a computation of the seller's actual gain. This is exactly the dynamic that traps NRI sellers into overpayment at the point of sale.
A worked illustration
Say an NRI sells a property for ₹90 lakh that was purchased years earlier for ₹35 lakh. The real capital gain, once cost of acquisition is accounted for, is a fraction of the sale price — but a buyer deducting on the full ₹90 lakh at the non-resident rate withholds an amount that can exceed the seller's entire actual tax liability on the transaction. That difference sits with the tax department, inaccessible to the seller, until a return is filed and a refund is processed — often the better part of a year later.
Get your actual capital gains computed and shared with your buyer before the sale closes.
Get started →Why this is a cash-flow problem, not just a paperwork one
For sellers relying on the sale proceeds — to fund a purchase abroad, repay a loan, or simply access their own money — having a large chunk withheld unnecessarily for months is a real cost, not a technicality. This is the core reason a lower TDS certificate is worth arranging before the sale rather than treating the deduction as unavoidable and sorting it out later via a refund. See our comparison of the certificate route versus the refund route for how the numbers and timing typically play out.
It isn't only about the rate — it's about the base
Even sellers who are aware that a lower rate exists sometimes miss that the bigger issue is often the base the buyer applies it to — the full sale value instead of the actual gain. A properly filed Section 197 certificate fixes both: it specifies the rate and effectively communicates that only the computed gain (not the full consideration) is what should be taxed at that rate.
Is the buyer or the seller responsible if TDS is under-deducted on an NRI property sale?
The buyer, as the person responsible for deducting tax, bears the primary compliance risk and potential penalty for under-deduction. This is precisely why buyers tend to be conservative and withhold more than necessary in the absence of a certificate that gives them clear, documented authority to deduct less.
This article is for general information only. For your specific situation, consult a practicing CA.
Stop the over-withholding before it happens
A CA-computed Form 13 certificate tells your buyer exactly what to deduct.
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