29 May 2026Most NRIs selling property in India do not realise how much of their sale proceeds can be locked up in TDS before they ever see the money. Under Section 195 of the Income Tax Act, 1961, the buyer is required to deduct TDS at 20% on long-term capital gains — and with applicable surcharge and health and education cess, the effective deduction rate can reach 22.88% or higher depending on your income bracket. On a ₹1 crore property sale, that is over ₹22 lakh withheld upfront.
The good news is that the law has a specific remedy for this. Section 197 allows a taxpayer — including an NRI seller — to apply to the Assessing Officer for a certificate authorising the buyer to deduct TDS at a lower rate, or nil, where the actual tax liability on the transaction is demonstrably lower than the standard TDS rate. At Regi Tom Antony And Associates, we handle Section 197 applications regularly for NRI clients selling residential and commercial property across India, and in this guide I want to walk you through exactly how it works.
Why TDS on NRI Property Sale Is Often Higher Than the Actual Tax Liability
The standard TDS rate under Section 195 is applied on the gross sale consideration — not on the net capital gain. This is the root of the problem. Your actual tax liability is computed on the capital gain after deducting the indexed cost of acquisition (for assets acquired before 23 July 2024) or the original cost (for assets acquired on or after 23 July 2024 at the new 12.5% LTCG rate under the Finance (No. 2) Act, 2024). The gross sale price and the taxable capital gain are very different numbers.
For example: you sell a property for ₹80 lakh that you bought for ₹30 lakh in 2012. The indexed cost (using CII) might be ₹58 lakh. Your long-term capital gain is ₹22 lakh. Tax at 12.5% (post July 2024 rate) = ₹2.75 lakh. But TDS at 22.88% on ₹80 lakh = ₹18.3 lakh. The buyer withholds ₹18.3 lakh; your actual liability is ₹2.75 lakh. You are out of pocket by over ₹15 lakh until your ITR is processed and a refund is issued — which can take 12 to 18 months.
Section 197 exists precisely to prevent this cash flow problem. It is not a tax exemption — it simply aligns the TDS deduction with your real tax liability so you are not over-deducted from the outset.
What Is a Lower Withholding Certificate Under Section 197?
A Section 197 certificate (also called a lower deduction certificate or nil deduction certificate) is an order issued by the jurisdictional Assessing Officer directing the buyer/deductor to deduct TDS at a specified lower rate — or not at all — on the specified transaction. The certificate is valid for the financial year specified and covers only the transaction described in the application.
The legal basis is Section 197(1) read with Rule 28AA of the Income Tax Rules, 1962. The CBDT has prescribed Form 13 as the application format. The application must be filed on the Income Tax portal (incometax.gov.in) under the e-proceedings section.
Who Can Apply and When
Any NRI who is the seller in a property transaction and who can demonstrate that their actual tax liability is lower than the TDS that would otherwise be deducted can apply. There is no minimum threshold. The application should ideally be filed before the sale deed is registered — because once the buyer deducts TDS and deposits it to the government, recovering it requires filing an ITR and waiting for a refund. The certificate is most useful when obtained before the transaction closes.
Practically, you need to file the Form 13 application as soon as the sale agreement is signed and the approximate transaction value is known. Processing typically takes 4 to 8 weeks, though the CBDT has prescribed a 30-day timeline. For time-sensitive property closings, early filing is essential.
Documents Required for Section 197 Application (Form 13)
- PAN card (mandatory — without PAN, no certificate can be issued)
- Copy of the sale agreement / MoU with the buyer
- Original purchase deed of the property being sold
- Cost of improvement documents (if any improvements were made)
- Capital gains computation statement prepared by a CA
- ITR copies for the last 2–3 years (to establish income and tax payment history)
- Bank statements of NRE/NRO accounts (to show existing tax positions)
- DTAA benefit claim details if applicable (e.g., India-UAE, India-USA treaty)
- Passport and visa/residency proof establishing NRI status
- Form 10F (required for DTAA benefit claims, along with Tax Residency Certificate from the country of residence)
How the Capital Gains Computation Determines the Certificate Rate
The Assessing Officer will review the capital gains computation submitted with the Form 13 application and determine what rate of TDS is appropriate. The key calculation inputs are:
- Date of acquisition: Determines whether the asset qualifies as long-term (held more than 24 months for immovable property) or short-term
- Cost of acquisition: For assets acquired before 23 July 2024 — indexed cost using the Cost Inflation Index (CII) published by CBDT. For assets acquired on or after 23 July 2024 — original cost only (indexation benefit was removed by the Finance (No. 2) Act, 2024)
- Applicable LTCG rate: 12.5% for long-term gains on property sold after 23 July 2024 (reduced from 20% with indexation under the old regime). STCG is taxed at applicable slab rates.
- Section 54 / 54EC reinvestment: If you intend to reinvest the capital gains in a new residential property (Section 54) or in NHAI/REC bonds (Section 54EC, up to ₹50 lakh), the exemption reduces the taxable gain and the certificate can reflect the post-exemption tax liability
- Surcharge and cess: For NRIs, surcharge applies at 10% for income above ₹50 lakh and 15% for income above ₹1 crore. Health and education cess at 4% applies on income tax plus surcharge.
DTAA Override — When Your Tax Liability Could Be Nil
For NRIs resident in countries with which India has a Double Taxation Avoidance Agreement (DTAA), the treaty provisions may override the domestic tax rate entirely. Some key examples:
- India-UAE DTAA: The treaty does not contain a specific capital gains article for immovable property (unlike most modern treaties) — capital gains on Indian property remain taxable in India for UAE-resident NRIs, but the treaty's relief provisions apply to avoid double taxation in the UAE
- India-USA DTAA (Article 13): Gains from alienation of immovable property situated in India are taxable in India for US-resident NRIs. The US provides a foreign tax credit for Indian tax paid.
- India-Singapore, India-Mauritius DTAAs: Contain specific provisions — professional advice essential before assuming any exemption
Where a DTAA reduces or eliminates your Indian tax liability, Form 13 must include Form 10F and a Tax Residency Certificate (TRC) issued by the tax authority of your country of residence. The Section 197 certificate can then be issued at nil or a concessional rate reflecting the treaty benefit.
Step-by-Step Process to Obtain a Section 197 Certificate
- Engage a CA as early as possible — ideally when the sale agreement is being finalised
- Compute capital gains — the CA prepares a detailed computation covering acquisition cost, indexation (where applicable), improvement costs, exemption claims, and net tax liability
- Gather all documents listed above
- File Form 13 on the IT portal — login to incometax.gov.in → My Account → Request for lower/nil TDS deduction → Form 13
- Track the application — it is assigned to your jurisdictional TDS Assessing Officer. Respond promptly to any queries raised
- Receive the certificate — the certificate specifies the transaction, the buyer's TAN, the rate of deduction, and the validity period
- Provide the certificate to the buyer before the TDS deduction date — the buyer deducts at the certified rate instead of the standard 20%+
- File ITR after the sale — report the capital gains, claim any Section 54/54EC exemptions, and reconcile TDS deducted against your actual tax liability
What If the Sale Closes Before the Certificate Arrives?
If the property transaction closes before you receive the Section 197 certificate — which happens frequently when buyers push for early registration — the buyer must deduct TDS at the standard rate under Section 195. In this situation:
- Request the buyer to issue Form 16A (TDS certificate) promptly after deposition
- Verify TDS credit in your Form 26AS and AIS
- File your ITR and claim the excess TDS as a refund — the refund will reflect the difference between TDS deducted and actual tax liability
- If the amount is large, request expedited processing from the Centralized Processing Centre (CPC) or file a rectification/refund reissue request after assessment
The refund route works, but it ties up significant capital for 12–18 months. The Section 197 route is always preferable when timing allows.
Common Mistakes NRIs Make in TDS on Property Transactions
- Not applying for Section 197 at all — accepting the full TDS deduction and waiting for a refund, not knowing the lower deduction certificate option exists
- Applying too late — filing Form 13 after the sale deed is already registered, when the TDS has already been deducted and deposited
- Incorrectly computing capital gains — using the wrong cost base, ignoring improvement costs, or misapplying the Finance Act 2024 changes on indexation
- Not claiming available exemptions — failing to plan a Section 54 reinvestment before the sale, which could reduce or eliminate the taxable gain entirely
- Buyer non-compliance — even with a Section 197 certificate, some buyers are reluctant to deduct at a lower rate for fear of their own TDS liability. Your CA can help brief the buyer's CA on the process.
Frequently Asked Questions — Section 197 and NRI Property TDS
Can a Section 197 certificate be obtained for nil TDS deduction?
Yes. If your capital gains computation shows zero taxable income after applying exemptions — for example, if the entire gain is reinvested under Section 54 in a new residential property — the Assessing Officer can issue a nil deduction certificate. This requires robust documentation of the reinvestment commitment, typically a booking agreement for the new property.
What is the time limit for the Assessing Officer to issue the certificate?
Rule 28AA(7) requires the certificate to be issued within 30 days of receipt of a complete application. In practice, Assessing Officers sometimes take longer, particularly for complex cases. Follow up through the IT portal's grievance mechanism if there is a delay beyond 30 days.
Does the buyer need to do anything differently with a Section 197 certificate?
Yes. The buyer must quote the certificate number and the specified rate in their TDS return (Form 27Q for payments to NRIs). The buyer cannot deduct at a lower rate than instructed in the certificate — doing so makes them liable for the shortfall plus interest.
Is Form 13 available for both LTCG and STCG?
Yes. Section 197 applies to any TDS deduction that the taxpayer can demonstrate is higher than their likely tax liability for the year — including short-term capital gains taxed at slab rates and long-term gains at 12.5%.
How does Section 54EC bond investment affect the certificate?
If you plan to invest in NHAI or REC capital gains bonds (maximum ₹50 lakh, within 6 months of the sale), include this in your Form 13 application as a proposed exemption. The Assessing Officer can factor the expected Section 54EC claim into the certificate rate. However, you must then actually make the investment within the prescribed period — failure to do so requires you to offer the capital gain to tax in the relevant assessment year.
How Regi Tom Antony And Associates Helps NRI Sellers
We prepare the complete Section 197 application package — capital gains computation, Form 13 filing, Form 10F and TRC coordination for DTAA claims, and follow-up with the Assessing Officer. We also advise buyers and their legal counsel on the correct TDS procedure when a lower deduction certificate has been issued. Our goal is to ensure you receive maximum proceeds from your property sale on the day it closes — not 18 months later after a refund chase.
If you are planning to sell property in India, contact us at letstalk@rtaandassociates.com as early as possible — ideally before you sign the sale agreement. The earlier we start, the better your options.
For NRI-specific FEMA and repatriation planning after the property sale, visit nriblueprint.com.