You sell your flat in India for ₹1.5 crore. Your profit is ₹40 lakh. Then the buyer hands you the money, minus nearly ₹20 lakh.
Not because the tax is ₹20 lakh. It is not. But because the law makes the buyer deduct tax on the full sale price, not your profit.
Your extra money is not gone. But it is locked with the tax department for up to a year, unless you act before the sale. This guide shows you the trap, the math, and the way out.
The 30-second answer
The buyer must deduct TDS when buying from an NRI. This is Section 195. The buyer has no choice. Their own money is on the line if they skip it.
The TDS is calculated on the full sale price. Not on your capital gain. That is the whole problem.
The rates. Held more than 24 months: 12.5% plus surcharge and cess, roughly 13% to 15% of the sale price. Held 24 months or less: 30% plus surcharge and cess.
The fix is the Lower Deduction Certificate. Apply before the sale, and the tax department tells your buyer to deduct only what you truly owe.
Run your own numbers:
Now the details, because this is where lakhs are won or lost.
Why the buyer holds back so much
Start with the rule that surprises everyone.
When a resident sells to a resident, the buyer deducts a tiny 1% TDS, and only if the price crosses ₹50 lakh.
When an NRI sells, a different law applies. Section 195. It says the buyer must deduct tax on every rupee paid to a non-resident. There is no ₹50 lakh threshold. A ₹25 lakh plot gets the same treatment as a ₹5 crore villa.
And here is the heart of it. The buyer does not know your profit. They do not know what you paid in 2009, what you spent on improvement, or what exemptions you plan to claim. So the law makes them deduct on the one number they do know: the full sale price.
The result is brutal math. Tax that should apply to your gain gets charged on your entire sale value.
Example. You bought a flat for ₹1.1 crore. You sell it for ₹1.5 crore. Your gain is ₹40 lakh.
- Tax you actually owe on the gain: roughly ₹5 to 6 lakh at long-term rates.
- TDS the buyer deducts on the sale price: roughly ₹19.5 lakh at the effective long-term rate with surcharge and cess.
- Money locked up beyond your real tax: around ₹14 lakh.
That ₹14 lakh is yours. But the default route to get it back is filing a tax return after the year ends and waiting for the refund. Sale in June means a return the following July, and a refund weeks or months after that. Your money can sit with the department for over a year, earning you nothing while you may be paying interest on a mortgage in Dubai.
The rates, exactly
Two questions decide your rate. How long you held the property. And how big the sale is.
Held more than 24 months: long-term.
The base rate is 12.5%. Then the add-ons stack up.
| Sale price | Surcharge | Effective TDS on sale price |
|---|---|---|
| Up to ₹50 lakh | None | about 13% |
| ₹50 lakh to ₹1 crore | 10% | about 14.3% |
| Above ₹1 crore | 15% | about 14.95% |
Held 24 months or less: short-term.
The rate jumps to 30% plus surcharge and cess. On a ₹1 crore short-term sale, the deduction can approach ₹35 lakh. If you are anywhere near the 24-month line, waiting a few weeks to cross it can change your outcome completely. Count from your purchase date carefully.
One more thing changed in July 2024. The long-term rate used to be 20% with indexation, which adjusted your purchase price for inflation. For sales after 23 July 2024, the rate is 12.5% without indexation. Residents who bought before that date got a choice between the old and new math on some sales. NRIs did not get that choice. For an old property bought cheap decades ago, losing indexation can mean a bigger taxable gain than the old system would have produced. This is one of the quiet ways the rules treat NRIs differently, and it makes pre-sale planning more valuable, not less.
The Lower Deduction Certificate. Your way out.
Here is the single most valuable thing in this guide.
The law that creates the trap also provides the exit. Section 197. You apply to the Income Tax Department before the sale, showing your actual numbers: purchase price, sale price, the gain, the exemptions you will claim. The department checks the math and issues a certificate telling your buyer to deduct tax at a rate matching your real liability. Sometimes close to zero.
This is called the Lower Deduction Certificate, the LDC. The application is Form 13, filed online through the TRACES portal.
What it takes:
- Your PAN, the draft sale agreement, proof of your purchase price, and your computation of the gain.
- The buyer’s details, including their TAN. Yes, the buyer needs a TAN. More on that below.
- Time. The certificate commonly takes a few weeks to arrive, sometimes longer in busy season. Start the moment you have a serious buyer, not the week of registration.
What it changes. Back to our example. Gain of ₹40 lakh, real tax around ₹5 to 6 lakh. With an LDC, the buyer deducts roughly that amount instead of ₹19.5 lakh. The ₹14 lakh difference lands in your account on day one, not in a refund a year later.
For almost every NRI sale with a modest gain, the LDC is worth the effort. The only sales where it adds little are those where the gain is so large that the real tax is close to the default deduction anyway.
The buyer’s side. Know it, or lose your buyer.
This part is for you even though it is about them. Because buyers who discover these duties late panic, delay, or walk away.
When buying from an NRI, your buyer must:
- Get a TAN. A tax deduction account number. Buying from a resident needs no TAN. Buying from you does. It takes a few days to obtain online.
- Deduct TDS at the correct rate on each payment, including the advance.
- Deposit it within 7 days of the end of the month of deduction.
- File a TDS return, Form 27Q, each quarter, and give you Form 16A, the certificate proving the tax was deposited against your PAN.
If they skip any of this, the penalty and interest fall on them. Smart sellers walk the buyer through these steps early and calmly. A buyer who understands the process in week one is a buyer who does not flee in week six. Bring a CA into the transaction from the start. In an NRI sale, the CA is not a luxury. They are part of the deal team.
One warning worth saying plainly. Some buyers, or their agents, suggest deducting the resident rate of 1% and keeping things quiet. Refuse. If the department catches it, the buyer faces the unpaid tax with interest and penalties, and your sale record carries a defect that surfaces at the worst time, usually when you try to repatriate the money.
Three real situations
Composite examples. Invented people, real math.
The seller who found out at the registrar’s office
Rakesh, in Dubai for twelve years, sold his Pune flat for ₹95 lakh. Bought years earlier for ₹62 lakh, so his gain was ₹33 lakh and his real tax roughly ₹4.5 lakh.
Nobody told him about Section 195 until the buyer’s lawyer raised it days before registration. No LDC, no time to get one. The buyer deducted about ₹13.6 lakh.
The sale went through. But ₹9 lakh more than his true tax sat with the department for thirteen months until his refund arrived. The repair cost him nothing but time. The lesson cost him a year of his own money: start the tax work the day you decide to sell, not the day the buyer’s lawyer calls.
The seller who planned eight weeks ahead
Anita, a Sharjah teacher, inherited a Bengaluru flat and agreed to sell it for ₹1.2 crore. Her CA computed the gain using her father’s original purchase cost, as inheritance rules allow, and she planned to reinvest in specified bonds to cut the taxable gain further.
She filed Form 13 the week the buyer paid the token amount. Six weeks later, the certificate arrived directing TDS of under ₹2 lakh instead of the default ₹17 lakh plus.
Same law as Rakesh. Same kind of property. The only difference was eight weeks of lead time. Her money came home with her, not a year later.
The seller who sold three months too early
Imran bought an under-construction flat and sold it twenty-one months after registration for a quick ₹18 lakh profit. Held 24 months or less, the sale was short-term. The buyer deducted at the 30%-plus band, and the gain itself was taxed at his slab rate, not 12.5%.
Had he waited three more months, the long-term rate would have applied and his tax would have dropped by several lakh. Nobody had told him the line sat at 24 months. The calendar is a tax tool. Check it before you sign, not after.
After the sale: exemptions and getting the money out
Two short notes that belong in your planning, each of which deserves its own full guide.
You can legally shrink the gain. Reinvest the gain in another residential property in India within the time limits, and Section 54 can exempt it. Park up to ₹50 lakh of the gain in specified bonds within six months, and Section 54EC exempts that portion. Crucially, claim these in your LDC application too, so the lower deduction reflects them upfront.
Repatriating the proceeds has its own rulebook. Sale money lands in your NRO account. Moving it to Dubai runs through the USD 1 million per year route, with a CA certificate in Form 15CB and a filing in Form 15CA. Plan this at the same time as the sale, not after, because the documents the bank wants are the documents the sale generates.
Your action checklist
- Check your holding period first. More than 24 months changes everything. Near the line? Consider waiting.
- Gather your cost proof. Purchase deed, payment records, improvement bills. Your gain computation depends on them.
- Hire a CA at the start. They will compute the gain, file Form 13, and keep the buyer compliant.
- Apply for the LDC the moment a buyer is serious. Weeks of lead time turn into lakhs of liquidity.
- Brief your buyer early. TAN, deduction, deposit, Form 27Q, Form 16A. A calm buyer is a closing buyer.
- Collect Form 16A after each deduction. It is your proof the money reached the department against your PAN.
- File your Indian return for the sale year. It is how you claim exemptions and recover any excess.
- Plan repatriation alongside the sale. 15CA, 15CB, and the USD 1 million route.
FAQ
Is the TDS my final tax? No. TDS is an advance collection. Your real tax is computed on your gain in your return. Excess comes back as a refund. The LDC simply stops the excess from leaving in the first place.
The buyer wants to deduct 1% like a normal sale. Can we? No. The 1% rate is for resident sellers. Your sale falls under Section 195. Agreeing to the wrong rate creates a problem with your name on it.
Can I avoid TDS by selling below ₹50 lakh? No. The ₹50 lakh threshold does not exist for NRI sellers. TDS applies from the first rupee.
What if the property is jointly owned with my resident spouse? The NRI share suffers Section 195 deduction. The resident share follows resident rules. The sale agreement should split the consideration clearly.
I am selling at a loss. Surely no TDS? TDS still applies on the sale price unless you get a certificate. A loss-making sale is the strongest possible LDC case, often resulting in near-nil deduction. Apply.
Does my UAE residency reduce the tax through the treaty? Not on Indian property. The India-UAE treaty leaves gains on Indian immovable property fully taxable in India. The LDC, exemptions, and timing are your tools here, not the treaty.
How long does the refund take if I skip the LDC? You file the return after the financial year ends, and refunds typically follow weeks to months after processing. In practice, money locked at sale time often comes back a year or more later.
Last updated: June 2026. This article is education, not advice. Rates shown include estimates of surcharge and cess that depend on your numbers, and rules change. Confirm your figures and your plan with a qualified chartered accountant before you sign anything. Primary sources: Income Tax Act provisions on non-resident TDS (Section 195), lower deduction certificates (Section 197), and the capital gains regime effective 23 July 2024.
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