TDS on Sale of Inherited Property by an NRI

TDS on Sale of Inherited Property by an NRI

This is the single biggest financial surprise NRI sellers run into — and it’s entirely avoidable with one extra filing made early enough. On PropResolve, our NRI services team handles this proactively, before a buyer has already withheld far more than the actual tax owed.

Resident Sellers vs. NRI Sellers: Two Different Rules

A resident seller faces a flat 1% TDS under Section 194-IA, and only on transactions of ₹50 lakh or more. There is no such threshold for an NRI seller. Under Section 195 of the Income Tax Act, TDS applies regardless of transaction size, and — this is the part that catches people off guard — it is withheld by default on the entire sale price (the gross consideration), not just the capital gain the seller actually realises.

The Actual Rate on the Gain Itself

For long-term capital gains — property held over 24 months, and transferred on or after 23 July 2024 — the applicable rate is 12.5%, down from 20% following the 2024 Budget change, plus applicable surcharge (10–15% depending on the seller’s total income slab) and 4% health and education cess, working out to roughly 13–15% effectively. For short-term gains (property held 24 months or less), the rate is 30% plus surcharge and cess for individual sellers. Since most inherited property has typically been in the family for well over two years by the time it changes hands, long-term treatment is the common case, but it is worth confirming the holding period is calculated correctly — for inherited property, the holding period includes the time the original owner (the deceased) held it, not just the time since inheritance.

The problem isn’t the rate itself; it’s that, without intervention, the buyer withholds this percentage of the full price, which can lock up a disproportionate share of the proceeds relative to the actual tax liability on the gain.

The Fix: A Lower or Nil TDS Certificate

NRIs can apply to the Jurisdictional Assessing Officer via Form 13 on the TRACES portal for a Lower or Nil TDS Certificate under Section 197, submitting the sale agreement, the buyer’s PAN/TAN details, a passport copy, proof of the property’s acquisition cost (or, for inherited property, the original owner’s acquisition cost and date), and a property valuation. This adjusts the withholding to reflect the actual computed tax liability rather than the full sale price. Processing commonly takes 30–45 days, which is exactly why the application needs to start well before the sale is scheduled to close — filing it after a buyer is already at the table typically means either delaying closing or accepting full withholding for this transaction and reclaiming the excess later.

What Happens Without a Lower TDS Certificate

If no Lower TDS Certificate is obtained, the buyer withholds tax at the default rate on the full sale price. The seller can eventually claim a refund of the excess through their annual income tax return — filed as a non-resident taxpayer, typically using ITR-2 or ITR-3 depending on other income — but that means a significant portion of the sale proceeds sits with the tax department for the better part of a year rather than being available at closing, and the refund itself can take several more months to process after the return is filed.

Buyer Compliance: What the Other Side Has to Do

TDS on an NRI seller’s transaction is not simply withheld and forgotten — the buyer carries specific compliance obligations. The deducted amount must be deposited with the Income Tax Department by the 7th day of the month following deduction. The buyer then files a quarterly TDS return using Form 27Q (the form specifically for payments to non-residents, distinct from Form 26QB used for resident seller transactions) and issues Form 16A to the NRI seller as proof of the tax deducted — the seller needs this certificate to claim credit for the TDS when filing their own return. A buyer unfamiliar with these NRI-specific obligations sometimes defaults to the resident process (Form 26QB, 1% flat rate) by mistake, which under-withholds relative to what Section 195 actually requires and can create compliance problems for the buyer later.

Worked Example: The Difference an LDC Makes

Consider Priya Nair, an NRI in Toronto who inherited a Chennai apartment from her father in 2019. Her father had originally purchased the property in 1998; under inheritance rules, Priya’s holding period for capital gains purposes runs from 1998, comfortably making this a long-term asset. In 2026, Priya agrees to sell the apartment for ₹1.8 crore. After indexation-adjusted cost of acquisition and improvement, her computed long-term capital gain works out to roughly ₹70 lakh, on which her actual tax liability (12.5% plus surcharge and cess) comes to approximately ₹9.6 lakh.

If Priya does nothing before closing, her buyer is required to withhold roughly 13–15% of the full ₹1.8 crore sale price — in the region of ₹24–27 lakh — rather than the roughly ₹9.6 lakh she actually owes. That is nearly ₹15–17 lakh of her own money sitting with the tax department for months longer than necessary, refundable only after she files her annual return and the refund is processed.

Instead, Priya’s chartered accountant files Form 13 on the TRACES portal ten weeks before the scheduled closing date, along with her father’s original purchase deed, the cost of subsequent improvements, and a valuation report. The Assessing Officer processes the application in about five weeks and issues a Lower TDS Certificate specifying that the buyer should withhold tax only on the computed gain of ₹70 lakh. At closing, the buyer withholds approximately ₹9.6 lakh instead of ₹24–27 lakh — leaving Priya with an additional ₹15–17 lakh available immediately, rather than tied up until her next tax refund cycle.

TDS Comparison: Resident Seller vs. NRI Seller

Lower TDS Certificate Application Checklist

• PAN of the NRI seller (mandatory — a sale cannot proceed smoothly without one)
• Original acquisition documents — for inherited property, the deceased’s purchase deed or allotment letter, plus the death certificate and Legal Heir/Succession Certificate or probated will linking the NRI to the property
• Details of the proposed sale — draft agreement or MoU, sale price, buyer’s PAN
• Cost of any capital improvements made to the property, with supporting bills
• A property valuation report, if the Assessing Officer’s office requests one
• Computation of capital gains, ideally prepared by a Chartered Accountant familiar with NRI taxation
• Form 13 filed on the TRACES portal, with the application submitted at least 6–8 weeks before the intended closing date

What If Something Goes Wrong

The LDC application is filed too late. If Form 13 is submitted with only two or three weeks left before closing, the 30–45 day processing window simply won’t fit, and the transaction either has to be delayed or proceed with full withholding. There is no expedited track for a rushed application.

The buyer withholds at the wrong rate anyway. Even with a Lower TDS Certificate in hand, some buyers — especially individual buyers unfamiliar with NRI transactions — mistakenly withhold at the default Section 195 rate regardless. The certificate needs to be shared with the buyer’s advisor well before the payment is processed, not handed over at the registration table.

The seller assumes agricultural land follows the same rules. FEMA lets NRIs inherit agricultural land, but such land can generally only be sold to a resident Indian citizen — this doesn’t change the TDS mechanics under Section 195, but it does narrow the pool of eligible buyers, which is worth planning around separately from the tax question.

No Form 16A is ever issued. If the buyer deducts TDS but never files Form 27Q or issues Form 16A, the seller has no documentary proof of the tax already paid when filing their own return, which can delay or complicate claiming credit for it. Following up for Form 16A promptly after closing avoids this becoming a problem months later.

Repatriating the Proceeds Afterward

Once TDS is settled, sale proceeds credited to an NRO account can be repatriated abroad subject to the RBI’s USD 1 million per financial year limit, using Form 15CA (self-declaration) and Form 15CB (Chartered Accountant certification) before the Authorised Dealer bank processes the transfer. This step generally cannot be completed until the tax position on the sale is resolved, which is one more reason getting the Lower TDS Certificate sorted early keeps the whole sale-to-repatriation timeline moving rather than stalling at the tax stage.

Frequently Asked Questions

How to apply for lower TDS on sale of property by NRI?

File Form 13 on the TRACES portal with the Jurisdictional Assessing Officer, attaching the sale agreement, proof of the property’s acquisition cost (the original owner’s cost and date, for inherited property), details of capital improvements, and a computation of the expected capital gain. Processing typically takes 30–45 days, so file well ahead of the intended closing date.

What is the TDS rate for NRI under Section 195?

For long-term capital gains (property held over 24 months, transferred on or after 23 July 2024), the rate is 12.5% plus applicable surcharge and 4% cess, working out to roughly 13–15% effectively. For short-term gains, the rate is 30% plus surcharge and cess. Without a Lower TDS Certificate, this is applied to the full sale price rather than just the gain.

How to pay TDS on property purchase from NRI online?

The buyer deposits the deducted TDS through the Income Tax Department’s online payment system by the 7th day of the month following deduction, then files a quarterly TDS return using Form 27Q (the form specific to payments made to non-residents) and issues Form 16A to the NRI seller as proof of deduction.

How is TDS calculated when an NRI sells property in India?

By default, TDS is calculated as a percentage of the full sale consideration, not the capital gain, at the rate applicable to the holding period (12.5% for long-term, 30% for short-term, plus surcharge and cess). If the seller has obtained a Lower or Nil TDS Certificate under Section 197, the buyer instead withholds only on the amount the certificate specifies, which reflects the seller’s actual computed tax liability.

How to avoid TDS for NRI?

TDS itself cannot be avoided on an NRI property sale — Section 195 applies regardless of transaction size. What can be adjusted is the amount withheld: applying for a Lower or Nil TDS Certificate before closing reduces withholding to the actual tax liability rather than a percentage of the full sale price, which is the practical equivalent of avoiding over-withholding.

Do NRIs have to pay capital gains tax on the sale of property?

Yes. NRIs are subject to capital gains tax on the sale of Indian immovable property exactly as resident sellers are, with the tax collected upfront via TDS under Section 195 rather than solely through self-assessment at return-filing time. Long-term and short-term treatment, and the applicable rates, follow the same holding-period rules that apply to residents.

What are the new rules for TDS on property sale by NRIs?

The core Section 195 framework — TDS on the full sale price by default, with a Lower/Nil TDS Certificate available under Section 197 via Form 13 — remains the operative rule. The main recent change affecting NRI sellers has been the reduction in the long-term capital gains rate to 12.5% (from 20%) for transfers on or after 23 July 2024, following the 2024 Union Budget.

Related Reading

See our guides on Power of Attorney for overseas heirs — useful if you can’t be present for the sale itself — and on the process of mutation and sale of inherited property by NRIs, which needs to be completed before a sale can close. For the broader inheritance context, see NRI property inheritance in India and our guide to when a Succession Certificate is required.

Conclusion

The TDS rate itself isn’t unusually high for NRI sellers — what catches most people off guard is that it defaults to withholding on the full sale price rather than the actual gain. A Lower TDS Certificate, filed through Form 13 early enough to clear the 30–45 day processing window, is the difference between proceeds available at closing and a substantial share of your own money tied up until next year’s tax refund. PropResolve’s verified property lawyers and empanelled Chartered Accountants file these applications proactively, timed against the actual sale schedule. Available in every major city, including Bangalore.