TDS on NRI Property Sale 2026: Long-Term Capital Gain Rates, Lower TDS Certificate & Refund Process

TL;DR — TDS on NRI property sale in 2026. When an NRI sells property in India, the buyer must deduct TDS under Section 393(2) of the Income-tax Act, 2025 (old Section 195). Unless the Assessing Officer issues a certificate, buyers generally deduct on the whole amount paid, not on the profit, because their route to anything less is an application to the Assessing Officer. For long-term capital gain (held more than 24 months), the base rate is 12.5% post-July-2024 budget; effective TDS is 13.00%, 14.30% or 14.95% once surcharge and 4% health-and-education cess are layered on, with the surcharge band set by the amount subject to deduction. Short-term (held 24 months or less) is deducted at 30% + surcharge + cess. The fix for over-deduction is a lower-deduction certificate under Section 395 (old Section 197), on Form 128 (old Form 13) — apply early enough to have it before the buyer's first payment, including any advance at agreement. The rate on the certificate depends on the Assessing Officer's view of your total income and estimated tax.

Tax rates, sections and forms checked on 2 November 2026 against the Income-tax Act, 2025 and Finance Act, 2026. Bank and processing times are estimates. General information, not tax advice: confirm your case with a CA.

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The Direct Answer

When an NRI sells property, the buyer MUST deduct TDS under Section 393(2) at roughly 13-15% (Long Term, post-2024 budget) or 30%+ (Short Term), generally on the entire sale value, not just the profit. This locks up your capital. To save tax, you can reinvest in another house (Section 82, old Section 54) or buy Capital Gains Bonds (Section 85, old Section 54EC) within 6 months. To avoid the cash-flow hit in the first place, file Form 128 under Section 395 early enough to have a Lower TDS Certificate before the buyer's first payment, including any advance at agreement. For sales on or before 31 March 2026, the 1961 Act applies: Section 195 for TDS and Form 13 for the certificate.

TDS Rates for NRI Sale of Property: 2026 Reference Table

The rate the buyer applies is a layered calculation: a base capital gains rate under Section 197 of the Income-tax Act, 2025 (old Section 112, not the old Section 197 certificate, which is now Section 395), plus surcharge, plus a flat 4% health-and-education cess on the combined amount. The surcharge band below is set by the amount paid or likely to be paid and subject to deduction, not by the seller's total income. Your final tax in the return depends on total income.

Holding period	Base rate (Section 393(2))	Surcharge band (amount subject to deduction)	Effective TDS
More than 24 months (LTCG)	12.5% (post-July-2024)	0% (up to ₹50L)	13.00% (12.5 + 4% cess)
More than 24 months (LTCG)	12.5%	10% (above ₹50L, up to ₹1Cr)	14.30%
More than 24 months (LTCG)	12.5%	15% (above ₹1Cr, at any level)	14.95%
24 months or less (STCG)	30%	0% up to ₹50L, 10% to ₹1Cr, 15% to ₹2Cr, 25% above ₹2Cr, 37% above ₹5Cr only if the seller opted out of the Section 202 default regime	31.20% to 42.74%

Two important caveats. (1) The TDS surcharge band follows the amount subject to deduction, not your total income. A high-consideration / low-gain deal (say ₹1.4Cr sale on a ₹60L cost basis = ₹80L gain) generally attracts 14.95% TDS with no certificate, even though the seller's final tax in the return uses the 10% surcharge band on actual income of ₹80L — exactly the gap that a Form 128 / Section 395 lower-TDS certificate exists to close. (2) Surcharge on LTCG is capped at 15%. This gain doesn't attract the 25% / 37% enhanced-surcharge bands that apply to other high-value income — Finance Act 2022 limited the maximum surcharge on old Section 112 / 112A income to 15%, and the Finance Act, 2026 rates keep that cap, regardless of sale value or total income. STCG falls outside that cap. Always verify the applicable band with a CA before signing the sale agreement.

Long Term vs Short Term — The Holding Period That Matters

The holding period clock starts on the date you originally acquired the property (usually the registered sale-deed date; if you bought through an allotment, ask your CA which date applies). If you inherited the property or received it as a gift, the previous owner's holding period counts too — useful when the inheritance itself is recent but the original purchase was decades ago. Exactly 24 months is still short term.

Type	Holding period	Tax rate (head)	TDS rate (Section 393(2))
Short Term (STCG)	24 months or less	As per income slab	30% + surcharge + cess
Long Term (LTCG)	More than 24 months	12.5% (Budget 2024 onwards)	12.5% + surcharge + cess

Budget 2024 changed LTCG rules: rate dropped from 20% to 12.5%, and indexation benefit was removed for most cases (the option to compare with 20% with indexation, for land or building acquired before 23 July 2024, is for resident individuals and HUFs only, so non-residents pay the flat 12.5% on the unindexed gain). Confirm with a CA which regime applies to your specific deal date and ownership history.

Worked Example: TDS Calculation for NRI Property Sale

Take a representative case: an NRI selling an apartment in Bengaluru held since 2015.

• Purchase price (2015): ₹60 lakhs
• Sale consideration (2026): ₹1.4 crores
• Holding period: ~11 years → Long Term

Without Lower TDS Certificate (Section 393(2) default):

• Base TDS = 12.5% of ₹1.4 Cr = ₹17.5 lakhs
• Surcharge (15% band, amount subject to deduction above ₹1Cr) on ₹17.5L = ₹2.625 lakhs
• Cess (4%) on ₹20.125L = ₹80,500
• Total TDS deducted by buyer: ~₹20.93 lakhs (~14.95% of sale value)

Actual capital gains tax liability (no other Indian income):

• Capital gain = ₹1.4 Cr - ₹60L = ₹80 lakhs
• LTCG tax = 12.5% × ₹80L = ₹10 lakhs
• Surcharge: ₹80L total income → 10% band → 10% × ₹10L = ₹1 lakh
• Cess: 4% × (₹10L + ₹1L) = ₹44,000
• Actual liability: ~₹11.44 lakhs

The buyer over-deducted by ~₹9.5 lakhs — mostly because TDS ran on the full ₹1.4 Cr rather than the ₹80L gain, and partly because the ₹1.4 Cr amount falls in the 15% TDS surcharge band while an ₹80L total income sits in the 10% band for final tax. The NRI now waits for a refund through the next ITR cycle (typically 6-15 months including processing). The fix — a Form 128 certificate in hand before the buyer's first payment — could have had the buyer deduct close to that ₹11.44 lakhs (about 8.2% of the sale value here), depending on the Assessing Officer's estimate, freeing the rest for repatriation or Section 85 bond reinvestment without the refund delay.

How to Save Capital Gains Tax

These exemptions reduce your final tax. They don't themselves reduce the buyer's TDS: relief at source needs a Section 395 certificate.

1. Section 82: Buy Another House

• This applies when the property you sold is a residential house. If you sold a plot or commercial property, Section 86 (old Section 54F) applies instead: it looks at the net sale amount, not just the gain, and has its own limits on other houses you own.
• Invest the Capital Gain amount (not full sale value) into one residential house in India.
• Timeline: 1 year before or 2 years after sale (for purchase), or 3 years (for construction).
• Cap from FY 23-24: the cost of the new house above ₹10 crores is ignored when working out the exemption.

2. Section 85: Bonds

• Invest up to ₹50 lakhs in notified bonds (NHAI / REC / PFC / IRFC).
• Lock-in: 5 years.
• Interest: Taxable, but capital is safe and the corresponding capital gain becomes exempt.
• Window: Within 6 months of sale.

3. Capital Gains Account Scheme (CGAS)

If you haven't found a new house by the tax filing deadline (July 31), deposit the unutilized money into a specialized CGAS Account at a notified bank to avoid paying tax that year. You then have until the Section 82 timeline expiry to deploy it.

When reinvesting under Section 82, run the buy-side legal diligence with the same rigour you applied to the sale — see the property title verification checklist for India for the 30-year paper trail every NRI buyer should demand on resale stock.

The Section 395 Lower TDS Workflow (Form 128)

This is the single highest-leverage move for an NRI seller. The mechanics:

1. Compute expected capital gain with your CA — purchase cost and exemptions claimed (Section 82 / 85).
2. File Form 128 electronically on the Income Tax TRACES portal, referencing the buyer's PAN and the proposed sale value. You need a PAN of your own: without one, no certificate can be issued.
3. Assessing Officer issues Lower TDS Certificate specifying a deduction rate based on their view of your total income and estimated tax. There is no standard percentage: the rate depends on your actual computed tax.
4. Buyer deducts at the certified rate, not the default 12.5%+ surcharge+cess. The certificate changes the amount withheld, not your final tax.
5. Process timeline: typically 4-6 weeks; start at least 2 months before the buyer's first payment, including any advance at agreement.

A certificate issued under old Section 197 for projected receivables of Tax Year 2026-27 stays valid for payments after 1 April 2026. New applications use Section 395.

For NRIs holding the property through a Power of Attorney arrangement, the POA holder can file Form 128 on your behalf. The certificate names the buyer as deductor and covers a specified payment and amount, so apply once your buyer is fixed. Any refund still comes to you, not the POA holder.

Will You Be Taxed Again Back Home? The DTAA Credit Side

India taxing your gain is only half the story — and it is the half every other guide stops at. India keeps the right to tax gains on Indian property under the treaties we checked (USA, UK, Canada, UAE, Singapore, Australia, Saudi Arabia, Qatar, Kuwait, Oman, New Zealand, Germany and Mauritius), so a DTAA does not reduce the buyer's TDS. The way to reduce TDS is a lower-deduction certificate from the Assessing Officer. Any relief for tax paid in India is a matter for your country of residence, typically as a foreign tax credit for the Indian tax you already paid.

The catch most NRIs miss: a foreign tax credit is generally capped at your home country's own tax on that same gain. If your country of residence taxes the gain lower than India's effective 13% to 14.95% — or not at all — you cannot recover the difference. Your real tax becomes the higher of the two systems.

Your residence	Taxes the India gain?	Relief for the India tax	Net effect
USA	Yes — worldwide income; LTCG 0/15/20% (+ 3.8% NIIT)	Form 1116 foreign tax credit	Mid-bracket (15%) sellers: India's 13% to 14.95% usually offsets most US tax. High earners (20% LTCG + NIIT ≈ 23.8%) sit above India's rate and still owe the US spread after Form 1116 — and excess India tax is not refundable
UK	Yes — if UK-resident	Foreign Tax Credit Relief	Credit limited to UK tax on the gain; UK tax year (Apr–Apr) timing differs
UAE	No personal income tax	Usually nothing to credit against	India tax is final — no second tax, but no relief either (cleanest case)
Canada / Australia	Yes — worldwide income	Foreign tax credit	Credit capped at domestic tax on the gain
Singapore	No tax on foreign capital gains	Nothing to credit	India tax is final

To claim treaty treatment in India at all, keep two documents ready: a Tax Residency Certificate (TRC) from your country's tax authority, and Form 41 (old Form 10F) filed on the Indian income-tax portal (a self-declaration of your residency details and tax ID). They do not open up a lower TDS rate on the property sale: a Section 395 certificate rests on the Assessing Officer's view of your total income and estimated tax, not on a treaty entitlement.

The timing trap. India's tax year runs April–March; the US runs on the calendar year and the UK April–April. India TDS is taken at sale, but you claim the home-country credit in your tax year — so the credit can arrive a year after the deduction, a temporary double cash-flow hit even when the net tax washes out. Confirm the exact treaty article and credit limit with a cross-border CA; these mechanics differ treaty by treaty.

Frequently Asked Questions

What is the TDS rate on long-term capital gain for NRI in 2026?

The base TDS rate under Section 393(2) for long-term capital gain (held more than 24 months) on NRI property sale is 12.5% post the July 2024 budget. Effective TDS — once surcharge (0%, 10% or 15%) and the flat 4% health-and-education cess are layered on — is 13.00% up to ₹50 lakh, 14.30% above ₹50 lakh and up to ₹1 crore, and 14.95% above ₹1 crore. The band follows the amount subject to deduction, not your total income. The 25% / 37% enhanced-surcharge bands that apply to other high-value income do not apply here. Unless the Assessing Officer issues a certificate, buyers generally deduct on the whole amount paid, not just the capital gain, because their route to anything less is an application to the Assessing Officer.

What is the TDS rate for NRI sale of property under short-term capital gain?

If the property is held for 24 months or less, the gain is classified as short-term and the buyer deducts TDS at 30% + surcharge + cess, compounding to 31.20% to 42.74% depending on the amount subject to deduction: 31.20% up to ₹50 lakh, 34.32% up to ₹1 crore, 35.88% up to ₹2 crore, 39.00% above ₹2 crore, and 42.74% above ₹5 crore only if the seller opted out of the Section 202 default regime. STCG falls outside the 15% cap that applies to LTCG. Actual tax is at your slab rates, so any excess comes back through the return, and Form 128 under Section 395 is the mechanism to align withholding to actual liability before the buyer's first payment.

How can an NRI reduce TDS on property sale to actual tax liability?

File Form 128 under Section 395 early enough to have a Lower TDS Certificate before the buyer's first payment, including any advance at agreement. The Assessing Officer reviews your estimated income and tax, including any Section 82 / 85 exemptions you intend to claim, and issues a certificate authorising the buyer to deduct at a lower rate, or not at all, instead of the default 12.5%+ surcharge+cess. There is no standard percentage: the rate depends on your actual computed tax. You need a PAN to get a certificate, and it changes the amount withheld, not your final tax. Allow 4-6 weeks for processing. This is the single highest-leverage tax-cash-flow move for an NRI seller.

How does an NRI claim a TDS refund if too much was deducted?

File the Income Tax Return for the relevant tax year, declare the capital gain and the actual tax liability, and the excess TDS shows as a refund claim. Refund is credited to the bank account linked to your PAN — make sure your NRO account is pre-validated on the Income Tax portal. Typical timeline: 6-15 months from the original deduction date through ITR processing and refund issue. To avoid this delay entirely, use the Form 128 Section 395 route described above.

Can the buyer's TDS be deducted on the capital gain amount instead of full sale value?

Only with a certificate from the Assessing Officer, such as a Lower TDS Certificate under Section 395. Unless the Assessing Officer issues a certificate, buyers generally deduct on the whole amount paid, because their route to anything less is an application to the Assessing Officer — even if your actual tax liability is a fraction of the deducted amount. This is the structural reason NRI sellers either pre-file Form 128 or accept a multi-month refund cycle.

If I pay TDS in India, will I be taxed again in the US or UK on the same sale?

That depends on your country of residence, and it is not because India steps back. Under the capital gains article of the treaties we checked, India (where the property sits) keeps the right to tax the gain, and any relief for the Indian tax is a matter for your home country, typically as a foreign tax credit (USA via Form 1116, UK via Foreign Tax Credit Relief). The credit is generally capped at your home country's own tax on that gain, so if the US/UK rate is below India's 13% to 14.95%, the excess Indian tax may not be fully recoverable. UAE and Singapore residents pay no personal tax on the gain, so the India tax is simply final — no second tax, and no credit needed.

What documents does an NRI need to claim DTAA benefit on an India property sale?

Two: a Tax Residency Certificate (TRC) issued by your country of residence, and Form 41 filed on the Indian income-tax e-filing portal (declaring your residency details and tax identification number). Keep both ready — they are the precondition for any treaty relief. Under the treaties we checked, though, a DTAA does not reduce the buyer's TDS on Indian property: that takes a Section 395 certificate, which rests on your income and estimated tax, not on a treaty.