NRI property sellers can curb excess tax withholding with an early certificate application

Buyers may have to withhold tax on the full sale price, even when the seller’s taxable gain is far smaller. A lower or nil deduction certificate can limit the overpayment, but sellers must apply before the transaction is completed.

For non-resident Indians selling property in India, tax deducted at source can come as a shock. Under the current framework, the buyer must generally withhold tax from the full sale consideration, not merely from the seller’s profit, which can leave a large sum locked up until a refund is claimed later. According to the Income Tax Department, the new Income-tax Act, 2025 applies from 1 April 2026, while earlier transactions remain under the 1961 law, so the first step is always to confirm which regime governs the deal.

That distinction matters because the rules for withholding are set out differently under the new Act. The department says section 393 covers tax deducted at source on non-salary payments, including transfers of immovable property, while section 395 provides for lower or nil withholding certificates. In practice, the buyer is expected to deduct tax from the gross consideration at the applicable rate, even where the seller’s actual gain is much smaller. The result can be disproportionate, particularly where the property was inherited or held for many years and the taxable gain is modest.

The rate depends on whether the property is treated as long-term or short-term. For long-term holdings, the base rate is 12.5 per cent, plus surcharge and cess, while short-term gains are taxed at the relevant slab for a non-resident individual, which typically means 30 per cent plus surcharge and cess. On a sale value of Rs 1 crore, the effective withholding can rise sharply once surcharge is added. The Income Tax Department’s guidance also underlines that the law changed with effect from 1 April 2026, so sellers and buyers need to check the latest tables and transition rules before completing a transaction.

The main way to avoid over-deduction is to seek a lower or nil deduction certificate before the sale is completed. The department says an application is made in Form 128 under section 395(1), replacing the earlier Form 13 route under the old law. The Assessing Officer considers the expected income, acquisition cost, capital gain and likely tax liability, and can issue a certificate specifying the rate to be applied. Once granted, that certificate binds the buyer, who then deducts tax only at the approved rate. Because processing can take several weeks, the application should be started early and, where possible, built into the sale timetable.

There are also practical hurdles after the sale. The buyer must deposit the tax within the prescribed time, file the withholding return and provide the seller with the relevant certificate. The department’s 2026 rules also introduced Form 141 for reporting tax deducted on certain property transfers, and from 1 October 2026 resident individual and Hindu undivided family buyers in those transactions no longer need a tax deduction and collection account number. For sellers who want to move funds abroad, the Reserve Bank of India says eligible remittances from an NRO account are generally permitted up to $1 million a financial year, subject to Indian tax being paid and the right documentation being completed. Treaty relief may also be available where the seller is tax resident in a country with a double taxation agreement, but any excess withholding is normally recovered only by filing an Indian return.