When an NRI sells property in India, the buyer is legally required to deduct TDS at 20% on long-term capital gains (property held over 24 months) or 30% on short-term gains — plus applicable surcharge and cess. On a ₹1 crore sale, that's ₹20–30 lakh withheld before you see a rupee.
Most of this eventually comes back as a tax refund — but only after you file your ITR and wait months for processing. If your actual tax liability is lower (because of indexation, exemptions under Section 54 or 54EC, or a lower capital gain than expected), you can apply for a lower TDS certificate under Section 197 and have the buyer deduct only what you actually owe.
Default TDS Rates for NRI Property Sales
Under Section 195, the buyer of any property from an NRI must deduct TDS before making payment. The rates are:
- Long-term capital gains (property held > 24 months): 20% + surcharge (if applicable) + 4% cess
- Short-term capital gains (property held ≤ 24 months): 30% + surcharge + 4% cess
Unlike resident sellers, NRIs receive no basic exemption limit. TDS applies from the first rupee of sale consideration. The buyer needs a TAN and must file TDS returns accordingly.
What Is a Section 197 Lower TDS Certificate?
Section 197 of the Income Tax Act allows an Assessing Officer (AO) to issue a certificate directing the buyer to deduct TDS at a lower rate — or even at nil — when your actual tax liability is demonstrably less than the standard TDS rate.
This is the legally correct mechanism. There is no other way for a buyer to deduct below the standard rate without violating Section 195 and attracting penalties.
How to Apply: Form 13 on TRACES
The application is made by the NRI seller (not the buyer) via Form 13 on the TRACES portal (tdscpc.gov.in). Here is the step-by-step process:
- Register/log in to TRACES with your PAN
- Go to Statements / Forms > Request for Form 13
- Fill in property details: sale consideration, estimated capital gains, cost of acquisition, exemptions you intend to claim (Section 54, 54EC, etc.)
- Attach supporting documents: property purchase deed, sale agreement, passport, PAN card, ITRs of past 3 years
- Submit the application — it goes to your jurisdictional AO for review
- The AO may call for additional documents or hold a hearing
- If satisfied, the AO issues the certificate specifying the reduced TDS rate
The certificate is then shared with the buyer, who deducts TDS at the rate specified in the certificate instead of the standard rate.
Timeline: Start Early
The process typically takes 30–45 days, sometimes longer if the AO requests clarifications. You should begin the application at least 2 months before the expected sale date. If you are simultaneously claiming a Section 54 exemption, coordinate the timeline carefully — a CA can help ensure all paperwork aligns.
What If You Can't Get the Certificate in Time?
If the sale closes before the certificate is received, the buyer must deduct at the full rate. You are not without recourse — you can claim a refund when you file your ITR. However, the refund process can take 6–18 months, and the money is locked in the meantime. This is why planning ahead matters.
In cases of genuine urgency, experienced CAs sometimes negotiate with the AO for an expedited ruling. This is not guaranteed but can work when paperwork is complete and the case is straightforward.
Factors the AO Considers
- Your estimated capital gains after indexation
- Exemptions claimed (Section 54, 54EC, 54F)
- Past ITR compliance history
- Existing tax dues or pending demands
- Whether the sale consideration appears at market value
Frequently Asked Questions
Can a buyer deduct lower TDS on NRI property without a certificate?
No. The buyer must deduct at the full rate unless the NRI seller produces a valid Section 197 certificate. Deducting at a lower rate without a certificate exposes the buyer to penalties and interest under Section 201.
Can I factor in Section 54 exemption in my Section 197 application?
Yes. If you intend to reinvest gains in a new residential property or in NHAI/REC bonds, declare this in Form 13. The AO will consider your net tax liability after the intended exemption when determining the reduced TDS rate.
Does Section 197 apply if I'm selling ancestral or inherited property?
Yes. Section 197 is available for any NRI property sale, including inherited property. The cost of acquisition for inherited property is the original cost paid by the deceased (or FMV as of April 1, 2001, whichever is higher for pre-2001 acquisitions).
What if the AO rejects my application?
You can appeal the rejection or file your ITR post-sale and claim the full refund. In practice, well-documented applications with realistic gain computations and proper exemption planning are rarely rejected outright.
Related reading: Complete NRI Property Sale Tax Guide | Section 54 & 54EC Capital Gains Exemption for NRIs | Inherited Property: Tax & Repatriation