TDS on Property Sale by NRIs 2026: Section 195 Rates, Form 13, and the TAN Rule That Just Changed
By Nitish Bharadwaj · Published Sep 29, 2026 · 7 min
When an NRI sells property in India, the buyer must withhold tax under Section 195, not the 1% rule resident sellers face under Section 194IA. There is no sale-value threshold, and TDS defaults to the full consideration unless the NRI seller gets a lower-rate certificate first. This guide covers the actual TDS rates on long-term and short-term gains, how to apply for a Form 13 certificate before the sale deed is registered, the Income-tax Act 2025's renumbering of Section 195, and the TAN requirement Budget 2026 removed for buyers from October 1, 2026.
Sell a property as a resident Indian above ₹50 lakh, and the buyer withholds 1% under Section 194IA. Sell the same property as an NRI, and there is no ₹50 lakh threshold at all — the buyer must withhold tax under Section 195 from the very first rupee, and by default on the entire sale price, not just the profit. Families discover this gap only at registration, when a buyer's lawyer suddenly asks for 20-30% of the sale value to be withheld. Here is what the rate actually depends on, how to bring it down before the deed is signed, and what changed for buyers from October 1, 2026.
Section 195 vs Section 194IA: Why NRI Sellers Get a Harsher Default
| Resident Seller — Section 194IA | NRI Seller — Section 195 | |
|---|---|---|
| Threshold | Applies only if sale value is ₹50 lakh or more | No threshold — applies from ₹1 |
| Default TDS base | 1% of the sale value | Full sale consideration, unless a certificate limits it |
| Rate | Flat 1% | Depends on the type of gain — see below |
| Buyer needs a TAN? | No | Yes, until September 30, 2026 — removed from October 1, 2026 |
For how the resident-seller version works in practice, see our guide to TDS on property sale under Section 194IA. The NRI version is governed by an entirely different section with none of 194IA's built-in relief.
The Actual TDS Rates Under Section 195
Since Budget 2024, long-term capital gains on property held for more than 24 months are taxed at 12.5% without indexation, plus surcharge and 4% health and education cess. Surcharge is 10% once total income crosses ₹50 lakh and 15% above ₹1 crore — but for gains taxed under Section 112 (which covers property), surcharge is capped at 15% no matter how high total income goes, even well past ₹2 crore. That caps the effective long-term rate at roughly 14.95%. Short-term gains, on property held 24 months or less, are added to income and taxed at slab rates, and because the buyer usually can't verify an NRI seller's actual slab, TDS on short-term deals is commonly deducted near the top rate plus applicable surcharge and cess.
| Amount | |
|---|---|
| Sale consideration | ₹1,50,00,000 |
| Actual long-term capital gain | ₹40,00,000 |
| Actual tax due (12.5% + 4% cess; no surcharge, income below ₹50 lakh) | ≈ ₹5.20 lakh |
| Maximum TDS if deducted on full sale value (12.5% + 15% surcharge + 4% cess) | ≈ ₹22.43 lakh |
| Gap recoverable only via an ITR refund | ≈ ₹17 lakh |
Cutting the TDS Down: The Form 13 Route
An NRI seller can apply in Form 13 for a lower deduction certificate before the sale, so the buyer withholds tax on the estimated actual gain instead of the full consideration. The application needs the draft sale agreement, proof of the property's cost of acquisition and improvement, a computed capital gains statement, and the seller's recent ITR history where applicable. It has to be filed and approved before the sale deed is registered — approval commonly takes four to six weeks, so the process should start the moment a buyer is finalised, not after the deal is already close to signing.
One thing has changed here too. Under the old Section 197, the Assessing Officer could issue a certificate for a lower rate or for nil deduction. The Income-tax Act, 2025 drops the nil-deduction wording — from FY 2026-27, a certificate can bring the rate down to match the actual tax liability, but not to zero. If the seller plans to claim an exemption under Section 54 or 54F by reinvesting the gain, or needs to park the money temporarily in a Capital Gains Account Scheme before the reinvestment deadline, that plan should be built into the Form 13 application, not left for the refund stage.
The Income-tax Act 2025 Renumbering
What Budget 2026 Fixed for Buyers From October 1, 2026
Until now, a resident buyer purchasing from an NRI seller needed a TAN just for this one transaction, then had to file a quarterly Form 27Q return — friction that led many first-time buyers to either skip TDS entirely or under-deduct out of confusion. From October 1, 2026, Budget 2026 removes the TAN requirement for individual and HUF buyers in these deals. TDS is now deposited through a simpler PAN-based challan-cum-statement, closer to how Form 26QB already works for the 194IA resident-seller process, with no separate quarterly return.