TDS on NRI Property Sale in 2026: The Section 195 Math Explained
Updated: Sep 12
A 2026 guide for NRI sellers in Gurgaon — and the buyers, agents, and CAs working with them.
Every year, NRIs selling apartments in Gurgaon's established micro-markets — Golf Course Road, DLF Phases 1–5, and the Sector 65 SCO belt — go through the same unpleasant surprise.
They agree on a sale price, expect a clean wire transfer, and instead watch the buyer withhold a startling chunk of the total consideration before a single rupee reaches their NRE account.
Almost none of that shock is about the rate actually being high. Most of it comes from a structural quirk in how the withholding is calculated — one that very few sale agreements plan for in advance, and one that a specific certificate exists to fix.
This piece walks through the mechanics: which section governs the deduction, what the correct 2026 rate is, why the default calculation can overshoot the real tax owed, and the paperwork that can bring it back in line.
Section 194-IA vs. Section 195 — The First Place People Get It Wrong
When a resident sells property to another resident, the buyer deducts a flat 1% TDS under Section 194-IA, subject to the applicable conditions and threshold.
It's simple, and it's the number most buyers, brokers, and even registration-office staff default to out of habit.
That section does not apply when the seller is an NRI. The applicable TDS provisions for payments to a non-resident seller need to be considered under Section 195 of the Income Tax Act.
Section 195 does not work like the standard 1% TDS calculation under Section 194-IA. The tax implications depend on the nature of the income and the seller's capital gains position.
This isn't just a technicality.
If a buyer applies the wrong TDS provision to an NRI property transaction, it can create complications relating to tax compliance, interest, and potential penalties.
Confirming the seller's residential status in writing before the sale agreement is finalised is worth the extra step.
What the Correct Rate Actually Is in 2026
For property held for more than 24 months, the transaction may generally be treated as a long-term capital gain, subject to the applicable provisions of tax law.
The Union Budget 2024 introduced significant changes to the taxation of long-term capital gains on immovable property.
LTCG rate: Understand the applicable tax rate based on the seller's status and the relevant provisions in force.
Indexation: The availability of indexation and transitional provisions can depend on the taxpayer's residential status and other legal conditions.
NRI sellers: Tax treatment for NRIs should be reviewed carefully before completing the transaction.
This is one of the most commonly misunderstood areas in NRI property transactions. Many buyers and sellers still rely on outdated information, older articles, or simplified online summaries.
For property held for 24 months or less, the gain may generally be treated as a short-term capital gain and taxed according to the applicable provisions.
On top of the base tax rate, surcharge and Health and Education Cess may also apply depending on the seller's total taxable income and circumstances.
Worked Example:
An NRI bought a Sector 65 apartment in 2016 for ₹1.2 crore and sells it in 2026 for ₹3.2 crore, having held the property well beyond 24 months.
Item | Amount |
Sale price | ₹3,20,00,000 |
Cost of acquisition | ₹1,20,00,000 |
Illustrative long-term capital gain | ₹2,00,00,000 |
Income tax on gain @ 12.5% | ₹25,00,000 |
Illustrative surcharge @ 15%* | ₹3,75,000 |
Health & Education Cess @ 4% | ₹1,15,000 |
Illustrative total tax liability | ₹29,90,000 |
The surcharge slab depends on the seller's total taxable income for the year and should be confirmed with a CA — 15% here is illustrative, not universal.
The real problem: TDS is deducted on the full sale price, not the gain
Here's the part that catches most NRI sellers off guard. Unless a certificate says otherwise, the buyer is required to deduct TDS on the entire sale consideration — not on the computed capital gain.
Using the example above, at an effective rate near 14.9% (12.5% + surcharge + cess), the buyer would withhold roughly ₹47.7 lakh on the full ₹3.2 crore sale price — nearly ₹18 lakh more than the ₹29.9 lakh actually owed. That excess isn't lost; it comes back as a refund once the NRI files their Indian tax return. But "comes back eventually" means months of the seller's own money sitting with the government, and refund processing for non-resident filers is rarely fast.
For a Gurgaon transaction — where sale values on Golf Course Road, DLF Phase 3–5, or SCO plots routinely run into several crores — that gap between withheld TDS and actual tax owed can be a genuinely large sum to leave tied up unnecessarily.
The Fix: A Lower or Nil Deduction Certificate
Under the Income-tax Act, 2025, a taxpayer may apply for a certificate authorising deduction of tax at a lower rate — or, where justified, no deduction of tax.
The provision previously covered under Section 197 of the Income-tax Act, 1961 is now covered under Section 395(1) of the Income-tax Act, 2025. The application previously known as Form 13 has been renumbered as Form No. 128 under the Income-tax Rules, 2026.
For an NRI selling property, this can be particularly important because the tax ultimately payable on the capital gain may be significantly lower than the amount that could otherwise be withheld during the transaction.
How it works in practice:
1. Compute the expected taxable capital gain and tax liability
Before applying, the seller and their Chartered Accountant should prepare a proper computation based on the relevant facts of the transaction. This may include the cost of acquisition, eligible transfer expenses, eligible improvement costs and applicable capital-gains exemptions.
2. Apply for the appropriate lower or nil deduction certificate
The seller should work with a qualified Chartered Accountant to apply through the applicable Income Tax Department process and submit the required information and supporting documentation.
3. The application is reviewed
If the competent tax authority is satisfied that a lower rate or nil deduction is justified, a certificate may be issued specifying the applicable rate and relevant conditions.
4. The buyer deducts tax according to the applicable certificate
Where a valid certificate applies to the transaction, tax should be deducted according to its terms and conditions.
“The practical implication is timing: the application process should begin well before the sale agreement is signed or the closing date approaches—not during registration week.”
What This Means for an NRI Selling Property in Gurgaon
If you're an NRI planning to sell property in Gurgaon:
1. Confirm your residential status early
Make sure the buyer understands that the withholding rules applicable to payments to a non-resident are different from the standard 1% resident-property TDS framework.
Your residential status should be clearly established before the transaction is completed.
2. Start tax planning early
If you intend to apply for a lower or nil deduction certificate, begin working with your Chartered Accountant well before the buyer is required to make payment or credit the consideration.
Do not leave the process until the last few days before registration.
3. Get the TDS clause reviewed carefully
The sale agreement should clearly address:
The seller's residential status
The applicable withholding framework
Responsibility for deducting and depositing TDS
The PAN details required for compliance
Any lower/nil deduction certificate applicable to the transaction
4. Keep your documents organised
Prepare relevant documents in advance, including, where applicable:
Original purchase documents
Payment records
Improvement-cost records
Transfer-expense records
Previous income-tax filings and other relevant tax documentation
Complete documentation can help your tax professional prepare the application and computation properly.
A Final Word for NRI Sellers
The key lesson is simple: don't confuse the amount withheld during the transaction with your final tax liability.
For a non-resident property seller, the withholding mechanism can create a significant cash-flow impact if the transaction is not structured and documented properly in advance.
The applicable rate, taxable amount, surcharge, exemptions and certificate route can all depend on the specific facts of the transaction. Always obtain advice from a qualified Chartered Accountant before signing or completing the sale.
How Guruva Realty Can Help -
While your Chartered Accountant should handle tax calculations and tax applications, Guruva Realty can assist on the property side — including sale readiness, buyer coordination, transaction planning, title and RERA-related due diligence, and helping coordinate the transaction timeline with your professional advisors.
Guruva Realty is a HRERA-registered real estate advisory firm serving HNI, NRI and institutional clients across Gurgaon's residential and commercial markets.
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