TDS on NRI Income in India -- Rates, Refund & Section 197 Lower Deduction Certificate (FY 2025-26)

By CA Mayank Wadhera (CA | CS | CMA | IBBI Registered Valuer), Founder of MKW Advisors

Last Updated: March 2026 | Applicable for FY 2025-26 (AY 2026-27)

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Quick Answer

What is the TDS rate for NRIs on property sale in India? For FY 2025-26, TDS on long-term capital gains from property sold by an NRI is 12.5% (plus applicable surcharge and 4% health & education cess) under Section 195. Short-term capital gains attract TDS at 30% plus surcharge and cess. The critical problem is that this TDS is often computed on the entire sale consideration rather than on the actual capital gain, leading to massive over-deduction. NRIs can apply for a Section 197 lower deduction certificate to bring TDS in line with their actual tax liability -- potentially saving lakhs of rupees from being locked up with the government.

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If you are a Non-Resident Indian earning any income in India -- whether from property sale, fixed deposits, dividends, or rental income -- the Indian tax system treats your TDS deduction very differently from that of a resident. The rates are substantially higher, the compliance burden falls squarely on the payer, and the refund process can be frustratingly slow if not handled correctly.

Every year at MKW Advisors, we handle hundreds of NRI tax matters where the single biggest financial drain is unnecessary TDS over-deduction. An NRI selling a property worth Rs. 1.5 crore may see Rs. 20-25 lakh deducted as TDS -- when the actual tax liability, after indexation and deductions, is often less than Rs. 5 lakh. That difference stays locked with the government for 6 to 18 months until you file your return and successfully claim a refund.

"The biggest financial mistake NRIs make is passively accepting high TDS deduction without applying for a Section 197 lower deduction certificate. This single step can save lakhs in blocked capital and months of refund waiting." -- CA Mayank Wadhera, Founder, MKW Advisors

This guide covers everything you need to know about TDS on NRI income for FY 2025-26 (Assessment Year 2026-27), including the exact rates, refund mechanics, Section 197 benefits, DTAA treaty relief, and the important Budget 2026 changes that affect property transactions.

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Why Is TDS on NRI Income So Much Higher Than for Residents?

The fundamental difference lies in jurisdiction and enforceability. When a resident Indian earns income, the Income Tax Department can pursue them through domestic enforcement mechanisms -- bank account attachment, property liens, salary garnishment, prosecution. With NRIs, once the money leaves India, recovery becomes extraordinarily difficult. The government cannot easily attach foreign bank accounts or pursue collection through overseas courts without lengthy legal processes.

TDS for NRIs is therefore designed as a near-final collection mechanism, not merely an advance tax deduction. The government wants to collect the maximum possible tax at the point of payment itself, leaving it to the NRI to demonstrate -- through the return filing process -- that excess tax has been collected and a refund is due.

This structural design choice has significant practical consequences:

• No threshold exemptions at TDS stage. Unlike residents who enjoy thresholds (for example, no TDS on interest up to Rs. 40,000 under Section 194A), NRIs face TDS from the very first rupee of income.
• Higher flat rates. Where a resident may face 10% TDS on interest, an NRI faces 30%.
• Gross-basis deduction. NRI TDS on property sale is often applied on the full sale consideration, not the net capital gain, because the buyer typically lacks information about the seller's acquisition cost and indexation benefits.

Here is a side-by-side comparison that illustrates the magnitude of the difference:

The critical takeaway: NRI TDS is a blunt instrument. It over-collects by design. The onus falls entirely on the NRI to reclaim what is rightfully theirs -- either through Section 197 (before the transaction) or through the ITR refund process (after).

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Complete TDS Rate Chart for NRIs -- FY 2025-26 (AY 2026-27)

1. TDS on Sale of Property by NRI (Section 195)

This is the most significant TDS event for most NRIs. When an NRI sells immovable property in India, the buyer is legally obligated to deduct TDS under Section 195 before making payment to the seller.

Important clarification on computation basis. The TDS under Section 195 is technically required to be computed on the capital gains amount, not on the entire sale consideration. However, since the buyer typically does not know the NRI seller's cost of acquisition, indexed cost, improvement costs, or other deductions, in practice, TDS is frequently computed on the full sale consideration. This results in massive over-deduction -- often to the tune of 3x to 5x the actual tax liability.

Surcharge rates applicable on capital gains for NRIs (FY 2025-26):

The surcharge on long-term capital gains is capped at 15% regardless of the quantum of income. This is an important safeguard that prevents the surcharge from escalating to 25% or 37% on very large property transactions.

Effective TDS rates after surcharge and cess on LTCG from property:

2. TDS on NRO Account Interest (Section 195)

Note: Interest on NRE fixed deposits and NRE savings accounts is fully exempt from tax under Section 10(4)(ii), so no TDS applies to NRE accounts. This exemption is available only as long as the account holder maintains NRI status.

3. TDS on Dividends Received by NRIs

Since the abolition of the Dividend Distribution Tax (DDT) from FY 2020-21, dividends are taxable in the hands of the recipient. For NRIs, this means TDS at 20% is deducted at source by the company or mutual fund house.

4. TDS on Rental Income from Indian Property

No threshold exemption applies. Unlike resident landlords where TDS under Section 194-IB kicks in above Rs. 50,000 per month, for NRIs, TDS must be deducted on the first rupee of rent paid. This applies regardless of whether the tenant is an individual, HUF, or company.

5. TDS on Professional/Technical Services and Royalty

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Section 197: The Lower TDS Certificate -- Your Most Powerful Tool

Section 197 of the Income Tax Act allows any person (including NRIs) to apply for a certificate authorizing lower or nil deduction of TDS. This is, without question, the single most valuable compliance tool available to NRIs who are selling property or earning significant income in India.

"I tell every NRI client the same thing: before you finalize the property sale, apply for a Section 197 certificate. The 30-45 days it takes to process will save you from having Rs. 20-30 lakh locked up with the government for over a year. The math is straightforward -- the opportunity cost of that blocked capital alone can exceed the cost of professional fees several times over." -- CA Mayank Wadhera, Founder, MKW Advisors

How Section 197 Works

The NRI (or their authorized representative in India) applies to the jurisdictional Assessing Officer by filing Form 13 along with a detailed computation of actual tax liability. The AO examines the application, verifies the supporting documents, and -- if satisfied that the actual tax liability is lower than the default TDS rate -- issues a certificate specifying the reduced rate or the exact amount of TDS to be deducted.

The certificate is then furnished to the payer (property buyer, bank, tenant), who deducts TDS only at the rate or amount specified in the certificate instead of the statutory default rate.

Step-by-Step Process to Obtain a Section 197 Certificate

Step 1: Assemble the Documentation

You will need:

• PAN card of the NRI
• Sale agreement or draft conveyance deed (for property transactions)
• Original purchase deed of the property
• Proof of cost of acquisition and all costs of improvement (renovation receipts, construction invoices)
• Computation of capital gains with indexation using the applicable Cost Inflation Index (CII) values
• Bank statements demonstrating original purchase payment trail
• Details of any other income in India for the financial year
• Tax Residency Certificate (TRC) if claiming DTAA benefits
• Previous 3 years' ITR acknowledgments (if returns were filed in India)
• Details of any capital gains exemptions being claimed (Section 54, 54EC, 54F)

Step 2: File Form 13 on the TRACES Portal

Form 13 is filed electronically through the TRACES portal. The application must include:

• Complete computation of income and tax liability for the relevant financial year
• Details of the payer (buyer of property, tenant, bank) including their PAN
• The proposed lower rate of TDS with supporting justification
• All supporting documents uploaded as PDF attachments

Step 3: Processing by the Assessing Officer

The AO is required to process the application within 30 days of receipt. In practice, processing typically takes 30 to 45 days. The AO may:

• Accept the application and issue the certificate at the requested lower rate
• Issue the certificate at a different (higher) rate based on their own assessment of the tax liability
• Seek additional information or documents before processing
• Reject the application with documented reasons

Step 4: Furnish the Certificate to the Payer

Once issued, the certificate must be provided to the relevant payer -- the property buyer, the bank (for interest), or the tenant (for rent). The payer will then deduct TDS only at the rate specified in the certificate for the remainder of the financial year.

Practical Example: Section 197 Savings on Property Sale

Scenario: Mr. Rajesh Mehta, NRI resident in the United States, sells a flat in Mumbai for Rs. 1.80 crore in March 2026. He purchased it in June 2015 for Rs. 75 lakh. Holding period exceeds 24 months, so the gain is long-term.

Without Section 197 Certificate:

The buyer, not knowing Mr. Mehta's cost of acquisition or indexation details, deducts TDS conservatively on the full sale consideration.

With Section 197 Certificate -- Actual Capital Gains Computation:

The AO issues a Section 197 certificate directing the buyer to deduct TDS of Rs. 10,41,254 (approximately 5.78% of sale consideration).

That is over Rs. 16.49 lakh that stays in Mr. Mehta's control at the time of sale, instead of being locked with the government for 12 to 18 months awaiting a refund.

If Mr. Mehta also reinvests capital gains in a new residential property under Section 54, the tax liability could drop even further -- potentially to nil -- and the Section 197 certificate would reflect accordingly.

Section 197 Certificate: Key Points to Remember

• Validity: The certificate is valid only for the specific financial year and the specific transaction described in the application
• Timeline: Apply at least 45-60 days before the expected transaction date to allow for processing
• Who can apply: Either the NRI (deductee) or the payer (deductor) can file the application
• No government fee: There is no filing fee charged by the department; only professional preparation fees apply
• Rejection remedy: If the application is rejected, you can file a representation with the Principal Commissioner of Income Tax
• Multiple transactions: If you have multiple income sources (property sale + rent + interest), a single application can cover all of them

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Budget 2026 Change: TAN No Longer Required for Property TDS on NRI Transactions

One of the most significant procedural simplifications introduced in the Union Budget 2026 affects property buyers who purchase from NRI sellers.

The Problem Before Budget 2026

Previously, when a resident Indian bought property from an NRI, the buyer was required to:

1. Apply for and obtain a Tax Deduction and Collection Account Number (TAN) -- a separate registration with the Income Tax Department
2. Deduct TDS under Section 195 at the applicable rate
3. Deposit the TDS using a TAN-based challan (Challan No. 281)
4. File quarterly TDS returns in Form 27Q
5. Issue Form 16A (TDS certificate) to the NRI seller

This was an onerous process for individual buyers who typically do not have a TAN, have never filed a TDS return, and will likely never need to do so again. The requirement to understand quarterly TDS return mechanics, navigate the TAN registration process, and face penalties for delayed compliance created significant friction in NRI property transactions.

In many cases, buyers would either refuse to purchase from NRIs (to avoid the compliance headache) or would incorrectly use the Form 26QB mechanism meant for resident-to-resident transactions under Section 194-IA -- creating mismatches and tax credit problems.

The Budget 2026 Solution

The Budget 2026 amendment streamlines this process by allowing property buyers to deduct and deposit TDS on NRI property transactions using only their PAN, similar to the existing mechanism under Section 194-IA for resident-to-resident transactions using Form 26QB.

What this means in practice:

• Buyers no longer need to apply for a TAN when purchasing property from an NRI
• TDS can be deposited through a simplified PAN-based online challan
• The compliance process is aligned with the familiar Form 26QB framework that buyers of resident properties already use
• Quarterly TDS return filing in Form 27Q is no longer required for individual buyers in these transactions
• The overall timeline for completing a property transaction with an NRI seller is significantly shortened

"This is a welcome simplification that we have been advocating for. We have seen dozens of transactions delayed by 3-4 weeks simply because the buyer had to first obtain a TAN. In some cases, buyers walked away from NRI sellers entirely because of the compliance complexity. Removing this barrier will make the process fairer for NRI property sellers." -- CA Mayank Wadhera, Founder, MKW Advisors

Important caveat: Despite this procedural simplification, the buyer's substantive obligation to deduct TDS at the correct rate remains unchanged. The applicable TDS rate, the computation methodology, and the NRI seller's rights under Section 197 are all unaffected by this change. Buyers must still ensure they deduct the correct amount -- the change only simplifies how that amount is deposited with the government.

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DTAA Impact on TDS Rates: Country-Wise Treaty Benefits

India has signed Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. These bilateral treaties can significantly reduce TDS rates for NRIs on specific categories of income. However, the NRI must actively claim the benefit -- it does not apply automatically. The payer also needs to be informed and furnished with the necessary documentation.

Documents Required to Claim DTAA Benefits

1. Tax Residency Certificate (TRC) issued by the tax authority of the country of residence (e.g., IRS Letter 6166 for US residents)
2. Form 10F -- a self-declaration filed electronically on the Indian income tax portal, providing details of residency, PAN, and the nature of income
3. PAN in India -- mandatory for the NRI recipient
4. No Permanent Establishment (PE) declaration -- where applicable

DTAA TDS Rates for Major NRI Destination Countries

Critical Point on Capital Gains from Property

Most DTAAs explicitly provide that capital gains arising from the sale of immovable property can be taxed in the country where the property is situated (i.e., India). Article 13 of most Indian DTAAs reserves this right. This means DTAA treaty rates generally do not reduce capital gains tax on property sales in India. The domestic Indian rates (12.5% LTCG or 30% STCG plus surcharge and cess) continue to apply.

The DTAA benefit is primarily relevant for:

• Interest income (NRO FDs, savings accounts)
• Dividend income (Indian stocks and mutual funds)
• Royalties and fees for technical services

Practical Impact: NRO FD Interest for a US-Resident NRI

An NRI in the United States earning Rs. 5,00,000 per year as interest on NRO fixed deposits:

To claim this benefit, you must furnish the TRC and Form 10F to your bank before the interest payment date. Most banks have a designated process for DTAA claims, typically requiring annual submission of these documents. Some banks, despite receiving the documents, may still deduct at 30% and require you to claim the refund through ITR filing -- in such cases, escalate with the bank's NRI services team.

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TDS Refund Process for NRIs: Complete Walkthrough

If TDS has been deducted in excess of your actual tax liability -- which happens in the vast majority of NRI property sale transactions -- the only way to recover the excess amount is to file an Income Tax Return in India and claim the refund.

Step 1: Collect Form 26AS and Annual Information Statement (AIS)

• Log in to your income tax e-filing account at incometax.gov.in
• Download Form 26AS from the TRACES link -- this shows all TDS credits against your PAN
• Review the Annual Information Statement (AIS) for completeness -- this captures high-value transactions, SFT data, and TDS entries
• Verify that every rupee of TDS deducted is correctly reflected. Mismatches between your records and Form 26AS are the single largest cause of refund delays

Step 2: Compute Your Actual Tax Liability

• Calculate total income from all Indian sources for the financial year
• For property sale: compute capital gains using the correct indexed cost of acquisition
• Apply available deductions (Section 80C, 80D -- note that NRIs have limited deduction eligibility under the old regime)
• Factor in any capital gains exemptions claimed (Section 54, 54EC, 54F)
• Determine total tax liability at applicable slab rates, capital gains rates, surcharge, and cess

Step 3: File the Income Tax Return

• ITR-2 is the applicable form for most NRIs (those with salary, capital gains, house property, and other income -- but no business or professional income)
• ITR-3 if you have business or professional income in India
• Due date for filing: 31st July 2026 for FY 2025-26 (unless extended)
• Claim the excess TDS as a refund in the appropriate schedule of the return
• Ensure your Indian bank account (NRO account) details are correctly entered and the account is pre-validated on the e-filing portal for refund credit

Step 4: E-Verify the Return

The return must be verified within 30 days of filing. Options include:

• Aadhaar OTP (if Aadhaar is linked to PAN -- most convenient)
• Net banking through pre-registered Indian bank accounts
• Digital Signature Certificate (DSC) -- particularly useful for NRIs who may not have Indian mobile numbers for OTP
• Physical verification -- send signed ITR-V to CPC Bengaluru by post (30-day deadline)

Step 5: Refund Processing and Credit

• CPC Bengaluru processes the return and issues an intimation under Section 143(1)
• If the return is accepted and the refund claim is valid, the refund amount (along with applicable interest) is credited directly to the pre-validated bank account
• Typical processing time: 30 to 90 days from the date of successful e-verification
• Interest on delayed refund under Section 244A is payable at 0.5% per month (simple interest) from the date of filing to the date of refund grant

Common Reasons for Refund Delays and Their Solutions

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Buyer's Obligations: TDS When Purchasing Property from an NRI

If you are a resident Indian buying property from an NRI seller, you have specific legal obligations under Section 195 that carry serious penalties for non-compliance. This is one area where ignorance of the law is decidedly not bliss.

What the Buyer Must Do

1. Verify the seller's residential status. If the seller is an NRI, Section 195 applies -- not Section 194-IA
2. Deduct TDS at the applicable rate (12.5%/30% plus surcharge and cess) on every payment made to the NRI seller -- including advance payments and installments
3. Deposit the TDS with the government within 30 days from the end of the month in which TDS was deducted (post-Budget 2026, this can be done through PAN-based challan without TAN)
4. Issue Form 16A (TDS certificate) to the NRI seller within 15 days from the due date of filing the TDS statement
5. File TDS statement -- Form 27Q (quarterly) if filing through TAN, or through the simplified PAN-based mechanism post-Budget 2026

If the Seller Has a Section 197 Certificate

When the NRI seller provides a valid Section 197 certificate, the buyer must deduct TDS only at the rate or amount specified in that certificate. The buyer should:

• Verify the certificate's validity (correct PAN, correct financial year, correct transaction)
• Retain a copy of the certificate for their records
• Deduct TDS as specified -- neither more nor less

Penalties for Non-Compliance by the Buyer

"We frequently see buyers approach us in a state of panic after purchasing property from an NRI without deducting any TDS. The consequences are severe -- the buyer becomes personally liable for the entire TDS amount, plus compounding interest and penalties. My advice is always the same: if you are buying from an NRI, consult a qualified CA before the transaction closes, not after. The cost of professional advice is a fraction of the potential liability." -- CA Mayank Wadhera, Founder, MKW Advisors

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Ten Common Mistakes NRIs Make with TDS -- And How to Avoid Them

Mistake 1: Not Filing an ITR to Claim the Refund

A surprisingly large number of NRIs do not file Indian income tax returns, believing that TDS deducted is the "final tax" and nothing more can be done. This is a costly misconception. If TDS has been over-deducted -- which it almost always is for property sales and often is for interest and rental income -- you are leaving significant money on the table. File your ITR and claim the refund. The excess TDS is your money, and the government is obligated to return it with interest.

Mistake 2: Not Applying for a Section 197 Certificate Before Property Sale

As demonstrated in the detailed example above, the Section 197 lower deduction certificate can reduce your effective TDS from 13-15% of sale consideration to 3-6% -- or even nil if you are claiming exemptions under Section 54 or 54EC. The application process takes 30-45 days. Plan ahead and apply well before the transaction date.

Mistake 3: Using the Wrong TDS Challan or Section Code

Buyers often use the wrong mechanism when depositing TDS on NRI transactions. The most common error is using Form 26QB (meant for Section 194-IA resident transactions) instead of the correct Section 195 procedure. This creates mismatches in Form 26AS and can delay or prevent the NRI seller from claiming TDS credit. Post-Budget 2026, the process is simplified, but buyers must still ensure they select the correct section code.

Mistake 4: Not Claiming DTAA Treaty Benefits

If you are a tax resident of a treaty country (US, UK, Canada, Singapore, UAE, etc.), you may be entitled to significantly lower TDS rates on interest and dividends. However, you must proactively provide the Tax Residency Certificate and Form 10F to the payer before the payment. The reduced rate does not apply automatically -- the burden is on you to claim it.

Mistake 5: Not Pre-Validating the Indian Bank Account

Refunds are credited electronically to a pre-validated bank account linked to your PAN on the e-filing portal. If the account is not pre-validated, or if you provide an NRE account (refunds typically must go to NRO accounts), the refund may fail and require a manual reprocessing cycle that adds months to the timeline.

Mistake 6: Selling Property Without an Active PAN

If an NRI seller does not have a PAN, or if the PAN is inoperative (due to non-linkage with Aadhaar, where applicable), TDS is deducted at 20% or the applicable rate, whichever is higher under Section 206AA. This penalty rate can dramatically increase your TDS burden. Ensure your PAN is active, valid, and linked as required before any transaction.

Mistake 7: Ignoring Advance Tax Obligations on Other Income

NRIs with significant rental income, interest income, or professional income in India may have advance tax obligations even if TDS is being deducted on some portion. Failure to pay advance tax on time results in interest charges under Sections 234B (shortfall in advance tax) and 234C (deferment of installments). These interest charges reduce your net refund.

Mistake 8: Not Considering Capital Gains Exemptions Before TDS Deduction

If you plan to reinvest in a new residential property under Section 54 or invest in specified bonds under Section 54EC, these exemptions can reduce your capital gains -- and therefore your tax liability -- substantially. This reduced liability should be factored into your Section 197 application. Many NRIs lose out because they think about exemptions only at the time of filing the return, by which point the TDS has already been over-deducted.

Mistake 9: Not Maintaining Proper Documentation of Original Purchase

The indexed cost of acquisition is the single most important factor in computing capital gains. If you cannot produce the original purchase deed, payment receipts, bank statements, and registration documents, the Assessing Officer may not accept your claimed cost of acquisition. This can result in a higher computed gain and a lower refund. Maintain all property documentation meticulously, regardless of how old the purchase is.

Mistake 10: Filing the Return After the Due Date

Filing your ITR after the due date (31st July for non-audit cases) means you cannot carry forward capital losses, you lose the ability to file a revised return within the normal window, and you may face a late filing fee of up to Rs. 5,000 under Section 234F. For NRIs claiming large refunds, timely filing is essential.

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Comprehensive Practical Example: End-to-End TDS Computation and Refund

Scenario: Mrs. Priya Sharma, NRI resident in Singapore, has the following Indian income in FY 2025-26:

Actual Tax Computation:

A. Capital Gains from Property Sale

B. Other Income

C. Total Tax Computation

Mrs. Sharma is entitled to a refund of nearly Rs. 14.75 lakh. Without filing an ITR, this entire amount would remain permanently with the government.

What should she have done differently? If she had applied for a Section 197 certificate before the property sale, the buyer would have deducted approximately Rs. 5.50 lakh instead of Rs. 17.94 lakh on the property transaction. She would have received Rs. 12.44 lakh more at the time of sale itself -- money that could have been invested, repatriated, or put to immediate use instead of waiting months for a refund.

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Quick Reference Summary: TDS on NRI Income FY 2025-26

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How MKW Advisors Can Help You

At MKW Advisors, we provide end-to-end NRI tax advisory services through our specialized platforms -- Legal Suvidha for legal compliance and DigiComply for regulatory technology solutions. Our team, led by CA Mayank Wadhera, has deep expertise in cross-border taxation, FEMA compliance, and NRI property transactions.

Our NRI Tax Services

• Section 197 Certificate Application: Complete preparation and filing of Form 13 with the jurisdictional Assessing Officer, including capital gains computation, document compilation, CII indexation, and follow-up until certificate issuance. We handle the entire process so you do not need to visit India or navigate the TRACES portal yourself.

• NRI Property Sale Tax Advisory: End-to-end advisory covering TDS computation, buyer coordination, DTAA analysis, capital gains optimization, and exemption planning under Sections 54, 54EC, and 54F.

• ITR Filing and Refund Processing: Filing of NRI income tax returns (ITR-2 and ITR-3), refund tracking, communication with CPC Bengaluru, rectification requests, and resolution of refund-related issues including demand adjustments and refund re-issuance.

• DTAA Advisory: Country-specific treaty analysis, assistance in obtaining Tax Residency Certificates, Form 10F filing, and coordination with banks and payers to ensure treaty rates are applied at source.

• Buyer Advisory for NRI Transactions: Guidance for resident buyers on their TDS compliance obligations when purchasing from NRI sellers, including post-Budget 2026 simplified procedures.

• FEMA and Repatriation Advisory: Guidance on repatriation of property sale proceeds, NRO-to-NRE transfers, Form 15CA/15CB certification, and FEMA compliance for all cross-border remittances.

• Tax Compliance Review: Comprehensive review of your Indian tax obligations, rectification of past non-compliance, response to notices, and forward-looking tax planning.

"NRI taxation is not general tax practice -- it requires specialized knowledge of FEMA regulations, DTAA provisions, Section 195 nuances, RBI guidelines on repatriation, and the practical realities of cross-border transactions. That is what our team at MKW Advisors does, every single day. If you are an NRI with income or assets in India, you deserve a tax advisor who understands the full complexity of your situation." -- CA Mayank Wadhera, Founder, MKW Advisors

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Get Expert NRI Tax Advisory Today

Do not let excessive TDS drain your finances. Whether you are selling property, earning rental income, or managing NRO deposits, our team can help you minimize TDS, maximize refunds, and stay fully compliant.

Schedule a consultation: Book on our Client Portal

WhatsApp: +91-96677 44073 (message us anytime -- we respond within 24 hours)

Email: [email protected]

Office: MKW Advisors -- Serving NRIs across the US, UK, UAE, Singapore, Canada, Australia, and 30+ countries

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Frequently Asked Questions (FAQ)

1. What is the TDS rate on sale of property by an NRI in India for FY 2025-26?

For long-term capital gains (property held for more than 24 months), TDS is deducted at 12.5% plus applicable surcharge and 4% health and education cess under Section 195 of the Income Tax Act. The effective rate ranges from 13.00% to 14.95% depending on the total income bracket. For short-term capital gains (property held for 24 months or less), TDS is deducted at 30% plus surcharge and cess. The TDS is technically on the capital gains amount, but in practice, buyers often deduct it on the full sale consideration because they lack information about the seller's cost of acquisition.

2. How can an NRI reduce TDS deducted on property sale in India?

An NRI can apply for a Lower Deduction Certificate under Section 197 by filing Form 13 electronically through the TRACES portal with the jurisdictional Assessing Officer. The application must include a detailed computation of actual capital gains (after indexation and deductions) and supporting documents. The AO reviews the application and issues a certificate specifying a reduced TDS rate based on the actual tax liability. This can reduce effective TDS from 13-15% of sale value to as low as 3-6%, or even nil if capital gains exemptions under Section 54 or 54EC are being claimed. The process takes approximately 30-45 days.

3. What is the TDS rate on NRO fixed deposit interest for NRIs?

TDS on NRO fixed deposit interest is deducted at 30% plus 4% health and education cess, resulting in an effective rate of 31.20%. However, if a Double Taxation Avoidance Agreement (DTAA) between India and the NRI's country of residence provides a lower rate, the reduced rate can be claimed. For example, under the India-US DTAA, the rate is 15%; under the India-UAE DTAA, it is 12.5%. To claim DTAA benefits, the NRI must furnish a Tax Residency Certificate (TRC) and Form 10F to the bank before the interest payment.

4. How long does it take to get a TDS refund for NRIs after filing ITR?

Once the Income Tax Return is filed and e-verified, the Centralised Processing Centre (CPC) in Bengaluru typically processes refunds within 30 to 90 days. However, delays can occur due to TDS mismatches between the ITR and Form 26AS, un-validated bank accounts, outstanding tax demands from prior years, or selection of the case for scrutiny assessment. In complex cases or where there are discrepancies, refunds may take 6 to 18 months. Interest under Section 244A at 0.5% per month is payable on delayed refunds.

5. Is TAN still required for buyers purchasing property from NRIs after Budget 2026?

No. The Union Budget 2026 has removed the mandatory requirement for individual property buyers to obtain a TAN (Tax Deduction and Collection Account Number) when purchasing property from NRI sellers. Buyers can now deduct and deposit TDS using their PAN through a simplified online challan mechanism, similar to the existing Form 26QB process used for resident-to-resident property transactions under Section 194-IA. This significantly reduces the compliance burden for buyers while keeping the TDS deduction obligation intact.

6. Can NRIs claim DTAA benefits to reduce TDS on Indian income?

Yes. NRIs who are tax residents of countries with which India has a DTAA can claim reduced TDS rates on interest income, dividend income, royalties, and fees for technical services. To claim the benefit, the NRI must obtain and provide: (a) a Tax Residency Certificate (TRC) from the tax authority of their country of residence, (b) a self-declaration in Form 10F filed on the Indian income tax portal, and (c) their Indian PAN. These documents must be furnished to the payer (bank, company, tenant) before the payment is made. DTAA benefits generally do not apply to capital gains from immovable property.

7. What happens if the buyer does not deduct TDS when buying property from an NRI?

The buyer is treated as an "assessee in default" under the Income Tax Act and becomes personally liable to pay the TDS amount to the government, along with interest at 1% per month (for non-deduction) or 1.5% per month (for late deposit after deduction). Additionally, the buyer faces penalties including a late filing fee of Rs. 200 per day under Section 234E and a penalty of up to Rs. 1,00,000 under Section 271H. In severe cases, prosecution proceedings can be initiated for willful default.

8. What is the TDS rate on rent paid to an NRI landlord?

TDS on rent paid to an NRI landlord is deducted at 30% plus 4% health and education cess (effective rate 31.20%) under Section 195. There is no threshold exemption -- TDS must be deducted on the first rupee of rent paid to an NRI, regardless of the monthly rent amount. This contrasts sharply with resident landlords, where TDS under Section 194-IB applies only when monthly rent exceeds Rs. 50,000. The NRI landlord can apply for a Section 197 certificate to reduce this rate based on their actual tax liability after accounting for the 30% standard deduction and other eligible deductions.

9. Can an NRI avoid filing an income tax return in India if TDS has already been deducted?

Technically, if total taxable income (before allowing deductions under Chapter VI-A) does not exceed the basic exemption limit, filing is not mandatory. However, in nearly all cases where significant TDS has been deducted -- especially on property sales -- the NRI should file a return to claim the excess TDS as a refund. Not filing means permanently forfeiting the over-deducted amount. Additionally, filing ITR creates a clean compliance record, facilitates future property transactions, supports DTAA claims, and is often required for repatriation of funds under FEMA (Form 15CA/15CB process).

10. What documents are needed for a Section 197 lower TDS certificate application?

The key documents required include: PAN card of the NRI applicant, sale agreement or draft conveyance deed (for property transactions), original purchase deed with registration receipt, documentary proof of cost of acquisition and any improvement costs, computation of capital gains with Cost Inflation Index-based indexation, bank statements demonstrating original purchase payment trail, Tax Residency Certificate (if claiming DTAA benefits), previous three years' ITR acknowledgments (if returns were filed in India), details of any capital gains exemptions being claimed (Section 54, 54EC, 54F), and the electronically filed Form 13 through the TRACES portal. A qualified Chartered Accountant can prepare and file the complete application on the NRI's behalf through a Power of Attorney arrangement.

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Disclaimer: This article is published by MKW Advisors for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws are subject to change through legislative amendments, notifications, circulars, and judicial interpretation. The rates, thresholds, and provisions described herein are based on the law as applicable for FY 2025-26 (AY 2026-27) and may be amended in subsequent Finance Acts. For advice specific to your individual circumstances, consult a qualified Chartered Accountant. CA Mayank Wadhera and the team at MKW Advisors provide professional NRI tax advisory services -- contact us for personalized guidance.

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