When an NRI sells property in India, the buyer is legally required to deduct tax at source before paying the seller, and by default that deduction is calculated on the entire sale consideration, not merely on the capital gain. This is the single most expensive surprise for NRI sellers, because it can lock up a large slice of the sale value until a refund arrives after filing.

The remedy is a Lower-Deduction Certificate, obtained in advance from the income tax department, which directs the buyer to deduct tax only on the actual expected gain. Applying for it before the sale is almost always worth the effort.

Why the default deduction is so heavy

Resident sellers and NRI sellers are treated differently. For NRIs, the buyer deducts under the provisions governing payments to non-residents, and the deduction applies to the gross sale price at the prevailing rate for the relevant capital gains category, plus applicable surcharge and cess.

Because the deduction ignores your purchase cost and improvement expenses unless you intervene, a seller with a modest real gain can still see tax withheld against the full headline price. That cash is not lost, but it is stranded until you file a return and claim the excess back, which can take many months.

The Lower-Deduction Certificate, step by step

The certificate is obtained by applying to the Assessing Officer, historically through Form 13, asking the department to certify a lower or nil deduction rate based on your genuine expected gain. Once granted, you hand it to the buyer, who then deducts only against that certified amount.

  • Compute your realistic capital gain, with cost, indexation where applicable, and expenses
  • File the application to the Assessing Officer with supporting documents
  • Provide purchase deed, sale agreement, cost proofs and computation of gains
  • Obtain the certificate and give it to the buyer before the payment is made
  • Ensure the buyer deducts per the certificate and issues you the TDS certificate

What the buyer must do

The buyer of NRI property has real compliance duties: obtaining a TAN, deducting the correct tax, depositing it with the government on time, filing the TDS return and issuing Form 16A to you. Mistakes here create problems for both sides, so buyers of NRI property often ask for professional help.

As the seller, confirm the buyer understands these obligations early. A buyer who deducts under the wrong section, as if you were a resident, can leave you chasing corrections for months.

Reducing the gain legitimately

Beyond the certificate, the tax itself can often be reduced through the reinvestment reliefs available under Indian law, such as reinvesting long-term gains into another residential property or into specified bonds within the prescribed windows.

These reliefs have strict timelines and conditions, and they interact with your repatriation plans. Decide whether you intend to reinvest in India or take the money abroad before you sell, because that choice shapes which relief, if any, fits.

Timeline reality

  • Start the Lower-Deduction application well before you expect to close, as it takes time
  • Do not sign the sale agreement assuming the certificate will arrive instantly
  • Reconcile the deducted TDS in your Form 26AS before filing your return
  • File your Indian income tax return to claim any excess and finalise the gain

The honest takeaway

The heavy default TDS is not a penalty; it is a safeguard that assumes the worst about the gain. The Lower-Deduction Certificate exists precisely to fix that, and the discipline of applying early is what separates a smooth NRI sale from months of blocked capital.

Rates, sections, forms and reinvestment reliefs change and depend on your exact facts. This article is general information, not legal or tax advice; work with a qualified chartered accountant to compute your gain and manage the TDS and certificate process.