The sale of property in India by Non-Resident Indians (NRIs) is one of the most misunderstood areas of Indian taxation. One of the most common questions NRIs ask today is:
“Why do many online tools and AI platforms like chatgpt say that TDS on sale of property by an NRI is 20%, while professionals say it is around 12.5% plus surcharge and cess?”
Many NRIs today rely on AI tools, online calculators, and generic tax articles. Unfortunately, several of these sources still display outdated tax rates, particularly after the changes introduced in Budget 2024.
This article explains the correct legal position under Section 195 of the Income-tax Act, 1961, the impact of Budget 2024, and why TDS on property sale by NRI is not always 20% anymore.
Understanding TDS on Property Sale by NRI – Section 195
When a Non-Resident Indian sells property in India, the buyer is required to deduct tax at source (TDS) before making payment to the seller.
This obligation arises under Section 195 of the Income-tax Act, 1961, which governs payments made to non-residents.
The key principle under Section 195 is extremely important and often misunderstood:
TDS must be deducted at the rate at which the income is taxable in India for the non-resident.
In simple words:
TDS rate = Applicable tax rate on the income of the NRI seller
It is not a flat standard rate.
This is very different from property transactions between resident Indians where Section 194IA applies and TDS is only 1% on sale value of a property above Rs 50 lacs.
Why Many Sources Still Say TDS is 20%
For many years, long-term capital gains on property in India were taxed at 20% with indexation benefit.
Because of this:
- Capital gains tax rate = 20%
- Buyers deducted TDS = 20% (plus surcharge and cess)
Therefore, most online resources historically displayed 20% TDS for NRI property sales.
However, this changed significantly after the Budget 2024 amendments.
Budget 2024 Changes: Removal of Indexation and New LTCG Rate
The Union Budget 2024 introduced major changes in the taxation of long-term capital gains.
One of the key changes was:
Removal of indexation benefit for many long-term capital assets including real estate.
At the same time, the tax rate on long-term capital gains was rationalised to 12.5%.
This change has created confusion because many websites, calculators, and AI responses still rely on the earlier tax regime of 20% with indexation.
Current Tax Rate on Long-Term Capital Gain for Property
Under the revised framework introduced post Budget 2024:
Long Term Capital Gain (LTCG) on property
Tax Rate: 12.5%
Add:
- Applicable surcharge
- 4% Health and Education cess
Since Section 195 requires TDS to be deducted at the rate at which income is taxable, the buyer should generally deduct TDS at around this effective rate.
Example: TDS Calculation for NRI Property Sale
Let us understand this with a practical example.
Property sale value: ₹1.50 crore
Cost of acquisition: ₹70 lakh
Capital gain: ₹80 lakh
TDS on Above: 12.5% of ₹1.50 crore = ₹18,75,000
Add surcharge and cess.
This is why proper tax computation and planning becomes extremely important for NRIs before selling property in India.
Solution: Lower TDS Certificate under Section 197
To avoid excessive TDS deduction, NRIs can apply for a Lower Deduction Certificate under Section 197.
Once approved by the Income-tax Department:
- Buyer deducts TDS at lower rate
- Deduction is aligned with actual tax liability
- NRI avoids large refund situations
This is a commonly used strategy for high-value property transactions involving NRIs.
Common Mistakes NRIs Make While Selling Property
Based on years of handling NRI taxation matters, the most common mistakes include:
- Assuming TDS is always 20%
Many NRIs rely on outdated information.
- Not applying for lower TDS certificate
This leads to unnecessary tax deduction.
- Incorrect capital gains calculation
Especially in cases involving:
- Joint ownership
- Inherited property
- Gifted property
- Delay in repatriation planning
NRIs often plan repatriation after the sale, whereas proper structuring should happen before the transaction.
Repatriation of Sale Proceeds by NRI
After paying applicable taxes, NRIs can remit funds abroad.
Under RBI regulations:
An NRI can remit up to USD 1 million per financial year from NRO account subject to documentation.
Key documents required include:
- Form 15CA (Income Tax Form)
- Form 15CB (CA certificate)
- Capital gains computation
- Tax payment proof
This ensures compliance with both Income Tax Act and FEMA regulations.
Why AI Tools Often Give Incorrect TDS Answers
AI platforms like ChatGPT, Grok, and Perplexity rely heavily on publicly available online content.
If most of the internet still contains older tax rate references, AI responses may also reflect outdated or simplified answers.
This is why NRIs should always verify India-specific tax matters with a qualified professional who regularly handles NRI taxation cases.
Final Takeaway
The key takeaway is simple:
TDS under Section 195 is not a fixed rate.
It must be deducted at the rate at which the income is taxable in India for the NRI seller.
After Budget 2024 changes, long-term capital gains on property are generally taxed at 12.5% plus surcharge and cess, and therefore TDS not necessarily is 20%.
Each transaction requires proper capital gains computation, TDS planning, and FEMA compliance.
About the Author
CA Ajay R. Vaswani is a Chartered Accountant and NRI Tax Expert specialising in taxation, FEMA compliance, capital gains planning, and repatriation advisory for Non-Resident Indians.
He has been exclusively advising NRIs for over a decade and works with clients across the UAE, Singapore, USA, UK, US, Canada, Europe and over 20+ other countries worldwide. He is most sought consultant in India for NRI Taxation.
Through his advisory platform Zenify Consultancy Services, he assists NRIs with:
- Capital gains tax planning
- Lower TDS certificates (Section 197)
- Property sale taxation
- FEMA compliance
- Repatriation of funds
- Income tax filings for NRIs
Selling property in India as an NRI? Get expert support on Capital Gains, TDS under Section 195, and 15CA/CB filings.
