{"id":3740,"date":"2025-09-03T07:17:57","date_gmt":"2025-09-03T07:17:57","guid":{"rendered":"https:\/\/www.luzenta.com\/blog\/?p=3740"},"modified":"2025-09-03T07:17:57","modified_gmt":"2025-09-03T07:17:57","slug":"step-by-step-process-for-nris-to-get-a-lower-tds-certificate-on-real-estate-transactions","status":"publish","type":"post","link":"https:\/\/www.luzenta.com\/blog\/step-by-step-process-for-nris-to-get-a-lower-tds-certificate-on-real-estate-transactions\/","title":{"rendered":"Step-by-Step Process for NRIs to Get a Lower TDS Certificate on Real Estate Transactions"},"content":{"rendered":"

Non-Resident Indians often face challenges when it comes to selling immovable property in India due to the complexities involved in tax deduction at source (TDS). One of the most significant hurdles is the mandatory deduction of TDS at a flat rate of 20% on the entire sale consideration, irrespective of the actual capital gains made by the seller. This deduction is applicable under Section 195 of the Income Tax Act and is imposed on all NRI property transactions in India.<\/span><\/p>\n

While the intent of this provision is to secure upfront tax collection, it frequently leads to situations where the deducted TDS far exceeds the actual tax liability of the NRI. Consequently, funds remain blocked until the refund process is completed after filing the income tax return. To address this issue, the Indian tax law provides a mechanism for NRIs to apply for a Lower or NIL TDS Certificate under Section 197.\u00a0<\/span><\/p>\n

This certificate allows TDS to be deducted at a lower rate or not deducted at all, based on the actual tax liability. We will delve into the core reasons why obtaining a Lower or NIL TDS Certificate is essential for NRIs selling property in India and how the TDS mechanism differs for residents and NRIs.<\/span><\/p>\n

Understanding TDS Obligations for Property Transactions<\/b><\/p>\n

When a property is sold in India, TDS is required to be deducted by the buyer from the payment made to the seller. The rate of deduction varies depending on whether the seller is a resident Indian or an NRI.<\/span><\/p>\n

For resident sellers, TDS is deducted at 1% of the sale consideration if the property’s transaction value exceeds Rs 50 lakhs. This is in accordance with Section 194-IA of the Income Tax Act. The buyer is obligated to file Form 26QB to deposit the deducted amount with the Income Tax Department.<\/span><\/p>\n

In contrast, when the seller is an NRI, the buyer is required to deduct TDS at a flat rate of 20% on the entire sale consideration under Section 195. This deduction is applicable regardless of the value of the property, which means even transactions below Rs 50 lakhs attract the higher rate of deduction. Additionally, applicable surcharge and education cess are added to the base rate, increasing the effective TDS rate further.<\/span><\/p>\n

The Burden of Excess TDS Deduction on NRIs<\/b><\/p>\n

The higher rate of TDS deduction for NRIs is primarily designed to ensure tax compliance, as many NRIs do not regularly file income tax returns in India. However, the law mandates that TDS be deducted on the total sale value rather than on the capital gain portion of the transaction.<\/span><\/p>\n

This practice often results in a significant over-deduction of tax. For instance, if an NRI sells a property for Rs 80 lakhs with a capital gain of only Rs 10 lakhs, TDS will still be deducted at 20% on the full Rs 80 lakhs. This results in a deduction of Rs 16 lakhs or more, even though the actual tax liability on the capital gain may be just Rs 2.28 lakhs after considering surcharge and cess.<\/span><\/p>\n

The excess TDS withheld is refundable, but the NRI seller must file an income tax return in India and wait for the refund to be processed, which can take several months. This leads to funds being unnecessarily blocked, affecting the seller\u2019s liquidity and financial planning.<\/span><\/p>\n

The Legal Provision of Lower or NIL TDS Certificate under Section 197<\/b><\/p>\n

To prevent the over-deduction of tax at source, the Income Tax Act allows NRIs to apply for a Lower or NIL TDS Certificate under Section 197. This certificate is issued by the Assessing Officer after evaluating the details of the transaction, including the seller\u2019s actual tax liability based on capital gains computation.<\/span><\/p>\n

By obtaining this certificate, the NRI seller can ensure that the buyer deducts TDS at a rate lower than the standard 20%. In cases where the sale results in negligible or no taxable capital gains, the certificate can even authorize a NIL deduction. This process not only prevents unnecessary deduction but also removes the burden of having to claim refunds later.<\/span><\/p>\n

TDS on Sale of Property: Comparison Between Resident and NRI Sellers<\/b><\/p>\n

The difference in TDS obligations between resident Indians and NRIs can be summarized as follows:<\/span><\/p>\n

For resident sellers:<\/span><\/p>\n