Why NRIs Face High TDS on Property Sales & How to Reduce It Legally

• A Complete Guide to Obtaining a Lower TDS Certificate for NRIs Selling Property in Delhi

Selling immovable property in India as a Non-Resident Indian (NRI) can be a complex financial transaction, especially with the mandatory Tax Deducted at Source (TDS) of 20%–23.92% under Section 195 of the Income Tax Act, 1961. However, in most cases, an NRI’s actual tax liability is significantly lower than the TDS amount, leading to cash flow challenges.

To prevent excess tax deductions, NRIs can apply for a Lower TDS Certificate under Section 197, which allows TDS deduction at a reduced rate based on actual capital gains. This guide explains the eligibility criteria, step-by-step application process, required documentation, and timelines to help you secure a Lower TDS Certificate seamlessly.

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Understanding the Legal Basis – Applicability of Section 197

Section 197 permits NRIs to apply for a Lower or Nil TDS Certificate when their actual capital gains tax liability is lower than the prescribed TDS rate. This certificate:

✅ Is transaction-specific (applies only to the specific sale transaction mentioned in the application).
✅ Is valid for the financial year in which it is issued (expires on March 31).
✅ Must be obtained before the property sale is completed to ensure the buyer deducts TDS at the lower rate.

Who Can Apply?

Property Type: Both residential and commercial properties in Delhi are covered.

Capital Gains Taxation:

• Long-Term Capital Gains (LTCG): Property held for more than 24 months is taxed at 12.5% (without indexation) or 20.8%–23.92% (with surcharge and cess).
• Short-Term Capital Gains (STCG): Property held for less than 24 months is taxed as per income slab rates(ranging from 5% to 30%).

Tax Liability Condition:
To qualify, the NRI must demonstrate that their actual tax liability (after considering exemptions such as Section 54/54EC reinvestments) is lower than the standard TDS rate of 20%–23.92%.

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Step-by-Step Process to Obtain a Lower TDS Certificate

Step 1: Register on the TRACES Portal

✅ Create an account on the TRACES portal using your PAN and passport details.
✅ NRIs must apply through the dedicated NRI services portal: www.nriservices.tdscpc.gov.in.

Step 2: File Form 13

Form 13 is the official request form for a Lower TDS Certificate. When filing:

✅ Select Section 195 (specific for property sales by NRIs).
✅ Enter transaction details:

• Property address, circle rate, and sale value.
• Buyer’s PAN and TAN (essential for processing).
  ✅ Compute tax liability:
• Declare estimated capital gains after applying exemptions (e.g., investment in bonds under Section 54EC).

Step 3: Submit Supporting Documents

Mandatory Attachments

📌 Property Documents: Sale agreement, title deed, and circle rate valuation.
📌 Identity Proof: PAN, passport, and Tax Residency Certificate (TRC) (if claiming DTAA benefits).
📌 Capital Gains Computation: Indexed cost of acquisition and exemption details.
📌 Financial Records:

• Last 6 months’ bank statements.
• Proof of reinvestment (if claiming exemption under Section 54/54EC).
  📌 Buyer’s TAN: Obtain from the buyer via Form 49B.

Step 4: Authenticate and Submit Application

✅ Use a digital signature (physical submissions are not accepted).
✅ Once submitted, the application moves to the Assessing Officer (AO) for verification.

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Processing Timelines and Expected Delays

Standard Timeline

⏳ Government mandate: 30 days from the end of the submission month.
⏳ Realistic timeline: 3–6 weeks, depending on the Assessing Officer’s workload.

Common Causes of Delay

🚫 Incomplete Documentation: Missing buyer’s TAN or unverified indemnity bonds (accounts for 30% of rejections).
🚫 Ownership Disputes: Unclear title deeds or pending litigation.
🚫 Reinvestment Proof Issues: Delayed submission of bond purchase receipts or new property registration papers.

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Post-Issuance Compliance: What to Do After Receiving the Certificate

✅ Provide the certificate to the buyer so they deduct TDS at the approved lower rate.
✅ Ensure correct TDS deduction—if the sale value exceeds the declared amount, standard TDS rates will apply to the surplus.
✅ Remember the validity period: The certificate expires on March 31 of the financial year and must be renewed for new transactions.

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Case Study: NRI Selling Property in South Delhi

Scenario

🏡 Property Value: ₹3.2 crore (held for 5 years).
💰 Cost of Acquisition: ₹1.1 crore (Indexed Cost: ₹2.4 crore).
📈 LTCG Calculation: ₹3.2 crore – ₹2.4 crore = ₹0.8 crore.
🧾 Tax Liability: 12.5% (₹10 lakh) vs. TDS of 23.92% (₹76.54 lakh).

Outcome

✅ Lower TDS Certificate issued at 3.5%, reducing TDS deduction from ₹76.54 lakh to ₹10 lakh.
✅ Application Timeline:

• Applied on January 5, 2025.
• Certificate issued on February 20, 2025 (took 45 days).

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Challenges and Solutions in Obtaining a Lower TDS Certificate

Common Rejection Reasons & How to Avoid Them

❌ Mismatched Buyer TAN: Cross-check with the buyer’s Form 26AS before submitting.
❌ Unsubstantiated Reinvestment Claims: Submit bond subscription receipts or new property registration paperson time.

Legal Remedies for Rejections

📜 If the Assessing Officer (AO) rejects the application unfairly, NRIs can file a writ petition under Article 226 in the Delhi High Court for redressal.

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Recent Updates for FY 2024–25

📢 TDS Aggregation Rule: Buyers purchasing multiple properties from the same seller must aggregate payments, affecting TDS computation.
📢 Mandatory Digital Submissions: Physical applications are not accepted since October 2024—only digital applications via the TRACES portal are valid.

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Final Thoughts

Securing a Lower TDS Certificate is crucial for NRIs selling property in Delhi to avoid excessive tax deductions and improve cash flow. The process requires meticulous documentation, buyer details (PAN/TAN), and accurate capital gains computation.

Since the process involves various technicalities, engaging a professional specializing in NRI taxation  can significantly streamline compliance, reduce rejection risks, and ensure a smooth property sale.

📞 Call @ +91-8750051665 Need assistance with obtaining a Lower TDS Certificate?
📩 Contact us today at www.caalokkumar.com for expert guidance and hassle-free processing!