Why is the TDS so high when an NRI sells property in India?

A resident sells a ₹1-crore flat. The buyer deducts 1% — ₹1 lakh — and pays the rest.

An NRI sells the same flat, at the same price. The buyer's deduction can exceed ₹13 lakh.

Same flat. Same price. Thirteen times the deduction. The difference is not the tax you ultimately owe — it is when and how the tax system takes its security deposit. Most NRI sellers discover this at the worst possible moment: days before registration.

Why does the buyer deduct more for an NRI seller than for a resident?

When the seller is an Indian resident, the buyer deducts TDS (tax deducted at source — tax the payer withholds and deposits with the government on your behalf) at 1% of the sale consideration, under what practitioners still call Section 194-IA of the old Income-tax Act, 1961.

When the seller is a non-resident, a completely different provision applies — the old Section 195, now re-enacted within Section 393 of the Income-tax Act, 2025, which came into force on 1 April 2026. Under this provision, there is no 1% concession and no ₹50-lakh threshold. The buyer must deduct tax at the capital-gains rates, plus surcharge and cess — and here is the part that shocks people — on the entire sale price, not on the seller's gain.

For a long-term holding (more than 24 months), that currently works out to an effective deduction in the range of roughly 13% to 15% of the full consideration, depending on the surcharge slab. For short-term holdings, it is worse: slab rates that can push the deduction past 30%. These rates change with Budgets — verify the current position before any transaction.

Why does the law do this? Because the deduction obligation sits on the buyer. If the buyer under-deducts, the buyer is personally liable — with interest and penalties. Faced with that risk, buyers (and their banks and lawyers) deduct on the highest defensible figure: the full price. The seller's actual profit is not the buyer's problem.

Is the TDS calculated on the sale price or on the profit?

Hold on to this one idea:

Your tax is on the gain. The deduction is on the price. The gap between the two is your money — parked with the tax department.

Suppose you bought the flat years ago for ₹60 lakh and sold it for ₹1 crore. Your taxable gain is ₹40 lakh, and your actual tax might be around ₹5 lakh. But the buyer deducts ₹13-odd lakh on the full crore. The ₹8 lakh difference is not lost — but it is locked.

The Economic Times reported in January 2026 that NRI sellers routinely see 12.5% to 31.2% of their sale proceeds blocked this way. On a ₹2-crore Mumbai flat, that can mean ₹25–60 lakh (~$30,000–72,000) sitting out of reach for a year or more.

How can an NRI seller reduce or recover the deduction? The three exits

Exit 1 — before the sale: the lower-deduction certificate. The seller applies to the jurisdictional tax officer for a certificate directing the buyer to deduct on the computed gain instead of the full price. This was the famous Form 13 under Section 197 of the 1961 Act; under the 2025 Act it is Form 128 under Section 395. The application is built on your actual purchase documents, improvement costs and gain computation — this is chartered accountant work, done jointly with your lawyer, and it takes time. Realistic planning means applying weeks before the agreement is signed, not days before registration. Done right, the deduction drops from "13% of the price" to "tax on the actual gain" — the entire problem dissolves before it exists.

Exit 2 — after the sale: the refund route. Deduct now, file your Indian income-tax return after the financial year, claim the excess back. It works — eventually. Between deduction, return filing windows and processing, sellers commonly wait months to over a year, with the money earning nothing and repatriation plans on hold.

Exit 3 — the default: discover it at the table. No certificate, no planning, a buyer's lawyer insisting (correctly) on full deduction, and a seller learning all of the above in the registrar's parking lot. Most sellers land here, because nobody told them Exit 1 existed.

What must the buyer do when purchasing from an NRI?

If you are buying from an NRI, this section is for you. You carry the compliance burden: deducting at the correct rate, depositing it with the government, and filing the prescribed TDS statements. Historically the buyer needed a TAN (a tax-deduction account number) for this; the procedural requirements have been reworked under the 2025 Act, so verify the current process before your first deposit. Get any of it wrong and the liability — with interest — is yours, even though it was never your tax.

This is why transactions with NRI sellers stall late: the buyer's side wakes up to Section 195/393 after the token advance, and everything stops while certificates and CAs are found.

One nuance that traps even careful parties: co-owners are assessed separately. If a flat is owned by a resident brother and an NRI sister, the buyer applies 1% deduction to one share and NRI-rate deduction to the other — two different treatments inside a single sale deed.

What should be resolved before signing the agreement to sell?

1. What is the tax residency status of every seller on the title — not their passport, their residency under Indian tax law?
2. Has a lower-deduction certificate (old Form 13 / new Form 128) been applied for, and does the transaction timeline allow for it?
3. Is a chartered accountant already engaged for the gain computation and the remittance certificates that follow?
4. Is every seller's PAN active and linked as required?
5. What is the plan for the proceeds — NRO account, repatriation route, and the paperwork each requires?

The rates, forms and section numbers in this area have just been through the largest rewrite in sixty years — the Income-tax Act, 2025 replaced the 1961 Act this April, and even professionals are still cross-checking mappings. Please verify the current position, and speak to a qualified professional before acting on your own facts.

Hope this helps someone.