Selling Your Indian Property
as an NRI in 2026 —
how to keep the lakhs that are already yours.

Imagine selling your Pune flat for ₹68 lakh and walking away with only ₹58 lakh in your hand. The remaining ₹9.72 lakh — almost three times what you actually owe the tax authorities — is locked up with the Income Tax Department for the next twelve to eighteen months. It is a perfectly legal outcome under Indian tax law. It is also entirely avoidable.

For Non-Resident Indians selling property in India, this scenario plays out thousands of times each year. The buyer is following the law as written. The seller is left with a working-capital hole that no one warned them about. And the fix — a Lower Deduction Certificate — sits quietly in Section 395(1) of the Income-tax Act, 2025, waiting to be used by anyone who knows it exists.

This is the first in a three-part editorial series for NRIs navigating Indian property transactions in 2026, the first full year under the new Income-tax Act, 2025 and the changes brought by the Finance Act, 2026. The aim is simple: walk you through, in plain language, exactly what the law expects of you, and how to keep more of your own money.

When a resident Indian sells property to another resident Indian, the buyer deducts only one percent as TDS under what was Section 194-IA of the old Act (now renamed Section 393(1) of the Income-tax Act, 2025). The deduction is light, the form is simple, and the process is over in an afternoon.

When the seller happens to be an NRI, an entirely different beast applies. The governing provision is Section 393(2) [Table Sl. No. 17] — the renamed successor of the old Section 195. Under this provision, three things change at once:

• TDS is to be deducted at the full capital-gains rate in the seller's hands — not at a flat one percent.
• There is no threshold of ₹50 lakh. The deduction applies even on a sale of ₹5 lakh.
• The base for TDS is, in most cases, the entire sale consideration — not the capital gain portion alone.

The rationale is administrative. The Indian government wants to collect tax at the source, before money flows out of the country. Pursuing an NRI for unpaid tax across jurisdictions is a thankless exercise, and so the law errs on the side of over-deduction at source. The seller can sort out the over-payment later, by way of refund. The mechanism is, in a sense, robust. From the seller's vantage point, it is also expensive.

The Effective Rate, Layer by Layer

Following the Finance (No. 2) Act, 2024, long-term capital gains on property held for more than 24 months are taxed at 12.50% without indexation. The "20% with indexation" route that resident sellers may still choose for legacy assets is not extended to NRIs. Layered on top come the surcharge (10% on sales between ₹50 lakh and ₹1 crore) and the 4% health-and-education cess.

That is the upfront deduction. The buyer pays you the balance — ₹58,27,600 — and deposits ₹9,72,400 with the tax authorities on your behalf. Whether that sum reflects your real tax liability is a question the buyer cannot answer and the law does not ask.

For higher-value transactions, the effective rate climbs further. On sales between ₹1 crore and ₹2 crore, the surcharge rises to 15% and the effective TDS rate becomes 14.95%. Above ₹2 crore, the 15% surcharge cap holds, and the rate remains at 14.95% for long-term capital gains.

The most damaging misconception in NRI property sales is the assumption that TDS is deducted only on the profit portion of the transaction. Many sellers — and indeed many buyers — believe the buyer will somehow apply 14.30% only to the capital gain, leaving the cost-of-acquisition untouched. The law works in precisely the opposite direction.

Under Section 393(2), the buyer is required to withhold tax on the entire sum payable to the non-resident, not on the income embedded in that sum. The reason is practical. The buyer does not have access to your original purchase price, your indexation calculations, your eligible exemptions under Section 54 or 54F, or your carry-forward losses. Asking the buyer to compute your capital gain is asking him to step into your shoes — which neither the law nor the facts allow.

There is exactly one legal route to ensure TDS is deducted on the real capital gain rather than on the gross sale price. That route runs through a Lower Deduction Certificate, obtained by the seller, addressed to a specific buyer, and signed off by the jurisdictional Assessing Officer.

Without such a certificate, the buyer's hands are tied. He must deduct on the full consideration. The Supreme Court has confirmed, in GE India Technology Centre v. CIT, that the deductor's obligation is to withhold on the income element of the payment — but in the same breath, the Court has acknowledged that the buyer cannot unilaterally determine that income element. Hence, the certificate.

A Lower Deduction Certificate, or LDC, is an official permission letter issued by the Income Tax Department to the seller, addressed to a specific buyer, authorising the buyer to deduct TDS at a reduced rate — sometimes a nil rate — rather than the headline 14.30%.

The certificate is issued under Section 395(1) of the Income-tax Act, 2025, the renamed successor of the old Section 197. The application is filed in Form No. 128, which has replaced the old Form 13. The process is entirely online, routed through the TRACES portal, and now backed by a faceless, system-driven framework introduced under the Income-tax Rules, 2026.

The Saving, In Numbers

Let us return to the seller in Pune. He bought the flat in 2018 for ₹45 lakh. In 2026, he is selling it for ₹68 lakh. His real long-term capital gain is ₹23 lakh. The tax on that gain, at the full effective rate of 14.30%, comes to roughly ₹3,28,900. That is what he genuinely owes the Indian government on this transaction.

Without an LDC, the buyer is bound to deduct on the gross. With an LDC in hand, the Assessing Officer typically issues a certificate at a reduced rate matching the actual tax liability — in this case, approximately 4.84% of the gross consideration. The buyer then deducts that, and only that.

That figure, ₹6,43,500, is not a hypothetical saving. It is real cash that would otherwise sit with the tax authorities for a year or more, earning you nothing. For an NRI looking to reinvest the proceeds — perhaps in another Indian property, a fixed deposit, or repatriation to a foreign account — that liquidity is meaningful.

The One Rule About Timing

The LDC operates prospectively from the date of its issue. Any token money, advance, or first instalment paid before the certificate is in hand suffers TDS at the full 14.30%. The reduced rate applies only to subsequent payments.

For a single lump-sum transaction, this is straightforward — apply for the certificate first, close the sale later. For staggered payments, sequencing becomes critical. As a rule of thumb, build a 45 to 60 day cushion between the agreement-to-sell and the date of registration, with the LDC as a condition precedent to closing.