This matters because without it, buyers default to deducting TDS on the gross sale consideration, sometimes locking up lakhs of rupees that rightfully belong to you until a refund comes through.
Recent changes haven't made this easier. The new Income-tax Act, 2025, effective from 1 April 2026, has renumbered sections, renamed forms, and shifted TAN requirements for buyers. This guide walks you through eligibility, the application process on TRACES, and the mistakes that trip up most NRI sellers.
Key Takeaways
- A Lower/Nil TDS Certificate aligns TDS with your actual capital gains, not the full sale price
- File Form 128 online via TRACES before the sale closes; late applications can't be processed
- Form 13 is now Form 128, and Section 197 is now Section 395(1)
- Approval timelines depend heavily on documentation quality and your Assessing Officer's jurisdiction
- Without this certificate, you'll wait on the income tax refund cycle to reclaim excess TDS
What Is a Lower/Nil TDS Certificate for NRIs?
A Lower/Nil TDS Certificate is an approval from the Assessing Officer that authorises your property buyer to deduct tax at a reduced rate, or in some cases, not at all. This replaces the standard withholding rate that would otherwise apply to the entire transaction value.
In practice, this means the TDS deducted actually reflects your real tax liability on the capital gain, rather than a flat percentage of the entire transaction value.
NRIs have two ways to address this mismatch, one proactive and one reactive:
| Approach | When Filed | Benefit |
|---|---|---|
| Lower TDS Certificate | Before the sale | Adjusts withholding upfront |
| Income tax return refund | After the sale | Recovers excess TDS months later |
Form Name Has Changed, Not the Concept
Under the current framework, Form 128 (earlier Form No. 13) is filed under Section 395(1), governed by Rule 213. The form explicitly covers both lower-rate and nil-deduction requests, for residents and non-residents alike. Nil certificates haven't disappeared, despite what some outdated guides suggest.
One thing hasn't changed: NRIs cannot use resident self-declaration forms like Form 15G or 15H (now reorganised as Form 121). You must apply directly through Form 128 instead.
Why a Lower TDS Certificate Is Critical When Selling Property
Buyers deduct TDS on your entire sale consideration by default, not your net gain, because they typically have no visibility into your cost of acquisition or exemptions. This creates a real cash-flow problem.
A quick illustration:
| Item | Amount |
|---|---|
| Sale value | ₹1.5 crore |
| Indexed cost of acquisition | ₹90 lakh |
| Actual long-term capital gain | ₹60 lakh |
| TDS without certificate (approx. 12.5% of full sale value) | ₹18.75 lakh |
| Tax actually owed (approx. 12.5% of gain) | ₹7.5 lakh |
| Excess amount blocked | ~₹11 lakh |
That's over ₹11 lakh sitting with the tax department instead of funding your next investment, purely because the buyer had no way to withhold tax on your gain alone.
Current TDS Rates for NRI Property Sales
Per the official non-resident TDS schedule:
- Long-term capital gains: 12.5%
- Short-term capital gains (individual/firm): 30%
- Surcharge: nil up to ₹50 lakh, capped at 15% on capital gains regardless of total income (the general 37% top surcharge that applies to other income types doesn't apply here)
- Health and Education Cess: 4% on tax plus surcharge
Without a certificate, you're left filing an Indian income tax return and waiting through the refund process. Getting the certificate upfront means smoother closings, less dependency on refunds, and cleaner repatriation planning since you know exactly what lands in your account.
Cambridge Wealth's taxation and strategy team, led by specialists like Mihir Jagtap, helps NRIs run this math beforehand, weighing whether the certificate process is worth pursuing given the sale timeline and gain size.
Step-by-Step Process to Apply for a Lower TDS Certificate
The overall flow: compute your gains, gather documents, file on TRACES, respond to queries, then share the approved certificate with your buyer.
Step 1: Compute Estimated Capital Gains and Tax Liability
Work out your indexed cost of acquisition, improvement costs, any reinvestment exemptions you plan to claim, and applicable DTAA provisions. This computation forms the backbone of your application, so accuracy matters more than optimism here.
Step 2: Gather Required Documentation
Core documents typically include:
- PAN and passport/OCI details
- Sale and purchase deeds
- Past four years' income tax returns (or income computations if returns weren't filed)
- Form 26AS/AIS showing existing tax credits
- Buyer's TAN and the proposed payment schedule
Step 3: File the Application on TRACES
Log into TRACES and navigate through Dashboard → e-File and View → File Forms → Form 13. Select non-resident status, enter buyer and transaction details, then upload your capital gains computation under the annexure that matches your transaction (the number of buyers involved determines which one applies).
Step 4: Respond to Assessing Officer Queries
The Assessing Officer may ask for clarifications, revised computations, or exemption proof. Respond quickly. Delayed replies are one of the biggest reasons approvals drag on.
Step 5: Receive and Share the Certificate
Once approved, the certificate is issued electronically, specifying the approved rate and validity period. Share it with your buyer before any payment is released; the department cannot process applications after the transaction is completed.
Since no fixed processing timeline is officially published, start the process 8-10 weeks before your expected closing date to build in a buffer.
Key Factors That Affect Approval and Outcome
Several elements influence how smoothly your application moves:
- Documentation completeness – gaps in past return filings or a shaky capital gains computation invite queries
- Property nature – residential, commercial, inherited, or jointly-owned properties each carry different complexity, especially around title clarity
- DTAA eligibility – claiming treaty rates requires electronic filing of Form 10F along with a valid Tax Residency Certificate
- Assessing Officer's jurisdiction – processing speed varies by location and seasonal workload
- Accuracy of sale consideration figures – mismatches between what you declare and what the buyer reports can stall approval
Common Mistakes and Regulatory Changes NRIs Must Know
Several avoidable errors keep showing up in NRI property sale cases:
- Assuming nil certificates are gone – they're not. Form 128 explicitly covers no-deduction requests alongside lower-rate ones
- Assuming buyers never need a TAN anymore – the resident individual/HUF exemption from obtaining TAN only kicks in from 1 October 2026; until then, get your buyer's TAN
- Underestimating gains to force a lower rate – this invites certificate cancellation or scrutiny later; conservative, well-documented estimates hold up better
- Applying too close to the sale date – leaves no buffer for departmental review, and the application simply can't be processed after the deal closes
- Ignoring the refund timeline gap – refunds usually take 4-5 weeks to credit once processed, though the full return-to-refund cycle can stretch several months for NRIs
Navigating overlapping old and new provisions, plus form renumbering across Form 13/128 and Form 10F/41, is complex enough to warrant expert help. Cross-border tax specialists track these shifts daily, catching errors before they cost you a certificate rejection.
Cambridge Wealth's taxation and compliance team monitors these regulatory changes closely. Once your sale closes, the team can also help structure your proceeds into a long-term portfolio across equities, debt, or alternatives suited to your reinvestment goals.
Frequently Asked Questions
How can an NRI apply for a lower TDS deduction certificate?
File Form 13 on the TRACES portal with supporting documents and your capital gains computation. The Assessing Officer reviews the application and issues the certificate electronically.
What TDS exemptions are available for NRIs?
Full TDS exemption is rarely available. NRIs can instead apply for a reduced rate based on actual tax liability, reinvestment exemptions, or applicable DTAA benefits, subject to a valid Tax Residency Certificate and Form 10F.
Is TDS 100% refundable for NRIs?
Excess TDS is refundable, but only after filing an income tax return, and processing can take months. That's why applying for a lower TDS certificate is typically the smarter approach.
What documents are required for a lower TDS certificate application?
Key documents include PAN, past ITRs, sale and purchase deeds, your capital gains computation, and the buyer's TAN. Additional proof may be requested case-by-case.
How long does it take to get a lower TDS certificate approved?
There's no official fixed timeline. It depends on your jurisdiction and how complete your documentation is, so apply well ahead of your expected sale date.
Can NRIs use DTAA benefits to reduce TDS on property sale?
Yes. Claiming treaty benefits requires a valid Tax Residency Certificate and Form 10F, which may bring your applicable TDS rate below the standard domestic rate.
