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 article covers eligibility, the application process on TRACES, and the errors that delay an approval.
Key Takeaways
- A Lower/Nil TDS Certificate aligns TDS with your actual capital gains, not the full sale price
- Form 128 is filed online through TRACES before the sale closes; an application cannot reach the deduction on a transaction that has already completed
- 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 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 Nil certificates haven't disappeared, despite what some outdated guides suggest.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). The route for a non-resident is an application through Form 128.
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 non-resident TDS schedule published by the Income Tax Department:
- Long-term capital gains: 12.5%
- Short-term capital gains (individual/firm): 30%
- Surcharge: nil up to ₹50 lakh, and capped on capital gains, so the steeper surcharge bands that apply to other income types do not reach a gain on a property sale
- 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 a cleaner repatriation position, since the amount credited is closer to the amount ultimately due.
Cambridge Wealth is an AMFI-registered for Mutual Funds and SIFs, ARN-172841, APMI Registration No.: APRN-01683. What it can do alongside a sale like this is support the investment-side documentation those computations rest on — capital gains statements per folio, tax-residency documents and Form 10F, and records of the source of funds for each account — coordinated across the AMCs, banks and registrars that each hold part of the record.
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
The computation covers your indexed cost of acquisition, improvement costs, any reinvestment exemptions you plan to claim, and applicable DTAA provisions where the relevant treaty so provides. It forms the backbone of the application, and an error in it either delays approval or produces a certificate at a higher rate than the position warrants.
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
The route on TRACES runs through Dashboard → e-File and View → File Forms → Form 13 — the portal menu still carries the earlier form number. Non-resident status is selected, buyer and transaction details entered, and the capital gains computation uploaded under the annexure that matches the transaction, with the number of buyers involved determining which one applies.
Step 4: Respond to Assessing Officer Queries
The Assessing Officer may ask for clarifications, revised computations, or exemption proof. Delayed replies are among the more common 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. It reaches the buyer before any payment is released; the department cannot process applications after the transaction is completed.
No fixed processing timeline is officially published, and processing time is not the subject of any service standard. That is what makes the interval between the application and the closing date the part within the applicant's control.
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 – a treaty rate is not automatic; it depends on the relevant treaty's own provisions, and claiming it 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 covers no-deduction requests alongside lower-rate ones
- Assuming the buyer no longer needs a TAN – the resident individual/HUF exemption from obtaining TAN takes effect from 1 October 2026; until then, the buyer's TAN is part of the application
- 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 – the department sets out how a refund is issued and tracked in its refund status guide, and 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 where applications commonly go wrong. The multi-year computation and any representation before the Assessing Officer are a chartered accountant's work, and the computation is also what the application itself has to contain.
Frequently Asked Questions
How can an NRI apply for a lower TDS deduction certificate?
The application is made on the TRACES portal with supporting documents and a capital gains computation. The Assessing Officer reviews it 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. Applying for a lower TDS certificate moves that correction forward to the transaction itself.
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, which is why the interval before the expected sale date carries the weight.
Can NRIs use DTAA benefits to reduce TDS on property sale?
Yes, where the relevant treaty so provides. Claiming treaty benefits requires a valid Tax Residency Certificate and Form 10F, which may bring your applicable TDS rate below the standard domestic rate.
