Selling India property: the buyer withholds 14.95% of the sale price.

Edition 13 · The Property File, Part 1 of 2 · The self-owned sale: title, withholding, indexation, and the wire home

Manish Hemrajani
August 23, 2026

The Rundown

Know a fellow NRI who holds a flat in India and is thinking about selling? Forward this issue before they sign anything. Part 2 arrives next Sunday.

The Heavy Upfront Tax Hit. When selling as a non-resident, Section 393(2) of the Income Tax Act, 2025 replaces the 1% resident rule with a 14.95% withholding rate on the entire sale price, with no minimum transaction size. On a ₹2 crore sale, buyers deduct ₹29,90,000 at registration, leaving the tax department to hold the surplus until you file a return and claim a refund against your actual ₹20,93,000 tax bill.

Securing a Lower Deduction Certificate. Sellers can bypass this cash-flow pinch by applying for a lower deduction certificate through Form 128 (formerly Form 13) under Section 395. This directs the buyer to withhold tax strictly on calculated capital gains rather than gross proceeds. Because the approval process takes six to eight weeks, applications must start well before accepting an offer.

Easing Compliance Hurdles for Buyers. Regulatory requirements for buyers shift later this year. Until September 30, 2026, individual buyers must acquire a Tax Deduction Account Number (TAN) and file Form 144. Starting October 1, Clause 75 of the Finance Act 2026 amends Section 397(1)(c), allowing resident individuals and HUFs purchasing from non-residents to use a PAN-based challan instead, though corporate and firm buyers still require a TAN.

Residents get indexation. The advantage is smaller than it sounds. Residents selling property bought before July 23, 2024, can choose between a 20% tax rate with indexation or 12.5% without it, paying whichever is lower under Section 197(3). However, the savings are often modest; on a flat bought at ₹60 lakh and sold at ₹2 crore, a resident saves only about 3% of the tax bill.

THE DEEP DIVE - COMPLIANCE GUARDRAIL

Selling the flat you bought.

Three parts of an Indian property sale cost non-resident Indians money. The first is the title file you assemble before listing. The second is the tax the buyer must withhold at registration. The third is the paperwork required to move the proceeds to a U.S. account. Price negotiation is merely the simplest part of the transaction.

Scope and Upcoming Coverage

This edition covers a property you purchased yourself and hold in your own name, sold directly to a single buyer. Next Sunday's edition will cover inherited property, which alters the required documents, the cost basis, and the repatriation limits.

1. The Title File

Assemble these documents before listing your property. The buyer's lawyer will request every item, and correcting record gaps from abroad takes weeks.

The Chain of Title: Your registered sale deed plus prior deeds establishing an unbroken 30-year chain.
Encumbrance Certificate: Obtained from the sub-registrar covering at least 13 years to show registered charges.
Mutation Record: The municipal record reflecting your name (Khata in Karnataka, patta in Tamil Nadu, 7/12 extract in Maharashtra).
Property Tax Receipts: Current documentation showing no outstanding arrears.
Approved Plans and Certificates: Approved building plan, occupancy certificate, and a completion certificate for apartments.
Society NOC: Confirmation from the association confirming zero outstanding maintenance dues.
Loan Closure Documents: The original bank-released deed and filed charge satisfaction if a mortgage existed.
PAN, passport, OCI card, and proof of NRI status. The buyer's counsel will verify your residency. Residency determines the withholding rate.

Power of attorney. If you will not be in India for the registration, execute a specific power of attorney that names the transaction, the property, and the attorney's exact powers. A general power of attorney is weaker, and several state registrars now question it. Sign before an Indian consular officer in the United States, or sign before a US notary and have the document apostilled. Adjudicate and stamp it in the relevant Indian state within three months of arrival.

2. What the buyer must withhold

Unlike resident sellers who enjoy a 1% withholding rate under Section 393(1), non-resident sellers face an effective withholding rate of 14.95% on the entire sale consideration under Section 393(2). This base rate of 12.5% plus a 15% surcharge (for transactions over ₹1 crore) and 4% cess applies to the gross price rather than your capital gain, with no minimum threshold (unlike the ₹50 lakh resident rule).

Withholding applies to every payment—including token money and installments—at the time of credit or payment, requiring separate deposits for each milestone. Furthermore, you must provide your PAN to the buyer before the first payment; otherwise, the deduction jumps to a penal 20% under Section 397(2)(b)(i).

Property held for 24 months or less is classified as short-term, triggering a steep withholding rate of 30% plus applicable surcharge and cess, with gains taxed at standard slab rates. Any excess tax withheld is fully refundable, but you must file an Indian tax return for the tax year of the sale to claim it.

The Section 195 Gap

What the buyer withholds against what you actually owe.

Item	Amount
Sale price (2026)	₹2,00,00,000
Purchase price (2012)	₹60,00,000
Long-term capital gain	₹1,40,00,000
Indian tax due — 12.5% + 15% surcharge + 4% cess	₹20,93,000
TDS withheld without a certificate — 14.95% of gross	₹29,90,000
Excess withheld, refundable after you file	₹8,97,000

Illustrative. Long-term sale by a non-resident, held since 2012. Surcharge on capital gains is capped at 15%. The excess is refunded only after an Indian return is filed for the year of sale.

The ₹8,97,000 excess withholding is refundable, but claiming it requires filing an Indian tax return for the tax year of sale. Under the 2025 Act, "assessment year" is replaced by "tax year," meaning a sale in the year ending March 2027 is reported for tax year 2026-27, tying up roughly $9,300 for eighteen months without interest.

You bear the consequences if the buyer errors or delays filing. The tax credit and refund remain locked until the deduction appears in your Form 168 (formerly Form 26AS) after the buyer deposits the funds and files their return.

Always verify local stamp duty values before pricing your property. If the agreed price falls below the circle rate, capital gains are calculated using the higher stamp duty value subject to a narrow tolerance band, meaning you pay tax on an inflated figure while receiving less cash.

3. Indexation, and who is allowed to use it

Until July 23, 2024, long-term gains on land and buildings were taxed at 20% on an inflation-adjusted cost. The Finance (No. 2) Act, 2024 lowered the rate to 12.5% and removed this adjustment, though an August 2024 amendment restored the old method as an option for properties acquired before that date. However, Section 197(3) of the Income Tax Act, 2025 restricts this choice strictly to resident individuals and Hindu Undivided Families ("an individual or HUF, being a resident"), carrying forward the old Section 112 proviso. Non-residents fall under Section 197(1)(b) instead, paying a flat 12.5% without indexation regardless of the purchase date, just like corporate entities and LLPs.

Consequently, two owners of identical flats in the same building, selling on the same day for the same price, report different taxable gains and pay different tax simply because one is a resident and the other is not.

While the resident indexation advantage is real, the financial benefit is often much smaller than most sellers assume.

Indexation, Side by Side

The rate is identical. The taxable base is not.

Same flat, sold the same day	Resident seller	Non-resident seller
Method available	Lower of 12.5% without indexation, or 20% with indexation	12.5% without indexation only
Statutory basis	Section 197(3), ITA 2025	Section 197(1)(b), ITA 2025
Purchase price, 2012	₹60,00,000	₹60,00,000
Cost of acquisition used	₹1,15,20,000 (indexed 200 → 384)	₹60,00,000
Taxable long-term gain	₹84,80,000	₹1,40,00,000
Rate applied	20%	12.5%
Tax before surcharge and cess	₹16,96,000	₹17,50,000
Difference	₹54,000 lower	—

Illustrative, on a flat bought in 2012 for ₹60,00,000 and sold in 2026 for ₹2,00,00,000. Cost Inflation Index 200 for 2012-13 and 384 for tax year 2026-27, notified July 15, 2026. The resident pays the lower of the two computations. Surcharge and cess apply on top of both figures.

On this transaction the gap is ₹54,000, about 3% of the bill. That is the whole of the resident's advantage.

The gap turns on appreciation, not on holding period. Indexation raises the cost by a fixed multiple, then applies the higher 20% rate. Where appreciation has been modest the indexed computation costs less. Where it has been large the flat method costs less, and the resident elects it as well. At CII 384 the crossover for a 2012-13 purchase sits at about 3.45 times cost. The example sold at 3.33 times, just inside the band.

When Indexation Actually Wins

Sale price as a multiple of cost. Above the figure, the resident pays what you pay.

Year of purchase	CII	Indexation wins below
2001-02	100	8.57x
2005-06	117	7.09x
2010-11	167	4.47x
2012-13	200	3.45x
2015-16	254	2.36x
2020-21	301	1.74x
2023-24	348	1.28x

Computed at CII 384 for tax year 2026-27, comparing 20% on the indexed gain against 12.5% on the unindexed gain, before surcharge and cess. Property acquired on or after July 23, 2024 has no indexation option for anyone.

Two conclusions follow. A resident selling a flat that has multiplied more than 3.5 times since 2012 pays exactly what you pay, because the flat 12.5% method is cheaper for both, meaning the indexation option is worth most on properties that performed worst.

Three conditions attach to the resident option: electing it forfeits the carry-forward and set-off of losses, it computes tax only without raising the reinvestment threshold for exemptions, and it is unavailable on any property acquired on or after July 23, 2024.

However, one inflation relief survives for non-residents: properties acquired before April 1, 2001 may use their fair market value on that date as the cost of acquisition under the 2025 Act, provided you obtain a valuation from a registered valuer.

4. The lower deduction certificate

Under Section 395 of the 2025 Act (formerly Section 197), non-resident sellers can petition assessing officers for a lower withholding rate through Form 128 (formerly Form 13) on the TRACES portal under Rule 213 of the Income-tax Rules, 2026. The application requires the sale agreement, original purchase deed, cost computation, and an expected tax liability breakdown.

Upon approval, the officer issues a certificate specifying the buyer's TAN and the exact reduced rate or amount to replace the standard 14.95% gross price deduction. Although the Finance Act 2026 allows electronic issuance by a broader range of officers for faster turnaround, sellers should not delay filing.

Because securing the certificate takes six to eight weeks depending on local jurisdiction, applications initiated after signing an agreement will miss the window. If the certificate is not in hand at registration, the buyer must legally withhold the full statutory amount, as informal side agreements cannot alter this obligation.

5. Reducing the tax itself

Three provisions help defer or eliminate long-term capital gains tax under the Income Tax Act, 2025 (noting that old section numbers are still widely used by banks and chartered accountants):

Section 54: Reinvest your capital gains into one residential property in India, purchased one year before or two years after the sale, or constructed within three years. This is capped at ₹10 crore, and the replacement property must be in India (a U.S. home does not qualify).
Section 54EC: Invest your gains into specific bonds issued by NHAI, REC, PFC, or IRFC within six months of the sale. This offers tax deferral capped at ₹50 lakh across all such holdings with a mandatory five-year lock-in, yielding a modest coupon taxable in both India and the U.S.
Capital Gains Account Scheme (CGAS): If you intend to reinvest under Section 54 but cannot complete the purchase before your Indian tax return due date, depositing the funds into a designated CGAS account satisfies the timeline. Any withdrawn money left unused within the statutory window becomes fully taxable that year.

6. Moving the money

Sale proceeds hit your NRO account, and moving them to the U.S. depends on your funding source:

Foreign-currency funds: If you bought using an inward remittance or NRE/FCNR account, FEMA allows repatriation for up to two residential properties, capped at the original foreign currency brought in.
Rupee funds: If you bought using local or NRO funds, repatriation follows the general limit of $1 million per financial year across all sources.

Both paths require Rule 220 filings: a chartered accountant certificate (Form 146 / old Form 15CB) confirming taxes are paid, followed by your submission of Form 145 Part C (old Form 15CA) on the income tax portal. Your bank will reject old forms and refuse the wire without these current documents.

Currency movement after the sale date creates an unhedged risk. U.S. capital gains are locked at the exchange rate on the sale date, but rupee values fluctuate. For example, converting ₹1 crore at ₹84 per dollar yields $119,048, while dropping to ₹96 yields $104,167—a 12.5% dollar loss if delayed. Because tax bills lock in at historical rates and Section 988 generally disallows personal foreign currency losses, un-repatriated cash drops directly to your bottom line.

7. What the United States takes

India taxes the sale. So does the United States. The IRS treats it as a disposition of a capital asset and computes the gain in dollars.

Your basis is historic. Convert the purchase price at the rate on the purchase date, the sale price at the rate on the sale date, and improvements at the rates on the dates paid.

Historic cost bases drive U.S. dollar gains using exchange rates from purchase dates (e.g., ₹53.44 in 2012 versus ₹44.94 in 2000), while the rupee's steady depreciation means the rupee gain is nearly three times the dollar gain.

Federal tax applies at 15% or 20% long-term capital gains plus the 3.8% net investment income tax, totaling roughly $17,900 on a $95,125 gain.

The foreign tax credit (Form 1116, passive category) handles the Indian tax of ₹20,93,000 (about $21,800). Because it exceeds the U.S. tax, the excess carries forward for ten years without refund, and timing rules require careful handling to match fiscal years.

The treaty does not reduce the Indian tax. Article 13 of the India-U.S. treaty sets no reduced rate for capital gains, leaving India to tax local property in full while Article 25 prevents double taxation. Hold a Tax Residency Certificate and Form 10F, though neither lowers the rate.

The residence exclusion, if it applies, can exclude $250,000 of gain ($500,000 joint) under Section 121 if you occupied the property as a principal residence for two of the five years before sale—a hurdle most long-term NRI flat sellers will miss.

Depreciation recapture applies if the property was rented, recapturing allowed or allowable Schedule E depreciation at up to 25% regardless of whether it was claimed.

State tax compounds the burden because New Jersey grants zero credit for foreign income taxes. The full $95,125 gain faces New Jersey gross income tax at 6.37% (about $6,060), offering no offset for taxes already paid in India.

8. The two rulebooks, side by side

COMING NEXT SUNDAY

The Property File, Part 2: The inherited sale.

Everything above assumes you bought the property. Inheritance changes three things. The document set expands to include the succession certificate or legal heir certificate, the will and its probate where applicable, and the mutation of the title into your name before any sale can be registered. The cost basis carries over from the original owner, along with the acquisition date, which usually makes the sale long-term regardless of how recently you inherited. Repatriation is capped: proceeds from inherited property move under the USD 1 million per financial year limit, and amounts above it require prior approval. Part 2 covers a property you did not buy.

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