Navigating TDS for NRIs Selling Property in India

Navigating TDS for NRIs Selling Property in India

If you’re an NRI planning to sell property in India, you might be in for a surprise when you learn that the buyer is required to deduct a hefty 20% (plus surcharge and cess) TDS from your sale proceeds. But don’t worry—with proper planning and documentation, you can significantly reduce or even avoid this deduction using a Lower Deduction Certificate (LDC) from the Indian Income Tax Department.

What is TDS and Why Does It Apply to NRIs?

TDS (Tax Deducted at Source) is the tax that a buyer must deduct from the amount payable to an NRI seller. Under Section 195 of the Income Tax Act, when an NRI sells property in India, the buyer is legally required to deduct TDS at the maximum rate unless the seller provides a certificate authorizing a lower deduction.

How a Lower Deduction Certificate (LDC) Helps

An LDC is an official certificate issued by the Indian Income Tax Department that instructs the buyer to deduct TDS at a lower rate or not at all. This is especially useful if:

  • You have made capital improvements on the property
  • You are eligible for exemptions under Sections 54 or 54F
  • Your actual capital gains are lower than the property sale price

Step 1: Engage a Chartered Accountant (CA)

Choose a CA experienced in NRI taxation. They will handle the LDC application process on your behalf.

Step 2: Gather Required Documents

  • PAN card
  • Passport and visa copies
  • Purchase agreement and sale agreement
  • Property tax receipts
  • Details of improvements made to the property
  • Estimated sale value and capital gains computation

Step 3: Submit Form 13 Online

Your CA will submit Form 13 on the income tax e-filing portal to request the LDC.

Step 4: Assessment by Income Tax Officer

The officer may request clarifications or additional documents before approving the LDC.

Step 5: Receive the LDC

Once approved, the certificate is provided to the buyer so they can apply the reduced TDS rate.

Timing is Everything

It can take 3–4 weeks (or more) to receive an LDC. Start the process well before signing the sale agreement or collecting payment.

What If You Miss the LDC Window?

If TDS is deducted at the full 20% rate and you later file your taxes, you may be eligible for a refund. But this often ties up funds for months. Getting the LDC in advance ensures smoother transactions and faster access to your funds.

Conclusion

TDS doesn’t have to be a dealbreaker. With a Lower Deduction Certificate, you can legally reduce your tax burden, avoid cash-flow issues, and complete your property sale with confidence. If you’d like help navigating this process, book a free 15-minute call with our U.S.-based concierge team.