In this article, we will discuss about...
Introduction
If you’re an NRI planning to sell property in India, you may have heard about the tax changes in Budget 2025. However, there’s a lot of confusion about how much TDS (Tax Deducted at Source) you actually need to pay.
Here’s the key point: While the long-term capital gains tax has been reduced from 20% (with indexation) to 12.5% (without indexation), the TDS rate has NOT changed. This misunderstanding is causing many NRIs to overpay taxes unnecessarily.
Let’s break it down clearly so you know how to save money and avoid hassles.
Don’t let reading hold you back, Watch our video instead
Budget 2025: The TDS Confusion for NRIs
A common misconception is that since the long-term capital gains tax is now 12.5%, the TDS rate should also be 12.5%.
That’s incorrect.
Here’s what you need to know:
-
Previously: Both the long-term capital gains tax rate and the TDS rate were 20%.
-
Now: The capital gains tax has been lowered to 12.5%, but the TDS rate remains unchanged.
-
TDS for NRIs remains 20% plus surcharge and cess, as per Section 195 of the Income Tax Act.
What This Means for NRIs Selling Property
-
Without applying for lower TDS, you will still be charged 20% TDS plus surcharges on the full sale price.
-
Your actual tax liability could be much lower (12.5% plus surcharges), but unless you take action, you will pay more upfront.
-
This means a large portion of your money will be stuck with the tax department for nearly 1.5 years until you file for a refund.
TDS Rate vs. Tax Rate: What’s the Difference?
The biggest mistake NRIs make is confusing TDS rates with tax rates. These are two completely different things:
-
TDS (Tax Deducted at Source): An advance tax collected at the time of sale to ensure the government gets its share.
-
Capital Gains Tax: The final tax liability you owe after deductions.
Understanding this difference is crucial to avoid overpaying TDS.
Current TDS Rate for NRIs Selling Property
As per Section 195, the TDS rate remains 20%, plus additional charges:
-
15% surcharge for property sales above ₹50 lakh
-
25% surcharge for sales above ₹1 crore
-
37% surcharge for sales above ₹5 crore
-
4% education cess applies to all transactions
Your total TDS deduction could be much higher than 20%, depending on the sale price.
Actual Tax Rate on Capital Gains
The new tax rate on long-term capital gains is 12.5% plus surcharge and cess.
-
Most Important:
This tax is applied ONLY to capital gains (profit), NOT the full sale price. -
However, TDS is deducted on the full sale price unless you apply for lower TDS.
Example: How Much TDS Will You Pay?
Let’s say you’re an NRI selling a property for ₹1 crore, which you originally bought for ₹50 lakh.
1. If You Apply for Lower TDS
-
Capital Gains = ₹1 crore – ₹50 lakh = ₹50 lakh
-
Tax Rate = 12.5% plus surcharge and cess
-
Total Tax Liability (approx.): ₹8.5 lakh
2. If You Do NOT Apply for Lower TDS
-
TDS is deducted on the full sale price (₹1 crore), NOT just capital gains.
-
TDS Rate = 20% plus surcharge and cess (~28% total)
-
Total TDS Deducted Upfront: ₹28 lakh
Key Difference
Without applying for lower TDS, you will pay ₹28 lakh upfront, even though your actual tax liability is only ₹8.5 lakh.
That’s ₹19.5 lakh extra stuck with the government! You won’t get it back until you file for a refund next year.
How NRIs Can Save Money on TDS When Selling Property
1. Apply for Lower TDS in Advance
-
Apply for a Lower TDS Certificate from the Income Tax Department.
-
Processing takes 30-40 days—so start at least 2-3 months before selling.
-
If approved, TDS will be deducted only on capital gains, NOT the full sale price.
2. Work with a Tax Professional
-
Many chartered accountants (CAs) misunderstand these rules.
-
Choose an NRI tax expert to ensure correct filing.
3. Ensure the Buyer Deducts the Correct TDS
-
The buyer is responsible for deducting TDS.
-
If they deduct too much, you’ll have to wait for a refund.
Conclusion
Budget 2025 reduced the capital gains tax rate for NRIs to 12.5%, but the TDS rate is still 20% plus surcharge and cess.
If you don’t apply for lower TDS, tax will be deducted on the full sale price—not just on capital gains.
To avoid unnecessary deductions:
-
Apply for lower TDS at least 2-3 months before selling.
-
Work with a tax expert to ensure correct calculations.
-
Ensure the buyer deducts the right amount of TDS.