What actually happens to your money when you sell Indian property as an NRI

The call usually comes from the buyer’s lawyer. A seller in Dubai or Dallas has agreed a price for the family property in Ernakulam, the paperwork is moving, and then the lawyer mentions that tax will be deducted from the sale price before a rupee is paid. Not from the profit. From the price. The seller checks, finds it is true, and the sale — which felt nearly done — suddenly is not.

This article sets out the whole sequence, in the order it actually happens. If you understand the order, you can protect most of your money. If you learn it after the deed is signed, your options narrow to one.

Why the deduction is on the price, not the profit

When a buyer pays a resident seller for property, the buyer deducts tax at 1% of the consideration under s.393(1), Table Sl. No. 3 of the Income-tax Act, 2025 (erstwhile s.194-IA). Simple, small, and handled through a straightforward payment procedure.

When the seller is a non-resident, that provision does not apply. The buyer instead withholds under s.393(2), Table Sl. No. 17 of the Income-tax Act, 2025 (erstwhile s.195) — the general provision for any payment to a non-resident that is chargeable to tax in India. The rate is the rate in force for the seller’s income, which for long-held property means the rate applicable to long-term capital gains, plus applicable surcharge and cess. It is many multiples of 1%.

In principle the obligation attaches only to the income embedded in the payment — the gain, not the gross. But the buyer has no way of knowing your gain, no authority to compute it, and full personal liability if they under-deduct. So every prudent buyer deducts on the entire consideration unless an income-tax officer has told them, in writing, to do otherwise. The buyer must also obtain a deduction and collection account number under s.397(1)(a) of the 2025 Act (erstwhile s.203A) before they can deposit the tax at all — a step many first-time buyers of NRI property have never heard of, and one that delays sales when discovered late.

The gain is usually much smaller than the fear

Here is the part that surprises sellers in the other direction. For inherited or long-held property in India, the taxable gain is often a modest fraction of the sale price.

Capital gains are charged under s.67 of the 2025 Act (erstwhile s.45) and computed under s.72 (erstwhile s.48): sale consideration, less the expenses of the transfer, less the cost of acquisition. If you inherited the property, the cost is not zero — it is your parent’s or grandparent’s cost, carried over to you under s.73 (erstwhile s.49), and the holding period carries over with it. And if the previous owner acquired the property before 1 April 2001, s.90(2)(a) (erstwhile s.55) lets you substitute the fair market value as at 1 April 2001 for the historical cost.

A property bought in 1974 for a nominal sum may have had a very substantial market value by 2001. Take that 2001 value as your cost and the gain shrinks by exactly that difference. A seller who assumed the entire price was profit — because the original purchase price was trivial — often discovers the true gain is a fraction of it.

The exemptions the law offers for reinvestment — in another residential house under s.82 (erstwhile s.54), or in specified bonds under s.85 (erstwhile s.54EC) — can reduce the gain further, sometimes to nil. We cover the inherited-property computation, and those exemptions, in a separate article.

The lower-deduction certificate — and why it expires the moment the deed is signed

The gap between “tax deducted on the whole price” and “tax actually due on the gain” is bridged by one instrument: a certificate from the Assessing Officer directing the buyer to deduct at a lower rate, or not at all. The seller applies for it under s.395(1) of the 2025 Act (erstwhile s.197 of the 1961 Act), through the electronic route under s.395(6). Alternatively the buyer can ask the officer to determine what proportion of the payment is chargeable, under s.395(2) (erstwhile s.195(2)).

The certificate works on one condition: it must exist before the money moves. Deduction happens at payment or credit. Once the buyer has paid you and deposited the tax, there is nothing left for a certificate to act on. An application filed after registration is not late; it is pointless. The officer will take time to examine your title, your cost, your computation, and the sale terms — the department controls that clock, not you. Which means the certificate must be part of the sale plan from the first serious conversation with the buyer, not an errand run the week before registration.

An application filed after registration is not late. It is pointless.

The return and the refund

Whatever is deducted, the buyer must give you a certificate of deduction under s.395(4) (erstwhile s.203) and report the payment in the quarterly statement for payments to non-residents. The credit then appears against your PAN in the annual tax statement. Check it. A buyer who deducted but never deposited, or deposited against the wrong PAN, is a problem far easier to fix in the month after the sale than three years later.

You then file your return of income under s.263 (erstwhile s.139), compute the actual gain, claim the credit, and — where the deduction exceeded the tax due — claim the refund. If you sold without a certificate, this is where your money comes back, with interest, after processing. It works. It is also slow, and in the meantime a large sum sits with the department instead of in your account. If your home country has a tax treaty with India, relief under s.159 (erstwhile s.90) may also apply; it requires a tax residency certificate from your home jurisdiction, obtained in advance.

Moving the money abroad

The sale proceeds land in your Indian account — for a non-resident, ordinarily the non-resident ordinary account. To remit them abroad, your bank will ask for two things: the remittance information return required under s.397(3)(d) of the 2025 Act (erstwhile s.195(6)), and a certificate confirming that tax on the remittance has been properly accounted for.

That certificate must be signed by a chartered accountant. GSTserve is not a firm of chartered accountants and does not sign it. What we do is everything that makes the certificate signable: the computation of the gain, the reconciliation of the deduction against the annual tax statement, the return, the refund claim, and the papers the chartered accountant — whom you appoint yourself — will rely on. That division of work is the honest one, and it is how the process is designed to run.

If you are already past the sale deed

Many readers are. The deed is registered, tax was deducted on the full price, and the question is what now. In order:

1. Get the buyer’s paperwork. The deduction certificate under s.395(4), proof of deposit, and confirmation that the quarterly statement for payments to non-residents was filed against your correct PAN.
2. Check the annual tax statement. The credit must actually appear there. If it does not, the fault is on the buyer’s side and must be corrected before you file.
3. Compute the real gain. Carried-over cost, the fair market value option for pre-2001 acquisitions, transfer expenses, any exemption you still qualify for.
4. File the return and claim the refund. This is now your only route to the excess, so file it carefully and on time.
5. Plan the remittance. The information return and the chartered accountant’s certificate follow once the tax position is settled.

The certificate route is closed to you; the refund route is not. It costs time, not the money itself — provided the buyer’s compliance was done properly. That is the thing to verify first, and this week rather than next year.

This article is general information, not advice on your facts. The rates in force and procedural requirements change; confirm the current position before acting.