An NRI avoided a Rs 12.5 lakh TDS deduction on a Rs 1 crore property sale by using a simple provision under tax law. By applying for a lower or nil TDS certificate before the transaction, he ensured that tax was deducted based on actual liability—not the full sale value—saving time, cash flow stress, and a long refund wait.
When an NRI decided to sell his property in India for Rs 1 crore, he was prepared for the paperwork, the negotiations and the legalities. What he wasn’t prepared for was losing Rs 12.5 lakh of his own money—not as tax, but as money that would be locked away for months, maybe a year, before he could get it back as a refund.
But unlike most people who accept this as “just how it works,” this NRI took a different route. He used a little-known provision in the Income Tax Act that brought his tax deduction down from Rs 12.5 lakh to zero. Not illegally. Not through any loophole. But through a perfectly legal application that most NRIs don’t even know exists.
The story, shared recently by tax advisory platform TaxBuddy on X (formerly Twitter), highlights a simple yet powerful lesson: TDS (Tax Deducted at Source) is not the same as actual tax liability. And if you know the rules, you don’t have to wait months for a refund.
Nilesh, an NRI, sold his property for ₹1 Cr
The buyer was about to deduct ₹12.5 lakhs of TDS
But one form helped him bring TDS down to ₹0
Here’s how you can ask your buyer to deduct 0% TDS🧵👇
— Sujit Bangar (@sujit_bangar) April 27, 2026
The NRI Tax Trap: Why 12.5% TDS Hurts
Here’s what happens when an NRI sells property in India.
Under Section 195 of the Income Tax Act, 1961, the buyer is required to deduct TDS before making the payment to the seller. But unlike resident Indians, who face a TDS of just 1% on property transactions, NRIs are hit with a much higher rate—12.5% or more, depending on the nature of capital gains.
And here’s the real kicker: this TDS is calculated on the full sale value, not the actual profit.
So even if you bought a property for Rs 95 lakh and sold it for Rs 1 crore—making an actual gain of just Rs 5 lakh—the TDS is still deducted on the entire Rs 1 crore.
In this NRI’s case:
Purchase price: Rs 95 lakh
Sale price: Rs 1 crore
Actual taxable gain: Almost negligible after indexation and exemptions
Actual tax liability: Close to zero
TDS deducted by buyer: Rs 12.5 lakh
That’s Rs 12.5 lakh of your own money—blocked. You can’t use it. You can’t invest it. You just wait for the Income Tax Department to process your return and issue a refund, which typically takes anywhere from 6 to 12 months.
For many NRIs, this is a massive liquidity hit. The money they were counting on for their next investment, for settling obligations, or even for daily expenses abroad, is stuck in the system. And most people simply accept it.
The Problem Starts at the Source
The issue isn’t just the TDS rate. It’s the logic behind it.
As per the Income Tax Act, 1961 “Section 195 mandates tax deduction at source (TDS) on payments made to non-residents (including NRIs and foreign companies) if the income is chargeable to tax in India. It applies to interest, royalties, technical fees, and capital gains (excluding salary). The payer must deduct tax at the time of credit or payment, whichever is earlier.”
The law is designed to ensure that non-residents don’t evade tax. Fair enough. But the problem is that it assumes the worst-case scenario—that the entire sale proceeds are taxable income. In reality, most property transactions involve minimal actual profit, especially after accounting for:
-Indexed cost of acquisition
-Improvement costs
-Exemptions under Section 54 (if reinvested in another property)
-Long-term capital gains treatment
So you end up in a situation where the TDS amount is far higher than what you actually owe. The official workaround? File your income tax return, show that your actual tax is lower, and wait for a refund.
But there’s a smarter way.
-Enter Form 13—Now Called Form 128
This is where most NRIs—and even many tax advisors—miss a critical opportunity. Before the sale is completed, an NRI can apply for a Lower or Nil TDS Certificate using what was earlier known as Form 13 under Section 197 of the Income Tax Act, 1961.
Under the new Income Tax Act, 2025, this form has been renamed Form No. 128, and it now falls under Section 395(1) and 395(3). But the purpose remains the same: to tell the Tax Officer, “My actual tax liability is lower than the standard TDS rate. Please authorize the buyer to deduct tax at a reduced rate—or not deduct it at all.”
According to the Income Tax Department’s official documentation, “Form No. 128 is used by a taxpayer to apply for a certificate authorizing the payer to deduct tax at a lower or nil rate under section 395(1) of the Income-tax Act, 2025. The application must be furnished electronically to the Director General of Income-tax (Systems) or any person authorized on their behalf.”
What Does Form 128 Actually Do?
Think of it as a pre-approval from the tax department. Instead of letting the buyer deduct Rs 12.5 lakh first and then chasing a refund later, you go to the Assessing Officer (AO) beforehand and say: “Here’s my purchase cost. Here’s my sale price. Here’s my indexation benefit. Here’s my exemption under Section 54. Based on all this, my actual tax liability is Rs X (or zero). So please issue a certificate allowing the buyer to deduct only Rs X as TDS.”
If the AO is satisfied with your documentation and calculation, they issue a certificate. You give this certificate to the buyer. The buyer deducts TDS only at the approved lower rate (or nil rate). You get your full money. No waiting. No refund process. No liquidity crunch.
As the official FAQ states, “The certificate helps the taxpayer avoid excess deduction of tax, thereby improving cash flow and reducing the need to claim refunds.”
How the NRI Used Form 13 (Now Form 128) to Save Rs 12.5 Lakh
Let’s go back to our NRI’s case. He knew his actual tax liability was minimal. So before completing the sale, he filed an application using Form 13 (this was under the old law; today it would be Form 128).
He submitted details of the property purchase (Rs 95 lakh), details of the sale (Rs 1 crore), calculation of indexed cost of acquisition, proof of any exemptions claimed, his past 3 years’ income tax returns and PAN and other identity documents.
The Tax Officer reviewed the application, verified the numbers, and concluded: “Yes, your actual tax liability is indeed close to zero.”
A certificate was issued. The NRI handed it to the buyer. The buyer, now authorized by the Income Tax Department, deducted Rs 0 as TDS.
The NRI received the full Rs 1 crore. No Rs 12.5 lakh blocked. No refund wait. Full liquidity from day one.
The One Critical Mistake Most People Make
Here’s where many NRIs go wrong. They complete the sale first. The buyer deducts Rs 12.5 lakh. The money is gone. Then they think, “Maybe I should apply for a lower TDS certificate.” Too late.
According to the rules under Section 195 and Section 197 (now Section 395 under the 2025 Act), the application for a lower TDS certificate must be made before the payment is made. Once the buyer has already deducted TDS and deposited it with the government, there’s no reversing it. Your only option then is the refund route.
As TaxBuddy correctly pointed out in their post: “One critical mistake people make: They apply AFTER the deal. That doesn’t work. You must apply before receiving money.”
This is not a guideline. It’s a legal requirement. The Income Tax Act is clear: the certificate must be in place before the TDS is deducted.
Who Can Apply for Form 128?
The good news? Almost anyone can apply. According to the official documentation, “Any person (resident or non-resident) seeking certificate for no deduction of tax, or deduction or collection of tax at a lower rate under section 395(1) (for TDS) or section 395(3) (for TCS) of the Income-tax Act, 2025, in respect of income that is subject to tax deduction at source (TDS) such as interest, commission, professional fees, contract payments, rent, or other specified income may file application in Form No. 128.”
So it’s not just for NRIs selling property. You can use it for interest income, royalty payments, professional or technical fees, and rent. Any income where TDS is applicable and your actual tax liability is lower.
How to Apply: The Process
Under the new system, Form 128 is filed electronically through the TRACES portal (TDS Reconciliation Analysis and Correction Enabling System).
Here’s the step-by-step process:
-Login to TRACES Portal
-Go to the official TRACES website and log in using your PAN.
-Navigate to Form 128
-Dashboard → e-file and view → File Forms → Form No. 128
-Fill the Online Form
The form is divided into multiple parts:
Part A: Your personal details (Name, PAN, Address, Residential Status)
Part B: Type of applicant and nature of request
Part C: Income details, existing tax liabilities, estimated income
Part D/E: Declaration (depending on whether you’re a non-profit, business, or individual)
Part F: Verification
Annexures: Details of the payer (buyer in case of property sale)
Upload Supporting Documents
-Last 3-4 years’ Income Tax Returns
-Sale agreement or MoU
-Calculation of indexed cost and capital gains
-Proof of exemptions (if any)
-Financial statements or bank statements (if required)
E-Verify and Submit
Wait for Processing
The Assessing Officer reviews your application. If everything checks out, a certificate is issued.
Download and Share the Certificate
Once approved, the certificate becomes available for download. You share it with the buyer (payer), who can also verify it electronically through TRACES.
On average, about 1.2 lakh such applications are filed every year across India—a number that suggests most taxpayers are still unaware of this option.
What Happens After the Certificate Is Issued?
For the NRI (or any applicant):
You receive an electronic certificate specifying the lower or nil TDS rate.
You share this with the buyer. The buyer deducts TDS only at the approved rate. You get your full payment (or payment minus the correct, lower TDS). No refund chase. Better cash flow.
For the buyer (deductor):
They can verify the certificate on TRACES. They are legally authorized to deduct tax at the lower/nil rate mentioned in the certificate. They must report this correctly in their TDS returns. If the certificate is modified or withdrawn, they must update the rate accordingly.
As the official FAQ notes, “The details of the certificate are also made available to the payer (deductor) through the system, enabling them to apply the correct TDS rate while making payments.”
Why Form 128 (Earlier Form 13) Matters More Than Ever
With property prices skyrocketing and more Indians living and working abroad, the number of NRI property transactions has increased significantly. And with that, the issue of excess TDS has become more widespread.
Many NRIs sell property in India to fFund their retirement abroad, pay for their children’s education, invest in other assets, and meet liquidity needs.
In all these cases, having Rs 10-15 lakh (or more) blocked for 6-12 months is not just inconvenient—it’s financially damaging.
Form 128 (previously Form 13) offers a legal, straightforward way to avoid this problem. But it requires awareness, planning, and timely action.
Key Takeaways for NRIs (and Residents)
TDS is not your actual tax. Especially for NRIs, the TDS rate (12.5% or 20%) is often much higher than the actual tax liability. Don’t wait for a refund if you can avoid the deduction itself. Refunds take time. Liquidity matters.
Form 128 (earlier Form 13) can bring TDS down to zero—legally. If your actual tax is low or nil, you can get a certificate saying so. Timing is everything.
Apply before the sale is completed. Once TDS is deducted, it’s too late. The process is online and structured. Through TRACES, the entire application and approval process is digital. This isn’t just for property sales.
It works for any income where TDS applies and your actual liability is lower—interest, rent, professional fees, royalties.
The Bigger Picture: A System That Works, If You Know It
The Income Tax Act has always had provisions for taxpayers to avoid excess deduction. Section 197 (under the old Act) and now Section 395 (under the 2025 Act) exist precisely for this reason: to ensure that TDS reflects reality, not just a blanket assumption.
But the problem is awareness.
Most taxpayers—and even many CA firms—treat TDS as inevitable. They assume the only way forward is to file a return and wait for a refund. They don’t know that a lower TDS certificate is an option. Or if they know, they think it’s too complicated, too slow, or meant only for big corporates.
None of that is true. As this NRI’s case shows, one application, filed at the right time, can save you lakhs in blocked capital.
Final Thought
The next time you’re planning to sell property as an NRI—or even if you’re a resident expecting high TDS on interest or professional income—ask yourself:
-Is my actual tax liability really as high as the TDS being deducted?
-If the answer is no, don’t accept the deduction. Don’t plan for a refund.
-Apply for Form 128. Get the certificate. Pay only what you actually owe.
Because in the end, it’s your money. And there’s a legal, simple way to keep it with you—right from the start.
Disclaimer:
This article is for informational purposes only and does not constitute financial or legal advice. Tax laws, forms, and procedures are subject to change. Readers are advised to consult a qualified Chartered Accountant or tax advisor before making any decisions related to TDS, Form 128, or property transactions.
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