The Buyer Deducts on the Whole Sale Price. What to Do Before the Deed

A non-resident sells a flat in Delhi for ₹2.5 crore. The tax on the gain comes to about ₹30 lakh. The buyer deducts ₹37 lakh — and if the gain has been reinvested under section 54, the tax is nil and the buyer still deducts ₹37 lakh.

None of that is a mistake by the buyer. It is what section 195 requires of somebody in their position, and the remedy has to be obtained before the deed is executed. Our NRI property sale calculator works the figures out on your own numbers.

Why the deduction is on the whole price

Section 195 puts the obligation on the payer: anyone paying a non-resident a sum chargeable to tax must deduct at the rates in force. The buyer is therefore the one assessed if the deduction is short, with interest under section 201 and a disallowance on top.

Now consider what the buyer actually knows. They know the price. They do not know what you paid for the flat in 2009, whether you improved it, what you spent on brokerage, or whether you are reinvesting the gain. Establishing the gain would mean auditing the seller's records and accepting the risk of getting it wrong.

So they deduct on the figure they can be certain of, which is the consideration.

Two things follow that people get wrong:

• Section 194-IA does not apply. The 1% deduction familiar from resident sales is for resident sellers only. Where the seller is a non-resident it is section 195, and the rate is not 1%.
• The buyer needs a TAN. Section 194-IA works on PAN alone; section 195 does not. A buyer who has never deducted tax before has to obtain one, and discovering this at the registration office is how a completion date slips.

What the tax actually is

Immovable property is long-term after 24 months. Since the Finance Act, 2024, a long-term gain is taxed at 12.5% without indexation for transfers on or after 23 July 2024.

The option to pay 20% with indexation instead, where the property was bought before that date, is given by the proviso to section 112(1) to a resident individual or HUF. A non-resident does not have it. This is assumed the other way round often enough to be worth stating plainly.

On top of the 12.5% sit surcharge and cess. Surcharge on capital gains is capped at 15% — the 25% and 37% bands that reach other income do not touch them — and it is set for TDS purposes by the amount being paid:

A short-term gain is different again: taxed at slab rates on total income, with TDS at 30% plus surcharge and cess.

The gap, and what it costs

Take the flat above. Bought for ₹32 lakh in 2009, ₹8 lakh spent on improvement, ₹5 lakh of brokerage, sold for ₹2.5 crore.

• Gain: ₹2.05 crore. Tax at 12.5% with surcharge and cess: ₹30,64,750.
• TDS at 14.95% of ₹2.5 crore: ₹37,37,500.
• Sitting with the Department: ₹6,72,750.

Now assume the whole gain is reinvested in another house under section 54. The tax becomes nil. The TDS is still ₹37,37,500, because nothing about the buyer's position has changed.

That money comes back. It comes back after the return for the year is filed and processed, which is the following assessment year at the earliest — commonly a year or more after the sale, and frequently after it was wanted for the thing the sale was funding.

Section 197, and why the timing is the whole point

The remedy is an application to the Assessing Officer in Form 13 for a certificate authorising deduction at a lower or nil rate. The officer looks at the computation, the cost records and the reinvestment intended, and certifies a rate reflecting the real liability rather than the sale price. The buyer then deducts at that rate and is protected in doing so.

The certificate has to be in the buyer's hands before payment. Once the deduction has been made there is no way to undo it; the only route left is a refund claim in the return.

That makes this a planning step, not a compliance step. Start it while the agreement is being negotiated, not when the deed is ready for signature.

What else moves the number

• Stamp duty value. Where it exceeds the consideration, section 50C substitutes it, and the gain is larger than the sale price suggests.
• Inherited or gifted property. The cost and the holding period of the previous owner carry over. The dates and figures that matter are theirs, not yours, and a property that feels newly acquired is usually long-term.
• Joint ownership. Each co-owner is assessed on their own share, and the surcharge band is applied to each share rather than to the whole.
• Residential status. All of this assumes you are non-resident for the year of transfer. Since 2020 that is less obvious than it was — see when you are Resident, RNOR or Non-Resident, or work the year out on the residential status calculator.

Getting the money out afterwards

Tax is not the end of it. Remitting the proceeds needs Form 15CA, and in most cases a chartered accountant's certificate in Form 15CB, and it runs against the FEMA limit of USD 1 million a financial year out of an NRO account.

Sale, tax and remittance are three separate exercises with three separate sets of paperwork, and they are best sequenced before the first of them rather than discovered in order.

What to have ready

• The purchase deed and proof of what was actually paid, including instalments and any loan.
• Bills for improvements, which are the item most often lost and the easiest to lose.
• The brokerage and legal invoices for this sale.
• Where the property was inherited, the previous owner's purchase documents.
• Passport and travel records for the year, which is what establishes residential status.

References

• Sections 45, 48, 49, 50C, 54, 54EC, 54F, 112, 195 and 197, Income-tax Act, 1961.
• Finance Act, 2024, for the 12.5% rate and the withdrawal of indexation.
• Finance Act, 2023, for the ₹10 crore cap on section 54 and 54F.

Our work on cross-border transactions, lower-deduction certificates and remittance is set out under international taxation.

General information on how the deduction and the certificate work, not advice on a particular sale. Rates and surcharge bands change with each Finance Act, and the gain turns on facts and documents. Take advice before the agreement is signed.