Claiming a TDS Refund After Selling as an NRI: When the Buyer Deducted Too Much

Ramesh, an NRI based in Singapore, sold his family's apartment in Pune for ₹1.2 crore. He'd owned it for eleven years and his actual capital gain — sale price minus indexed cost of acquisition and improvements — worked out to roughly ₹35 lakh. He expected the buyer's TDS deduction to reflect something close to the tax on that gain. Instead, at settlement, the buyer withheld TDS calculated on the entire ₹1.2 crore sale consideration, not the gain, because that is what Section 195 of the Income Tax Act requires the buyer to do for payments made to a non-resident. Ramesh walked away from the sale with a large chunk of his money sitting with the Income Tax Department instead of in his account.

If this sounds unfair, it's actually a known and fixable feature of how NRI property sales are taxed at source — not a mistake by the buyer, and not money that's gone for good. This article explains why the over-deduction happens, how to get the excess back through an ITR filing, and the alternative — a Section 197 certificate — that avoids the problem before it starts.

Why NRI Sellers Almost Always See Excess TDS

For a resident seller, Section 194-IA requires the buyer to deduct 1% TDS on the sale price (for transactions above ₹50 lakh) — a rough, low withholding rate because the resident will settle the actual tax liability when filing their own return.

For an NRI seller, the rule is different and stricter. Section 195 requires TDS on the entire sale consideration paid to a non-resident, at rates tied to the nature of the gain (long-term or short-term) — not just on the profit portion. According to ClearTax's guide to TDS on sale of property by NRIs, this is because the buyer, in most cases, has no reliable way to independently verify the seller's actual capital gain (which depends on the original purchase price, improvements, indexation, and holding period) — so the law defaults to withholding on the full consideration to protect the tax department's interest.

The result: an NRI selling a property for ₹1.2 crore with a real gain of ₹35 lakh can see TDS withheld on the full ₹1.2 crore, at the long-term capital gains rate (effective roughly 14.95% per ClearTax's 2026 computation, after accounting for surcharge and cess) — a TDS bill far larger than the tax actually owed on the real profit.

Illustrative Numbers: TDS on Full Price vs Tax on Actual Gain

These figures are illustrative to show the mechanics — your actual indexed cost, holding period, and applicable rate will differ, and only a chartered accountant reviewing your specific sale deed and acquisition documents can compute the exact numbers.

Step by Step: Filing an ITR to Claim the Refund

1. Confirm your PAN is active and correctly linked. A PAN is mandatory for the refund process; if the buyer deducted TDS against an incorrect or inactive PAN, the credit won't reflect properly and the refund gets stuck before it starts.
2. Collect Form 16A from the buyer — this is the TDS certificate the buyer must issue after depositing the tax, showing what was deducted and deposited against your PAN.
3. Check Form 26AS and the Annual Information Statement (AIS) on the income tax portal to confirm the TDS credit has actually been reflected against your PAN — this can take a few weeks after the buyer deposits the challan.
4. Compute your actual capital gain using the indexed cost of acquisition, cost of improvements, and any exemptions you're claiming (such as Section 54 reinvestment), to arrive at the real tax liability.
5. File your Indian ITR for the relevant assessment year, reporting the sale, the computed capital gain, the tax actually payable, and the TDS credit already deposited under your PAN.
6. Provide your Indian bank account details (linked to your PAN) for the refund credit — refunds are paid directly to a validated bank account, so an NRO account in your name needs to be pre-validated on the income tax portal.
7. Track the refund status through the income tax e-filing portal after your return is processed; refunds typically follow standard ITR processing timelines, which can extend for NRI returns undergoing detailed scrutiny.

The NRI-Specific Details That Trip Up Refunds

PAN is non-negotiable. Selling without a valid PAN, or with a PAN not properly linked to your NRI status, can result in TDS being withheld at a higher default rate and can delay or block the refund entirely.

DTAA relief needs paperwork, not just eligibility. If you're claiming relief under a Double Taxation Avoidance Agreement between India and your country of residence — potentially reducing your effective Indian tax further — you need a Tax Residency Certificate (TRC) from your resident country's tax authority plus Form 10F filed with the Indian tax department, per ClearTax's guidance on NRI property sale TDS. Skipping this paperwork means you can't claim the treaty benefit even if you're technically eligible.

Refunds land in an NRO account. The refund is credited to the bank account you specify on your ITR — for NRIs, this is typically an NRO account, and it must be pre-validated on the income tax e-filing portal before the refund can be processed.

The refund follows ITR processing, not a fixed calendar date. Filing by the due date (usually 31 July, subject to extensions) starts the clock, but the actual refund timeline depends on how quickly the return is processed and whether it's picked up for any additional verification.

Mini Scenario: Reclaiming Excess TDS After a Pune Flat Sale

An NRI in the UK sold a Pune apartment inherited from a parent. The buyer, following Section 195, deducted TDS on the full sale price at the applicable LTCG rate, since no lower-TDS certificate had been arranged in advance. After the sale closed, the NRI:

• Collected Form 16A from the buyer confirming the TDS deposited.
• Verified the credit appeared in Form 26AS a few weeks later.
• Worked with a chartered accountant to compute the actual gain using the indexed cost of the inherited property (based on the original owner's purchase cost, indexed forward) and the cost of a renovation done years earlier.
• Filed an ITR showing the real tax liability was substantially lower than the TDS already deposited.
• Pre-validated an NRO account and received the refund of the excess several months after filing, once the return was processed.

The core lesson: the refund process worked exactly as designed, but it required the NRI to actively gather documents and file — the excess TDS is not automatically returned without a return being filed.

Section 197: Avoiding the Refund Wait Entirely

Filing for a refund after the fact works, but it locks up your money for months while the return is processed. The alternative is to apply for a Section 197 lower/nil-TDS certificate from the assessing officer before the sale closes.

With an approved Section 197 certificate in hand, the buyer deducts TDS only at the rate specified in the certificate — which reflects your actual estimated tax liability on the real gain, not the full sale consideration. This means the money the buyer withholds is much closer to what you actually owe, and there's little or no excess sitting with the tax department waiting to be refunded.

The tradeoff is timing: a Section 197 application needs to be filed and approved before the sale transaction closes, which means NRIs need to plan for this well ahead of the registration date — not after TDS has already been deducted. If you're mid-sale and TDS has already been withheld at the standard rate, Section 197 is no longer an option for that transaction; the refund route through your ITR is what's left.

Pro Tips

• Apply for the Section 197 certificate as early as possible if you know a sale is coming — this is the single biggest lever to avoid a large chunk of your sale proceeds being locked up for months.
• Pre-validate your NRO bank account on the income tax portal well before filing, since an unvalidated account is one of the most common reasons refunds stall even after a return is processed.
• Keep every acquisition and improvement document — the original purchase deed, past sale agreements, improvement invoices — because these directly determine your indexed cost and therefore how large your refund will be.
• Don't wait for Form 16A to show up on its own — follow up with the buyer if it hasn't arrived within a reasonable time after the sale, since the ITR filing process depends on that TDS credit being verifiable.
• Model the refund gap early using a financial planning tool so you know roughly how much of your sale proceeds are temporarily locked up versus available immediately.

Common Mistakes

1. No PAN, or a mismatched PAN. This is the single most common reason NRI TDS credits don't reconcile properly, delaying or blocking refunds.
2. Not checking Form 26AS/AIS before filing. Filing a return before confirming the TDS credit is reflected can lead to mismatches and processing delays.
3. Missing the ITR filing deadline. Refunds can't be claimed without filing a return, and late filing (or not filing at all) means the excess TDS simply stays with the tax department.
4. Assuming DTAA relief applies automatically. Without a TRC and Form 10F, treaty benefits aren't available even if you're eligible in principle.
5. Using an unvalidated or resident-only bank account for the refund. Refunds require a properly validated account linked to your PAN, and using the wrong account type causes processing failures.

How DrawMagic Fits Into the Timeline

DrawMagic does not file your ITR or process your refund — that's a chartered accountant's and the Income Tax Department's job. What DrawMagic can help with:

• Use DrawMagic's financial planning tools to estimate the gap between what will be deducted under Section 195 and what you'll actually owe, so you go into the sale with realistic expectations about cash flow.
• If the sale proceeds (once refunded) are meant to fund your next purchase, start browsing properties in parallel so the timeline of the refund and the timeline of your next purchase are planned together, not in sequence.
• Run any shortlisted property through the property tax calculator to understand the ongoing costs you'll need to budget for once the refund clears.
• If you're unclear on documentation requirements, DrawMagic's help center has guidance on the paperwork trail NRI sellers typically need to keep.

Plan Before You Sell, Not After

The NRIs who navigate this smoothly are the ones who look into Section 197 relief, gather their acquisition documents, and pre-validate their NRO account before the sale closes — not after TDS has already been withheld at the standard rate. If a property sale and a subsequent purchase are both on your horizon, explore your next property early enough to build the refund timeline into your overall plan.

Key Takeaways

• Section 195 requires TDS on the full sale consideration paid to an NRI seller, not just the actual capital gain, so over-deduction is the norm, not the exception.
• The remedy is filing an Indian ITR that computes tax on the real gain and claims the excess TDS as a refund.
• A valid, correctly linked PAN and a pre-validated NRO bank account are prerequisites for the refund to process smoothly.
• Section 197 lower/nil-TDS certificates, applied for before the sale closes, prevent the over-deduction problem in the first place.
• DTAA relief requires a Tax Residency Certificate and Form 10F — it is not automatic even if you qualify.
• Refund timelines follow standard ITR processing and can extend further if the return is selected for verification.
• Consult a chartered accountant for the exact computation of your indexed cost and applicable rate — DrawMagic explains the framework but does not file returns or give tax advice.

FAQ

How long does an NRI TDS refund typically take after filing? It follows the standard income tax return processing timeline, which varies depending on portal processing speed and whether the return needs additional verification. There is no fixed guaranteed date.

Can I claim the refund without a chartered accountant? You can technically self-file, but given the complexity of indexed cost computation, DTAA claims, and NRI-specific portal requirements, most NRIs work with a CA experienced in cross-border property sales.

What if the buyer deducted TDS against the wrong PAN? This needs to be corrected with the buyer and reflected via a TDS correction statement; without the fix, the credit won't show in your Form 26AS and the refund can't be processed.

Is the Section 197 certificate a one-time approval for all my future sales? No — it's specific to the transaction for which it's applied, and needs to be sought again for any future property sale.