In this guide
One of the common issues that an NRI may face while selling property in India is that the TDS deducted by the buyer may be significantly higher than the actual tax liability of the NRI.
This can result in a substantial amount of money getting blocked in the form of TDS. The NRI can later file an income-tax return and claim the eligible excess amount as a refund, but there may be another way.
From 1 April 2026, an NRI may apply for a lower or nil TDS certificate through Form 128 under Section 395(1) of the Income-tax Act, 2025.
Form 128 under Section 395(1) replaces the earlier Form 13 under Section 197 framework.
The idea is straightforward. If the estimated total income and tax liability of the NRI justify deduction at a lower rate or no deduction, the Assessing Officer may issue a certificate specifying the appropriate rate of deduction.
What Is Form 128 for NRI Property Sale?
Form 128 is an application for a lower or nil deduction certificate under Section 395(1) of the Income-tax Act, 2025.
It is not restricted only to NRIs or property transactions. The form may be used by resident as well as non-resident taxpayers where the applicable conditions are satisfied.
However, for an NRI selling property in India, it can be very beneficial because the tax payable on the actual taxable income may be significantly different from the amount that may otherwise be withheld from the payment.
The old and new provisions can be understood as follows:
| Up to 31 March 2026 | From 1 April 2026 |
|---|---|
| Income-tax Act, 1961 | Income-tax Act, 2025 |
| Section 197 | Section 395(1) |
| Form 13 | Form 128 |
| Lower/Nil TDS Certificate | Lower/Nil TDS Certificate |
Therefore, people may continue to search for “Form 13 for NRI property sale”, but for Tax Year 2026-27, the relevant new form is Form 128.
Why Does an NRI Need a Lower TDS Certificate?
Assume that an NRI sells a property in India for ₹2 crore.
The sale consideration is ₹2 crore, but it does not necessarily mean that the NRI has made a taxable capital gain of ₹2 crore.
The actual tax calculation may take into account the following:
- original purchase cost,
- holding period,
- eligible cost of improvement,
- inherited property rules,
- applicable capital-gains provisions,
- previous tax payments, and
- eligible exemptions, if applicable.
This may result in a difference between the amount on which tax may otherwise be withheld and the NRI’s estimated actual tax liability.
The NRI can consider applying for a lower deduction certificate before the payment is made, rather than allowing excess TDS to be deducted and then waiting to claim the eligible refund later.
How Does Section 395(1) Work?
Section 395(1) allows the payee to apply to the Assessing Officer for deduction of income tax at a lower rate or for no deduction.
In the case of an NRI property transaction:
NRI seller = Payee
Property buyer = Payer/Deductor
The Assessing Officer will review the estimated total income and tax liability of the NRI and determine whether deduction at a lower rate or no deduction is justified.
If the Assessing Officer is satisfied, an appropriate certificate may be issued.
During the validity of the certificate, the person making the payment should deduct tax at the rate specified in the certificate, or make no deduction if the certificate provides for nil deduction.
What Does the Assessing Officer Check?
The issue of a lower TDS certificate is not guaranteed merely because an application has been filed.
The Assessing Officer may take into account matters such as:
- estimated income and tax payable for the current tax year,
- tax paid or payable on income returned or assessed for previous tax years,
- existing income-tax liabilities,
- advance tax already paid, and
- TDS/TCS credit available to the taxpayer.
The applicable rules also allow the officer to consider information relating to previous tax years while deciding the application.
Therefore, an NRI should provide a proper tax calculation and supporting documents instead of simply asking for a lower TDS percentage.
Documents Required for Form 128 for NRI Property Sale
The exact documents required may vary depending on the property transaction and any additional information required by the Assessing Officer.
The supporting information would normally establish the identity of the seller, details of the buyer, details of the property, expected sale consideration and the basis of the estimated tax liability.
Important documents may include:
- PAN of the NRI seller,
- passport and residential-status details,
- property purchase deed,
- proposed sale agreement,
- details of the buyer,
- expected property sale consideration,
- proof of original purchase cost,
- documents relating to eligible improvement cost,
- inherited property documents, where applicable,
- capital-gain calculation,
- previous income-tax returns,
- details of outstanding tax demand, if any,
- advance-tax and TDS details, and
- other supporting documents relating to the property transaction.
The Assessing Officer may ask for additional information depending on the facts of the case.
How to Apply for Form 128
1. Calculate the Estimated Tax Liability
The first step is to calculate the estimated income and tax liability arising from the proposed property sale.
The calculation should be supported by the relevant property documents and tax records.
2. Keep Buyer and Property Details Ready
Keep the proposed sale consideration, property information and buyer details available.
These details are important because the certificate relates to the expected payment on which tax would otherwise be deducted.
3. File Form 128 Electronically
Under the Income-tax Act, 2025, the application for the lower or nil deduction certificate is made through Form 128.
The applicable electronic process should be followed through the Income Tax Department’s prescribed online system.
4. Answer Any Further Requirement
The Assessing Officer may review the tax calculation and supporting documents and may ask for further information before deciding the application.
The NRI should respond properly and provide the required supporting documents.
5. Certificate Is Issued if Approved
If the Assessing Officer is satisfied that the estimated total income and tax liability justify a lower rate or no deduction, a certificate may be issued specifying the applicable rate and its period of validity.
The NRI should carefully check all the details mentioned in the certificate.
6. Give the Certificate Details to the Buyer
After the certificate is issued, its details should be provided to the property buyer.
The buyer should deduct TDS according to the rate and validity specified in the certificate.
The buyer should not use another lower rate merely on the basis of a private calculation made by the seller or tax consultant.
When Should an NRI Apply for Form 128?
Do not wait until the property registration date.
Form 128 should be considered sufficiently in advance of the payment on which the lower deduction certificate is required.
In the case of a property sale, it is advisable to consider the lower TDS requirement before substantial sale consideration is received.
If the buyer has already deducted and deposited excess TDS, a certificate obtained later cannot simply reverse the tax already deducted.
The NRI may then have to claim the eligible excess TDS as a refund through the income-tax return, subject to the applicable provisions.
This is why proper planning before receiving the property sale consideration can be important.
Common Mistakes NRIs Should Avoid
Applying too late: Start the process before substantial payments are made by the buyer.
Using the old Form 13: From 1 April 2026, the relevant application under the new Income-tax Act framework is Form 128 under Section 395(1).
Assuming approval is automatic: Filing Form 128 does not guarantee that a lower or nil TDS certificate will be issued.
Providing incomplete documents: The tax calculation should be supported by proper property, purchase cost and other relevant documents.
Assuming lower TDS means lower final tax: A lower TDS certificate deals with the amount of tax deducted at source. The final income-tax liability of the NRI will still be determined according to the applicable tax provisions.
Frequently Asked Questions
What is Form 128?
Form 128 is the application used for obtaining a lower or nil deduction certificate under Section 395(1) of the Income-tax Act, 2025.
Does Form 128 replace Form 13?
Yes. Under the new Income-tax Act framework applicable from 1 April 2026, Form 128 replaces the earlier Form 13 framework for lower or nil deduction certificates.
Can an NRI apply for Form 128 for property sale?
Yes. A non-resident can apply for a lower or nil deduction certificate where the applicable conditions are satisfied.
Can the buyer deduct lower TDS without the certificate?
The buyer should not simply deduct tax at a lower rate because the seller or the seller’s CA has calculated a lower capital-gains liability. Where the lower deduction certificate mechanism is being relied upon, a valid certificate should be obtained and followed.
Can an NRI apply after the buyer has already deducted TDS?
Applying after the TDS has already been deducted and deposited does not simply reverse the earlier deduction. The NRI may have to claim the eligible excess TDS through the income-tax return and refund process.
Final Takeaway
For an NRI selling property in India, Form 128 can be an important option to avoid unnecessary excess TDS.
From 1 April 2026, remember the important change:
Old Form 13 → Form 128
Old Section 197 → Section 395(1)
Instead of allowing excessive TDS to be deducted and waiting for an eligible refund later, the NRI can consider applying for a lower or nil deduction certificate before receiving substantial property sale consideration.
The important point is to plan early, calculate the estimated tax liability correctly, keep the required property documents ready and apply before substantial payments are made by the buyer.
Disclaimer: This article is for educational and informational purposes only. The issue of a lower or nil TDS certificate depends on the facts of each transaction, applicable tax provisions and the satisfaction of the Assessing Officer.
