Nil TDS Certificate for NRI Property Sale: How to Stop Overpaying Tax in India - Form 128

Updated: May 2026 | Applies to: NRI, OCI, Foreign National sellers

Imagine selling your property in India for ₹1.5 crore and watching ₹18–22 lakh get locked away with the Income Tax Department before the money even reaches your account. That is the reality for many Non-Resident Indians who sell property without planning their tax deduction at source upfront.

Unlike resident Indian sellers — who face a flat 1% TDS under Section 194-IA — NRI sellers fall under Section 195 (now Section 393 of the Income Tax Act, 2025), where TDS is deducted at much higher rates, often on the entire sale consideration, not just the taxable gain. The result: a massive cash blockage that can take 12–18 months to recover as a refund.

The legal solution is a Nil TDS Certificate — a document from the Income Tax Department authorising the buyer to deduct zero (or reduced) TDS. This guide explains exactly how to get one, what changed in 2026, and the mistakes that could delay or derail your application.

What Is a Nil TDS Certificate?

A Nil TDS Certificate (formally a Lower/Nil Deduction Certificate) is an official order issued by the Assessing Officer of the Income Tax Department, directing the property buyer to deduct TDS at a rate lower than the standard rate — or not at all.

When your actual capital gains tax liability on the property sale is lower than what would be deducted under standard TDS rates, you are entitled to apply for this certificate. Once issued, the buyer is legally bound to honour it and cannot deduct TDS at the higher default rate.

This certificate is not a tax exemption. It is a cash flow tool. Your actual tax liability remains the same — you just pay it accurately at the time of transaction rather than overpaying and waiting for a refund.

Current TDS Rates on NRI Property Sales (2026)

Understanding why the Nil TDS certificate matters starts with knowing how steeply TDS is charged on NRI property transactions.

The maximum effective TDS rate for NRIs selling property is approximately 14.95% including surcharge and cess for LTCG. But because TDS is applied on the full sale amount and not just the gain, the actual cash locked up can be far greater than your real tax liability.

Who Can Apply?

Any NRI selling immovable property in India can apply, provided their actual tax liability is lower than the TDS that would otherwise be deducted. A Nil TDS Certificate is most likely to be granted when:

• The property sale results in a capital loss (sale price lower than the indexed purchase cost)
• The NRI qualifies for capital gains exemptions — such as reinvesting proceeds in another residential property (Section 54) or in capital gains bonds (NHAI/REC bonds, up to ₹50 lakh)
• The property was gifted or inherited and the cost basis is high relative to the sale price
• The net taxable income in India is below the exemption threshold after accounting for deductions
• The NRI benefits from a Double Tax Avoidance Agreement (DTAA) with their country of residence that reduces the applicable tax rate

A Lower TDS certificate (as opposed to a full Nil certificate) is more commonly issued when tax liability exists but is substantially below what the standard TDS rate would recover.

Form 128: The New Application Under IT Act 2025

From 1 April 2026, the application for a Nil or Lower TDS certificate must be filed using Form 128, governed by Section 395(1) of the Income Tax Act, 2025 and Rule 213 of the Income Tax Rules, 2026. This replaces the older Form 13 under Section 197 of the Income Tax Act, 1961.

Key Features of Form 128

• Fully electronic: Filed exclusively through the TRACES portal — no physical submission accepted
• Covers both TDS and TCS: A single form addresses both lower deduction and lower collection certificates
• Four applicant categories: Registered Non-Profit Organisation; Specified Entity under Section 263(9)(c); persons carrying on business or profession; and Others — which covers individuals, HUFs, NRIs, and investors
• Multiple payers handled: If more than 100 payers are involved, Annexure-II of Form 128 enables a master certificate from which child certificates are generated for each individual payer
• Income types covered: Business/professional income, capital gains, interest, rent, commission, or any other income subject to TDS/TCS

Documents Required

Preparing your documents before applying saves significant time. The Assessing Officer will typically require the following.

Identity and Status Documents

• PAN card of the NRI seller
• Passport (all relevant pages including visa stamps)
• Proof of NRI/OCI status (foreign residency permit, OCI card, NRE/NRO bank statements)
• Address proof abroad

Property Documents

• Original sale deed / purchase agreement of the property being sold
• Property registration documents
• Proposed sale agreement or sale deed with buyer details
• Valuation report if applicable

Tax and Financial Documents

• Income tax returns filed for the last 2–3 financial years
• Capital gains computation statement (prepared by a CA)
• Proof of reinvestment (if claiming Section 54 or bond investment exemption)
• Bank statements (NRE/NRO accounts)
• Details of the buyer (name, PAN, TAN)
• Tax Residency Certificate from the foreign country (for DTAA claims)

Step-by-Step Application Process

Step 1 — Appoint a CA and Compute Capital Gains

Engage a Chartered Accountant experienced in NRI taxation. Get a detailed capital gains statement including purchase cost, improvements, sale proceeds, applicable exemptions, and net taxable gain. This computation forms the backbone of your Form 128 application.

Step 2 — Register on the TRACES Portal

Log in or register at traces.gov.in using your PAN. NRIs without a TRACES account will need to complete registration, which requires your PAN, date of birth, and bank account details linked to your PAN.

Step 3 — File Form 128 Electronically

Navigate to the Form 128 section on TRACES or the Income Tax e-filing portal. Select the correct applicant category (typically "Others" for individual NRIs). Enter estimated income, capital gains computation, tax liability, and buyer/payer details. Upload all supporting documents.

Step 4 — Receive Acknowledgment Receipt Number (ARN)

Upon successful submission you receive an ARN. Keep this for tracking. Your application is now with the jurisdictional Assessing Officer for review.

Step 5 — AO Review and Possible Query

The Assessing Officer may raise queries or request additional documents. Responding promptly and completely is critical to avoid delays. Your CA should handle AO correspondence.

Step 6 — Download and Share Certificate

Once approved, the Lower/Nil TDS certificate is available on TRACES. Download it and share it with the property buyer immediately. The buyer is now legally required to deduct TDS at the rate specified in the certificate.

Processing Time and Validity

Processing time for Form 128 applications typically ranges from 4 to 8 weeks, depending on the workload of your Assessing Officer and the completeness of your application. Complex cases involving DTAA claims or capital gains exemptions may take longer.

The certificate is generally valid from the date of issuance until 31 March of that financial year. If your sale agreement is cancelled after a certificate is issued, you will need to file a fresh application for the subsequent transaction.

Common Mistakes to Avoid

• Applying too late — The certificate must be approved before the sale deed is registered. Start at least 2–3 months in advance.
• Incomplete documentation — Missing purchase deeds, improvement cost proofs, or NRI status documents will lead to AO queries and delays.
• Not accounting for surcharge and cess — TDS is not just the base rate. Surcharge (10% or 15% depending on income level) and 4% Health and Education Cess apply on top.
• Buyer not obtaining TAN — Until 30 September 2026, the buyer must have a TAN for NRI property transactions. A Nil TDS certificate cannot be honoured by a buyer without TAN.
• Confusing Form 15CA/15CB with Form 128 — Form 15CA/15CB governs remittance of funds abroad; Form 128 governs TDS deduction. Both are typically required in an NRI property sale but serve different purposes.
• Ignoring DTAA benefits — If you reside in a country with a DTAA with India, the applicable tax rate may be significantly lower. Not claiming this is a costly oversight.

Frequently Asked Questions

Can a Nil TDS certificate result in zero TDS being deducted? Yes. If your actual tax liability is nil after applying all eligible exemptions — such as reinvestment under Section 54 or qualifying bond investments — the Assessing Officer may issue a certificate authorising zero TDS deduction.

Is Form 128 mandatory for NRIs selling property? No. It is entirely optional. However, without it the buyer must deduct TDS at the standard higher rates. The certificate is only worth applying for if your actual tax liability is lower than the standard TDS that would be deducted.

What if my sale falls through after the certificate is issued? The certificate is issued for a specific transaction and financial year. If the deal is cancelled, the certificate does not automatically transfer to a new sale agreement. A fresh Form 128 application will be required.

Can an OCI cardholder apply for this certificate? Yes. OCIs are treated as NRIs for income tax purposes in India and are subject to the same TDS provisions. An OCI selling property in India can apply for a Nil or Lower TDS certificate through the same Form 128 process.

What is the difference between Form 15CA/15CB and Form 128? Form 128 is filed before the transaction to obtain a lower TDS rate. Forms 15CA/15CB are filed after the transaction when the NRI wants to repatriate the sale proceeds abroad. Both are typically required but serve different purposes.

How many Form 128 applications can I file in a year? There is no limit on the number of Form 128 applications in a financial year. An NRI selling multiple properties can file separate applications for each.

Disclaimer: This article is for general informational purposes only and does not constitute tax or legal advice. Tax laws and rules are subject to change. Please consult a qualified Chartered Accountant or tax professional for advice specific to your situation.