Description: A step-by-step 2026 guide for NRIs applying for a Lower TDS Certificate (Form 128) on property sales, covering documents, timeline, and mistakes.
An NRI sells a property for ₹2 crore, with an actual capital gain of just ₹10 lakh, sometimes even fully exempt through reinvestment. Without planning ahead, the buyer still ends up deducting TDS on the full ₹2 crore, not the ₹10 lakh gain. That’s not a bank error or a mistake by the buyer, it’s exactly what the law requires unless the NRI takes one specific step beforehand.
Why Buyers Deduct TDS on the Full Sale Value, Not Just the Gain
Under Section 195, buyers purchasing property from an NRI seller must deduct TDS on the entire sale consideration, at rates that can run to roughly 12.5–14.95% for long-term gains or 30%+ for short-term ones. This is structurally different from a resident seller, where TDS applies at just 1% on the sale price. The reasoning is administrative: the tax department has no easy way to verify the seller’s actual profit at the point of sale, so it defaults to withholding against the full amount and lets the seller reclaim any excess later. This is exactly the “genuine hardship” that a Lower TDS Certificate exists to resolve, letting the AO authorize deduction only on the real gain instead.
What Changed: Form 13 Is Now Form 128
If you’ve researched this before, you may know it as Form 13 under Section 197 of the Income-tax Act, 1961. As of 1 April 2026, this has been replaced by Form 128 under Section 395(1) of the Income-tax Act, 2025. It’s the same mechanism with a new form number and section reference — older content referencing Form 13 applies to transactions processed before this date.
Eligibility Checklist Before You Apply
Confirm you have these in place before starting the application:
- A valid, active PAN linked with Aadhaar
- A finalized agreement to sell or sale negotiation with an identified buyer (the certificate is buyer-specific)
- Documented proof of your property’s cost of acquisition (sale deed, allotment letter, or FMV 2001 valuation for older/ancestral property)
- A reasonably accurate estimate of your actual capital gains liability, factoring in any exemptions you plan to claim under Section 54/54EC
- TRACES portal registration
The One Timing Rule That Makes or Breaks This
The certificate must be obtained before the buyer makes any substantial payment, including advance or booking amounts. Once TDS has already been deducted at the standard rate, there’s no way to retroactively lower it. Your only remaining option becomes filing an ITR and waiting for a refund, a process that can take 12 to 18 months.
Documents You Need Before You Apply
- Passport copy and PAN
- Sale agreement with the buyer, and buyer’s TAN (still required as of now, though a PAN-based mechanism is anticipated later in 2026 — confirm the current position with your CA before transacting)
- Property acquisition documents establishing cost basis
- Circle value/stamp duty valuation of the property
- ITRs and Form 26AS/AIS for the last 2–3 years
- Indian bank account statements
How to File on TRACES, Step by Step
- Log in to TRACES and navigate to Statements/Forms → Request for Form 128
- Select your residential status, request type (original), and applicable financial year
- Enter the buyer’s TAN, nature of receipt, and the TDS rate you’re requesting
- Upload all supporting documents listed above
- Submit — the application routes automatically to your Jurisdictional Assessing Officer
The AO reviews your computation and documentation, and may raise queries or request additional clarification before proceeding. Responding promptly to these keeps the timeline from stretching further.
How Long This Actually Takes
| Milestone | Typical Timing |
|---|---|
| Apply for certificate | Before any payment or advance is made |
| Document prep | 2–3 days |
| Internal routing to AO | ~4 days |
| AO review and possible queries | 1–2 weeks per query round |
| Certificate issued | 2–6 weeks total (up to 30–45 days in complex cases) |
| Buyer deducts TDS at certified rate | At time of payment |
| ITR filing | Still required for that assessment year |
What the Certificate Doesn’t Do
Getting this certificate doesn’t excuse you from filing an income tax return for the year. You still need to report the sale, the actual capital gains, and reconcile them against whatever TDS the buyer deducted at the certified rate. It also doesn’t carry over automatically if your buyer changes mid-negotiation — a new application is required for a new buyer.
Common Mistakes to Avoid
- Applying after payment has already been received. Once TDS is deducted at the standard rate, the certificate route is closed; only a refund claim remains.
- Incomplete cost documents. Missing sale deeds or valuation reports for older property is one of the most common reasons an AO raises a query, adding weeks to the process.
- Incorrect capital gains computation. An inaccurate estimate in the application invites scrutiny and delay. For the full mechanics of how capital gains and cost basis work on inherited or long-held property, see our guide on capital gains tax on residential property and our guide on inheriting property as an NRI.
- Assuming the certificate removes the need to file a return. It only adjusts the withholding rate, not your final filing obligation.
Given how strict the timing rule is and how much money can get tied up unnecessarily, it’s worth having a CA prepare and manage this application, including AO correspondence, rather than attempting it without guidance. Tax Vic’s NRI Tax and Property Documentation services help NRIs secure lower TDS certificates and file correctly around them.
Key Takeaways
A Lower TDS Certificate under Form 128 lets NRI sellers avoid having TDS withheld on their entire sale price instead of their actual gain, but the certificate only works if applied for before any payment changes hands. Apply well before your sale transaction begins, gather your cost and tax documents in advance, and remember the certificate adjusts withholding, it doesn’t replace your ITR filing obligation.
Need help with this? If you’re an NRI planning to sell property in India, book a 15 min free consultation with Tax Vic.
Author: CA Reetu Bhandari
Published: 10 March 2025
Last Reviewed: 9 July 2026
Disclaimer: This article is intended for general informational purposes only and does not constitute tax or legal advice. Tax provisions, forms, and procedural requirements are subject to change. Readers are advised to consult a qualified Chartered Accountant before making any decisions based on this content.
