Why so much gets withheld
On a sale by an NRI, the buyer deducts tax under Section 195 (Section 393 from FY 2026-27). The tax is meant to fall on your capital gain, but the buyer rarely knows your cost or gain, so most buyers deduct on the full sale consideration to be safe.
For a long-term sale the rate is 12.5%, and the buyer adds surcharge and cess on top, so the effective deduction can reach roughly 15% of the whole price. On a one-crore sale that is around fifteen lakh withheld, even if your real gain and the tax on it are a fraction of that. The over-deduction is tax cut on the wrong base, and it is yours to recover.
The clean fix: a certificate before the deed
The way to avoid the money getting trapped is to fix the deduction base before the sale closes. You apply for a lower-deduction certificate, Form 13 (Form 128 from FY 2026-27), under Section 197 (Section 395 from FY 2026-27). That states the correct gain and the tax actually due. The officer issues a certificate directing the buyer to deduct only that amount.
With the certificate in hand, the buyer deducts on your gain rather than the full price, so you receive almost all your sale proceeds at closing. The application must start well before the deed date: the certificate takes time, and once the sale completes the chance is gone.
If it's already been over-deducted: the refund route
If the sale has already closed and the buyer cut on the full value, you recover the excess through your Indian income tax return. You report the sale, compute the real gain after your cost (including any 2001 value step-up) and exemptions, and arrive at the actual tax. That tax is set against the TDS deposited, and the excess is refunded.
The refund carries interest under Section 244A at 0.5% per month from broadly the start of the assessment year, where the return is filed on time. It depends on the TDS showing correctly in Form 26AS (Form 168 from FY 2026-27) against your PAN, which in turn depends on the buyer having filed properly.
A worked example: Sanjay's Chennai house
Sanjay, an NRI in Sydney, sells a Chennai house for one crore in 2026. His 2001 value step-up leaves a long-term gain of about thirty lakh, on which the NRI tax is roughly four lakh with surcharge and cess.
The buyer deducted on the full one crore, about fifteen lakh of TDS, eleven lakh more than Sanjay owed. Had he obtained a Form 13 certificate before the deed, the buyer would have deducted close to four lakh and Sanjay would have kept that eleven lakh at closing.
Because the sale is done, he files his return: four-lakh actual tax against fifteen-lakh TDS, with the eleven-lakh excess refunded with Section 244A interest.
Certificate first or refund later. The two routes side by side
Two ways to undo the over-deduction, and the difference is roughly a year of your money. A Form 13 certificate (Form 128 from FY 2026-27), under Section 197 (Section 395 from FY 2026-27), before the deed tells the buyer to withhold on your actual gain, so you walk away from closing with almost all your proceeds. The refund route, letting Section 195 run on the full price and reclaiming via your return, works, but only after the financial year ends and the return is processed. The only time refund is your starting point is when the deed is already signed.
| Form 13 certificate (before deed) | Refund via ITR (after deed) | |
|---|---|---|
| Buyer withholds on | Your actual gain | The full sale price |
| When you get the excess | At closing, never withheld | After the year ends and the return is processed |
| Cash locked up | None | Often lakhs, for a year or more |
| What you must start early | The Form 13 application | Nothing, but you wait |
How the Form 13 application actually works
The application is filed online on the TRACES portal and reviewed by an assessing officer through the faceless system. You compute the expected gain. The sale price, your cost, the 2001 value step-up where applicable, and any exemption, and the officer issues a certificate fixing the lower deduction amount.
Documents needed: the agreement to sell showing price and parties, the registered purchase deed and cost proof (a 2001 fair-market-value valuer's report where the property predates April 2001), your PAN and passport pages, and often your last few years' returns. Two key points: (1) timing. The officer has up to thirty days from month-end of your application, so start several weeks before the deed date; (2) the certificate is tied to one buyer's TAN and the approved value, if the final price exceeds that, the buyer deducts at the full rate on the excess.
No certificate, 195 cut on the gross: claiming the refund
The refund carries interest under Section 244A at 0.5% per month. Where the return is filed by its due date, interest runs broadly from 1 April of the assessment year until paid; file late and it runs from your filing date only. The interest is taxable in the year you receive it. The refund lands once the return is processed and the TDS credit is correctly recorded, which brings us to the most common thing that blocks it.
The trap that blocks the refund, TDS deducted but not credited to you
A refund only flows if the TDS the buyer cut is sitting against your PAN. The common failure: the buyer deducted but never deposited the money, or deposited but never filed Form 27Q (Form 144 from FY 2026-27). The quarterly return that maps an NRI payment deduction to your PAN. Until filed, the deduction does not appear in your Form 26AS (Form 168 from FY 2026-27) or AIS, and you cannot claim a credit you cannot see. A challan receipt is not enough; the credit has to come through Form 27Q and the Form 16A (Form 131 from FY 2026-27) the buyer issues from it.
Fixing it means going back to the buyer: deposit any unpaid tax (with interest), correct the Form 27Q so the deduction maps to your PAN, and issue your Form 16A. A buyer who deducted and failed to deposit is in default under Section 201. The department can pursue them. Check Form 26AS and AIS before filing and chase any gap early; no return, however correct, can refund a credit that was never recorded.