Why so much gets withheld
On a sale by an NRI, the buyer deducts tax under Section 195. The tax is meant to fall on your capital gain, but the buyer rarely knows your cost or your gain, and the law does not let them simply assume a number. So to be safe, most buyers deduct on the full sale consideration.
For a long-term sale the rate applied 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, is a fraction of that. The over-deduction is not a penalty; it is simply 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 in the first place is to fix the deduction base before the sale closes. You apply to the assessing officer for a lower-deduction certificate — Form 13, under Section 197 — that states the correct gain and the tax actually due on it. 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 of your sale proceeds at closing instead of waiting a year to claim them back. This is why the application is best started well before the deed date: the certificate takes time to issue, and once the sale completes the chance to use it 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, the money is not lost — it is recovered 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 the buyer deposited, and because far more was withheld than was due, the excess is refunded.
The refund carries interest under Section 244A — simple interest at 0.5% per month from, broadly, the start of the assessment year where the return is filed on time. The refund is not automatic, though: it depends on the TDS showing correctly against your PAN in Form 26AS, which in turn depends on the buyer having filed the deduction properly. Reconciling that is part of getting the money back.
A worked example: Sanjay's Chennai house
Sanjay, an NRI in Sydney, sells a Chennai house for one crore in 2026. His indexed-out cost and the 2001 value leave a long-term gain of about thirty lakh, on which the NRI tax is roughly four lakh with surcharge and cess.
The buyer, however, deducted on the full one crore — about fifteen lakh of TDS. Sanjay has handed over eleven lakh more than he owed. Had he obtained a Form 13 certificate before the deed, the buyer would have deducted close to the four-lakh figure and he would have kept that eleven lakh at closing.
Because the sale is done, he instead files his return: the four-lakh actual tax is set against the fifteen-lakh TDS, and the eleven-lakh excess is refunded with Section 244A interest for the period it sat with the department. The lesson sellers take from cases like this is to start the Form 13 application before signing, not after.