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Property, Sale

The buyer wants to deduct 25% surcharge on your property sale. It is capped at 15%.

The buyer's advisor says a big sale means 25% or even 37% surcharge, and that number feels far too high.

You are an NRI selling a property in India, the amount is large, and the buyer (or the buyer's advisor) insists on deducting a 25% or 37% surcharge on top of the TDS. On a sale of a crore or more, that difference is lakhs of your money held back. The buyer is scared of getting the deduction wrong, so they round up. But the surcharge on your capital gains is not open-ended, and knowing the actual cap can put a large chunk of your proceeds back in your hands at closing.
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Last reviewed: 29 July 20266 min readReviewed by Preetesh Maloo, CA

The short answer

Surcharge on the tax on your capital gains is capped at 15%, no matter how high the sale value or your total income. The general 25% and 37% surcharge slabs do not apply to the capital-gains part. So the most a buyer should ever apply to the TDS on your gain is 15% surcharge (plus 4% cess), a top effective rate of about 14.95% on a long-term gain. Anything higher is an over-deduction you can stop with a lower-TDS certificate or recover through your return.

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The direct answer: 15% is the ceiling on capital-gains surcharge

Surcharge is an extra percentage added on top of your income tax. For most income it rises with your total income, in steps: 10% above ₹50 lakh, 15% above ₹1 crore, 25% above ₹2 crore, and 37% above ₹5 crore. That last set is what frightens buyers on a big sale.

But capital gains are treated differently. The law caps the surcharge on the tax on capital gains at 15%, whatever your total income. This started as a cap for listed shares and was widened by the Finance Act 2022 to cover all long-term capital gains under Section 112 (renumbered Section 197 from FY 2026-27), which includes the sale of a house, a plot, or commercial property.

So even if your gain is several crore and your total income crosses ₹5 crore, the surcharge on the property-gain tax stays at 15%. The 25% and 37% slabs simply do not reach it.

What the buyer should actually deduct

For a long-term sale by an NRI (property held over two years), the tax on the gain is 12.5% without indexation. On top of that sits surcharge, capped at 15% on the gain, and then 4% health and education cess on the whole figure.

Put together, the maximum the buyer should withhold on your gain is:

LayerRate
Long-term capital gains tax12.5%
Surcharge (capped)15% of the tax
Cess4% of tax plus surcharge
Top effective rate on the gainabout 14.95%

The catch is the base. Most buyers deduct on the full sale price, not on your gain, because they do not know your cost. That over-withholding is a separate and bigger problem than the surcharge tier, and the fix for both is the same certificate described below. Under the new default tax regime the top surcharge for other income is anyway 25%, not 37%, but for your capital gains the 15% cap is what governs.

Why buyers get this wrong, and how to fix it before the deed

The buyer is the one who must deduct and deposit the TDS, and a shortfall lands on them, so they err on the high side. Faced with a large sale, an advisor sees crores of consideration and reaches for the 37% or 25% slab, missing that the capital-gains cap overrides it.

The clean fix is a lower-deduction certificate. You apply, before the sale closes, under Section 197 (Form 13), which becomes Section 395 (Form 128) from FY 2026-27. The officer computes your real gain and the correct tax, surcharge and cess, and issues a certificate telling the buyer exactly what to deduct. With it in hand, the buyer deducts on your gain at the capped rate, and you receive almost all your money at closing instead of chasing a refund for a year or two.

If the sale has already happened and too much was cut, you recover the excess by filing your Indian return: your actual tax is set against the TDS deducted, and the difference is refunded with interest under Section 244A.

What's involved

What the CA actually does

  1. 1

    Confirm the correct surcharge and rate

    We compute the tax on your actual gain with the 15% surcharge cap and 4% cess, and give you a one-page figure you can show the buyer instead of arguing over slabs.

  2. 2

    Apply for the lower-TDS certificate

    We prepare and file the Form 13 (Form 128 from FY 2026-27) application under Section 197 (Section 395) so the buyer deducts on your gain at the capped rate, not on the full price at an inflated surcharge.

  3. 3

    Coordinate with the buyer

    We give the buyer or their advisor the certificate and the exact amount to withhold and deposit, which removes their fear of under-deducting and unlocks your proceeds at closing.

  4. 4

    Recover any excess already deducted

    If the deduction has already happened, we file your return, claim the excess as a refund, and track the Section 244A interest that comes with it.

What to have ready

Documents you'll typically need

  • Draft or executed sale deed and the sale value
  • Purchase cost documents, or 1 April 2001 value for older property
  • PAN and passport, plus your NRI status proof
  • Any TDS already deducted (Form 16A or challan)

References on this page

  • Section 112 (Section 395, formerly Section 197 from FY 2026-27)
  • Section 112A (Section 198 from FY 2026-27)
  • Finance Act 2022
  • Section 195 (Section 393 from FY 2026-27)
  • Section 197 / Form 13 (Section 395 / Form 128 from FY 2026-27)

Frequently asked questions

Common questions

No. The 25% slab applies to ordinary income, not to capital gains. Surcharge on the tax on your capital gains is capped at 15% however large the sale or your income, after the Finance Act 2022 extended the cap to all long-term gains under Section 112 (Section 197 from FY 2026-27). Show the buyer the computed gain with a 15% surcharge and, ideally, a lower-TDS certificate.

About 14.95% of the gain: 12.5% tax, plus 15% surcharge on that tax, plus 4% cess. That is the ceiling, and it applies to the gain, not the full sale price. If tax is being cut on the full price, that is a much larger over-deduction to fix with a lower-TDS certificate.

For other income, the new default regime caps surcharge at 25% instead of 37%. For your capital gains it makes no difference, because the 15% cap on capital-gains surcharge already sits below both. The 15% ceiling holds for FY 2025-26 and FY 2026-27.

Yes, and it is the better route. A lower-deduction certificate under Section 197 (Form 13), which becomes Section 395 (Form 128) from FY 2026-27, tells the buyer the exact amount to deduct. You apply before the deed date, so you keep your money at closing rather than waiting a year or more for a refund.

Not as an NRI. After 23 July 2024 the option to pay 20% with indexation on older property was kept only for resident individuals and HUFs. NRIs and OCIs pay 12.5% without indexation. This does not change the surcharge point: the surcharge on that tax is still capped at 15%.

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

Surcharge cap on capital gains

Right now: Surcharge on income under s.111A, 112 and 112A capped at 15%

Where it works differently

Other income also exists
The cap applies only to the capital-gains component. Other income carries the normal surcharge slab.
The proviso is income-component specific.
The taxpayer is in the new regime
The highest surcharge is 25%, not 37%.
Finance Act 2023 removed the 37% slab from the new regime.
Adding cess
4% health and education cess sits on tax plus surcharge.
Standard computation order.

Commonly got wrong

  • Surcharge on a large NRI property gain can reach 37%. Capped at 15% for capital gains under 111A/112/112A, and 25% overall in the new regime.Surcharge on capital gains taxed under sections 111A, 112 and 112A is capped at 15%, whatever the total income. Cess of 4% then applies on tax plus surcharge.

Surcharge bands for individuals

Right now: 10% above Rs 50 lakh, 15% above Rs 1 crore, 25% above Rs 2 crore, 37% above Rs 5 crore (old regime)

Where it works differently

The income is capital gains under s.111A, 112 or 112A
Surcharge on that component is capped at 15%, whatever the total income.
Proviso inserted by Finance Act 2022, which caps surcharge on capital gains at 15%.
Income crosses a band by a small amount
Marginal relief caps the extra tax at the extra income.
Standard marginal-relief computation, routinely omitted from NRI calculators.
The taxpayer is a non-resident
The same bands apply. There is no separate NRI surcharge schedule.
Surcharge is income-level based, not residence based.

Commonly got wrong

  • An NRI with a large property gain pays 37% surcharge. Capital-gains surcharge is capped at 15%, and the 37% band does not exist in the new regime at all.Surcharge on the capital-gains component is capped at 15%. Other income follows the normal bands, which top out at 25% in the new regime.

Health and education cess

Right now: 4% health and education cess

Commonly got wrong

  • 3% cess. Stale since AY 2019-20.Health and education cess is 4% on tax plus surcharge, from AY 2019-20 onward.

LTCG rate: assets other than STT-paid listed equity (includes property)

Right now: 12.5% without indexation

Where it works differently

A RESIDENT individual or HUF sells land or a building acquired before 23 July 2024
May elect the lower of 12.5% without indexation or 20% with indexation.
Grandfathering proviso inserted by Finance (No. 2) Act 2024.
A NON-RESIDENT sells the same property
12.5% without indexation only. The election is NOT available.
The grandfathering proviso is expressly limited to resident individuals and HUFs. This is the highest-value NRI distinction on the site.
Shares or debentures of an Indian company were bought in convertible foreign exchange by a non-resident
The first proviso to s.48 computes the gain in that foreign currency, neutralising rupee depreciation. This is separate from, and not lost with, indexation.
First proviso to s.48 survives the 2024 changes.
Adding surcharge and cess
Surcharge on capital gains under s.111A/112/112A is capped at 15%, plus 4% health and education cess.
The cap applies to gains under s.111A, s.112 and s.112A.

Commonly got wrong

  • NRIs can choose 20% with indexation on property bought before July 2024. The election is resident-only. Stating otherwise understates an NRI's tax, which is the worst direction to be wrong in.Residents may elect 20% with indexation for pre-23-July-2024 land and buildings. Non-residents get 12.5% without indexation, full stop.
  • LTCG on property is 20%. Stale since 23 July 2024 unless the transfer predates it.12.5% for transfers on or after 23 July 2024.

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Buyer over-charging surcharge on your property sale?

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