Section 195 NRI Tax Withholding: Lower Deduction Certificate in Form 13, Rule 28AA & Remittance In Form 15CA/15CB
Updated: Sep 6
Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and multinational enterprises executing transactions in India face rigorous tax withholding obligations under Section 195 of the Income-tax Act, 1961. Unlike payments to resident taxpayers where TDS rates are capped between 0.1% and 10%, payments to non-residents are subject to withholding on the entire gross consideration at peak statutory rates—frequently reaching 20% to 30% plus applicable surcharge and cess (up to 28.496%).
For NRIs selling immovable property, shares, or repatriating capital, this gross deduction creates crippling liquidity blockages, as actual capital gains tax is frequently a fraction of the gross sale price.
To resolve this liquidity friction, the Income Tax Act provides a statutory relief mechanism under Section 197 read with Rule 28AA: obtaining a Nil or Lower Deduction Certificate (LDC) in Form 13 from the jurisdictional Assessing Officer.
In this international tax advisory, PGT & Associates (Chartered Accountants & International Tax Advisors, Ahmedabad) outlines the legal procedure for securing a Section 197 certificate on TRACES, computing capital gains tax, coordinating with Authorized Dealer (AD) banks, and executing cross-border remittances through Form 15CA and Form 15CB for Assessment Year 2026-27.
1. Statutory Mandate of Section 195: Why Gross Withholding Occurs
Under Section 195(1), any person responsible for paying to a non-resident any sum chargeable under the provisions of the Act (other than salary income) must deduct income tax at the rates in force at the time of credit or payment.
The Property Sale Trap for NRIs
When an NRI sells residential or commercial property in India:
The resident buyer is legally required under Section 195 to deduct TDS at 20% on the total sale consideration, plus surcharge (up to 15%) and 4% Health & Education Cess, resulting in an effective deduction rate of 23.92%.
For an inherited property sold for ₹2 Crore, the buyer is forced to withhold ₹47.84 Lakhs at source, even if the NRI seller's indexed capital gain is only ₹20 Lakhs (which carries a maximum tax liability of only ~₹2.5 Lakhs to ₹4 Lakhs).
Reclaiming this massive excess withholding requires filing an Indian ITR and waiting 12 to 18 months for CPC refunds.
Legal Landmark: GE India Technology Centre (Supreme Court)
The Supreme Court held that Section 195 applies only to payments possessing an element of income chargeable to tax in India. However, because a buyer cannot unilaterally determine the net taxable portion, the buyer must deduct tax on the gross sum unless the seller presents a certificate under Section 197.
2. Lower Deduction Certificate: Form 13 Procedure Under Section 197
To avoid arbitrary gross withholding, the NRI seller or recipient must apply electronically on the TRACES portal for a Lower Deduction Certificate under Section 197.
Step-by-Step Filing Workflow:
TRACES Portal Registration: The NRI logs in to TRACES as a taxpayer using their Indian PAN.
Form 13 Application: File Form 13 electronically, selecting Section 195, nature of payment (Code 195 - Capital Gains / Other Income), buyer's TAN, and estimated consideration.
Computation of Estimated Income: Provide an audited capital gains computation demonstrating acquisition cost, indexation (where applicable), improvement expenditures, and eligible exemptions under Section 54 or 54EC.
Documentary Evidence Docket: Upload the buyer-seller agreement to sell, original purchase deed, municipal tax receipts, bank statements proving consideration movement, Tax Residency Certificate (TRC), and Form 10F.
Assessing Officer Verification: The International Taxation Ward Assessing Officer examines the computation and issues a digital certificate specifying the exact reduced TDS percentage (often reduced from 20% down to 2% to 4% on the gross value).
Certificate Validity: The certificate carries a unique DIN (Document Identification Number) and is directly verifiable by the buyer and the registering authority during deed execution.
3. Statutory Timelines & Application Cut-Offs
Timing of Application: Form 13 should be filed at least 30 to 45 days prior to the execution of the registered sale deed. A certificate cannot be applied retroactively to transactions where payment has already been made or credited.
Validity Period: An LDC certificate is valid only for the specific financial year and specific buyer TAN named in the certificate.
4. Cross-Border Remittance Compliance: Form 15CA and Form 15CB
Once the transaction is executed and net sale proceeds are credited to the NRI's Non-Resident Ordinary (NRO) bank account, transferring the funds abroad under RBI's USD 1 Million Repatriation Scheme requires compliance with Section 195(6) and Rule 37BB:
Remittance Form: Form 15CB • Statutory Nature: Chartered Accountant Certificate • Operational Role: An independent certification issued by a practicing CA in India certifying the nature of remittance, taxability, DTAA relief, and confirmation that applicable income tax has been fully paid or withheld.
Remittance Form: Form 15CA (Part C) • Statutory Nature: Taxpayer Undertaking • Operational Role: An online undertaking submitted by the NRI on the e-filing portal after quoting the Form 15CB acknowledgment number and CA registration details.
Remittance Form: Form 15CA (Part A) • Statutory Nature: Simplified Declaration • Operational Role: Used only for small remittances not exceeding ₹5 Lakhs in a financial year that do not require CA certification.
Remittance Form: Form 15CA (Part D) • Statutory Nature: Non-Taxable Remittance • Operational Role: Used for remittances of sums not chargeable to tax under the Income-tax Act (other than gifts).
5. Strategic Defense Checklist for Non-Resident Remittances
Before initiating cross-border transfers or executing property transfers in India, NRI clients and their wealth managers should verify:
Buyer TAN Requirement: Ensure the resident buyer acquires a valid Tax Deduction and Collection Account Number (TAN). TDS on NRI property sales cannot be deposited using Form 26QB (which is strictly for resident sellers under Section 194-IA).
Lower Deduction Application Lead Time: File Form 13 well in advance of the token advance payment to prevent mandatory 20% TDS on advance installments.
NRO to NRE Transfer Protocol: Obtain Form 15CA/CB to transfer cleared capital from the NRO account to the NRE account or directly to an overseas bank account.
DTAA Treaty Benefits: Review the Double Tax Avoidance Agreement (DTAA) between India and the NRI's country of residence to eliminate dual taxation on capital gains and interest income.
Form 10F & TRC Docket: Ensure a valid Tax Residency Certificate (TRC) and electronic Form 10F are uploaded to substantiate treaty entitlement under Section 90(4).
Related Advisory Insights & Practice Guides
To explore related cross-border taxation, foreign remittances, and transfer pricing compliances, review our practical analyses:
Form 10F Electronic Filing & TRC Verification for Non-Resident Tax Withholding
Transfer Pricing Audit Form 3CEB: Section 92E & International Transactions
FEMA & CCPS Valuation Guidelines in India: Pricing Regulations & DCF Rules
Learn more About PGT & Associates and our international tax advisory practice
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NRI Taxation & Cross-Border Advisory from PGT & Associates
Navigating Section 195 withholding and international repatriation requires meticulous coordination across income tax, FEMA, and banking regulations.
PGT & Associates provides dedicated international tax support for NRIs, foreign corporations, and cross-border investors:
End-to-end filing and processing of Lower Deduction Certificates in Form 13 on TRACES.
Capital gains computations and tax-optimized reinvestment planning under Sections 54, 54EC, and 54F.
Professional certification of Form 15CB and electronic generation of Form 15CA.
Assistance with repatriation of sale proceeds through Authorized Dealer (AD Category-I) banks under the USD 1 Million scheme.
Income tax return filing for non-residents and representation in reassessment proceedings.
Contact our Ahmedabad international tax team for advisory on NRI property sales, Form 13 applications, and cross-border repatriation.
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