Lower TDS Deduction Certificate

Selling property in India as a Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI) involves several tax and legal considerations. One crucial aspect is the Tax Deducted at Source (TDS), which is deducted from the sale proceeds before payment is made to the seller. To mitigate high withholding tax rates and ensure liquidity, NRIs can apply for a Lower TDS Deduction Certificate or Nil TDS Deduction Certificate (Form 13) from the Income Tax Department. This certificate helps in reducing the upfront tax deduction and prevents excessive funds from being locked with the authorities.

A Lower TDS Deduction Certificate provides NRIs with financial relief, faster transactions, and greater control over tax payments. Jitesh Telisara and Associates LLP, a trusted NRI Tax Consultant and CA firm in Pune, specializes in assisting NRIs with the application process of lower TDS deduction certificate/ NIL TDS Deduction Certificate (Form 13) , ensuring compliance with tax laws and simplifying the procedure for a hassle-free experience.

A Lower TDS Deduction Certificate is an official authorization issued by the Income Tax Department that permits a buyer (the deductor) to deduct tax at a rate lower than the standard statutory rate—or even at a Nil rate.

Under Section 197, if a seller can prove that their estimated total tax liability for the financial year is significantly lower than the amount being deducted by the buyer, they may apply for this certificate. It is a vital tool for ensuring that your funds are not unnecessarily blocked in tax refunds that typically take over a year to process.

Why High TDS is Deducted on Sale of Property

Under the Indian Income Tax Act, the applicable TDS rate depends on the residential status of the seller:

• Resident Indian Sellers: Under Section 194-IA, TDS is 1% of the sale consideration (if ≥₹50 Lakhs). While low, it is on the Gross Sales Value, not the profit.
• Non-Resident (NRI) Sellers: Under Section 195, TDS is significantly higher.Long-term capital gains (LTCG): If the property has been held for over two years, the applicable TDS rate is 12.5% (without indexation) +surcharge and education cess. Short-term capital gains (STCG): If the property is held for less than two years, the applicable TDS is determined as per the applicable income tax slab rates.

Documents Required for Lower TDS Certificate

The required documents/information for making an application for Lower TDS deduction Certificate 

• Income Tax login details of the NRI
• Registration on the TRACES portal (for online Form 13 submission)
• Draft Agreement to sell the property
• Buyer’s TAN (Tax Deduction Account Number) and TAN letter
• Copy of the NRI’s passport
• Circle rate/Stamp duty valuation report of the property
• Sale deed or builder’s agreement related to property acquisition
• Seller last 3 years Income Tax Return filed copies along with computation
• Buyer and seller KYC documents 

Eligibility for Lower TDS Certificate for Property Sale

To qualify for a certificate under Section 197, the following criteria must generally be met:

1. Reduced Tax Liability: The seller’s actual tax on capital gains (without indexation or exemptions) is lower than the standard TDS rate.
2. Statutory Exemptions: The seller has already reinvest gains under Sections 54, or 54F (e.g., bought another house).

Who Can Apply for Lower TDS deduction Certificate

As an NRI Sellers application is highly recommended. Since the buyer is legally required to deduct TDS at 12.5% (LTCG) or slab rates (STCG) on the total sale price, NRIs often see 13% to 14.95 % of their sale proceeds blocked unless they obtain a Section 197 certificate.

Step-by-Step Procedure to Apply for Lower TDS Certificate (Form 13)

The application is strictly digital via the TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal.

1. Registration: Register as a “Taxpayer” on the TRACES portal using your PAN.
2. Filing Form 13: Access the “Statements/Forms” section and initiate a request for Form 13.
3. Data Entry: Enter details of the buyer (including PAN/TAN), property value, and the specific section (195).
4. Computation: Upload a detailed calculation of the estimated capital gains.
5. Submission: Verify the application using a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).
6. AO Processing: The application is scrutinized by the Jurisdictional Assessing Officer (AO), who may raise queries before issuing the certificate

Validity and Scope of Lower TDS Certificate

1. Timeframe: Valid only for the specific Financial Year in which it is issued.
2. Specificity: It is linked to the TAN mentioned in the application.
3. Value Limit: The certificate is valid only up to the “Amount of Income” specified. If the property price increases later, the buyer must deduct standard TDS on the excess.

Who Receives the Lower TDS Certificate?

The certificate is issued by the Income Tax Department and addressed to the property buyer, who is responsible for deducting TDS at the revised rate. If a Nil TDS Certificate is granted, the buyer is not required to deduct TDS at all. The NRI seller must ensure that the buyer receives and adheres to the certificate terms.

Practical Examples of TDS Reduction

*> Assuming 12.5% base + 15% surcharge + 4% cess on gross

Common Errors and Rejection Reasons

1. Incorrect TAN of Buyer: The certificate becomes invalid if the buyer’s Tax Deduction Account Number is mistyped.
2. Undisclosed Arrears: Existing tax demands on your PAN can lead to a summary rejection.
3. Late Filing: Attempting to apply after the sale deed is registered. The buyer cannot honor a certificate issued after the date of deduction.
4. Calculation Mismatch: Discrepancies between the Agreement to Sell and the computation uploaded.

Frequently Asked Questions (FAQs)