Why Was So Much TDS Deducted from My Property Sale?

The comparison with the 1% deduction is probably the source of the confusion.

For a resident seller, Section 194-IA has historically provided for 1% TDS on qualifying property purchases where the consideration/stamp-duty value meets the threshold. The Income Tax Department confirms that this provision applies where the seller is resident.

For a non-resident seller, the transaction is handled under the provisions applicable to payments to non-residents instead. The Income Tax Department's own guidance specifically says that when the seller is non-resident, TDS is deducted under Section 195 rather than Section 194-IA.

That's why an NRI can see a much higher amount withheld than a resident seller.

The other thing I'd check is whether the buyer has your correct PAN and residential status. Don't try to solve the issue simply by asking them to use the resident rate.

If the sale is still being negotiated, speak to a tax professional about the lower-deduction process before completion. If the sale has already happened, keep all purchase, improvement and sale documents because they will be relevant when calculating the actual capital gain and filing your return.

I'm in Canada and sold an inherited property in India last year.

My buyer also initially deducted a much larger amount than I expected. I had assumed that TDS would simply be based on my profit, but the withholding mechanism for an NRI sale can result in a substantial amount being deducted upfront.

The important thing is to distinguish TDS from your final tax liability.

The TDS amount is not necessarily the final amount of tax you owe. If more tax has been deducted than your actual liability after taking the applicable capital-gains computation into account, the excess can generally be claimed back through your Indian income-tax return.

There are also mechanisms for seeking a lower or nil deduction where the circumstances support it. I would look into that before the transaction is completed, rather than assuming a refund later is the only option.

I wouldn't tell the buyer to simply deduct 1% because that's what a resident seller might have. The buyer has their own TDS compliance obligation, and the seller's residential status matters.

Get your CA to check the calculation before signing the final paperwork.

I had almost exactly this situation when I sold my flat in Bengaluru while living in the US.

The important thing I learned was that the resident-seller TDS rule and NRI-seller TDS rule are different.

My friend had sold a property as an Indian resident and had 1% deducted because the transaction fell under the resident property TDS provisions. That isn't the rule that applies when the seller is non-resident.

When an NRI sells Indian property, the buyer has a TDS obligation under the provisions applicable to payments to non-residents. The Income Tax Department specifically distinguishes this from the 1% rule applicable to a resident seller.

What shocked me was that the amount withheld can be calculated by reference to the sale consideration rather than simply taking the final capital gain as the amount of TDS.

I eventually spoke with a CA before completing the transaction. We looked at the purchase cost, improvement expenses and holding period to work out what my actual tax liability was likely to be.

So I wouldn't compare your deduction directly with someone who was resident in India when they sold their property.