When a buyer purchases property from an NRI seller, they don't withhold the resident rate of 1% — they withhold tax on the full sale consideration at rates that typically work out to around 13–14.95%, regardless of what your actual gain was. If your indexed cost is close to your sale price, that default withholding can be many times your real tax liability, and it sits with the government for a year or more until you file a return and claim it back.
Section 197 of the Income Tax Act exists precisely for this gap. It lets you apply for a certificate authorising the buyer to deduct tax at a lower rate — or nil — based on your actual computed gain, not the full price.
What the Certificate Actually Does
A Section 197 certificate doesn't reduce your tax liability. It changes when the correct amount changes hands. Instead of the buyer withholding the default rate on the full sale price and you reclaiming the excess a year later via your income tax return, the certificate lets the buyer withhold the right amount — based on your real capital gain — at the time of sale itself.
For a straightforward transaction this is the difference between your money sitting with the tax department for over a year, or landing in your account (net of the tax actually due) at registration.
The Application, Step by Step
-
Step 1 — Compute your actual capital gain You need the indexed cost of acquisition against the expected sale price. For property bought before 1 April 2001 — including most inherited property, since it carries the original owner's acquisition date — this starts from a fair market value as on 1-4-2001, not the original purchase price (here's how that valuation actually works). This is exactly what a valuation booked for a sale produces, and the resulting capital gains & TDS estimate is included free.
-
Step 2 — Your CA prepares and files Form 128 The application (renumbered Form 128, replacing the earlier Form 13, effective 1 April 2026) is filed with the Assessing Officer through the income tax portal, supported by your computed gain, ownership documents, and prior returns. This is your CA's work end to end — we hand off the computed numbers, not the filing itself.
-
Step 3 — The Assessing Officer reviews and issues the certificate Processing takes real time, and it's a discretionary review, not an automatic approval — start well before you expect to sign, not after you have a buyer waiting to register.
-
Step 4 — Present it to your buyer at registration The certificate specifies the exact rate the buyer is authorised to withhold. Present it before payment is made — once the buyer has already deducted at the default rate, the certificate can't undo it.
Is It Always Worth Applying?
If your gain is a small fraction of the sale price — a long-held or inherited property, for instance — the gap between default withholding and actual tax due can be large enough to justify the process. If your gain is close to the full sale price, the certificate may narrow the withholding only slightly, and the effort may not be worth it for your CA to pursue. This is the first thing your computed estimate answers before anyone files anything.
