NRI capital gains and DTAA optimization 2026: Section 195 TDS, Form 128 lower deduction, US/UK/Singapore treaty rates

Aap NRI ho with Indian property to sell, mutual fund redemption planned, ya substantial NRO FD interest. Section 195 TDS framework makes your tax life significantly more complex than residents — buyer/payer withholds aggressive TDS (often on full sale value not gain), refund process takes 12-18 months, and cash flow squeeze can run into ₹30L-1cr range for large transactions.

Yeh article aapko complete framework deta hai — TDS rates by transaction type, Form 128 Lower TDS Certificate mechanism, DTAA rates for 6 major countries, repatriation rules, Form 15CA/15CB process, aur ITR filing strategy to claim refunds.

# The Section 195 framework

Section 195 Income Tax Act 1961 — any person making payment to NRI must deduct TDS at applicable rates before remitting.

# TDS rates by transaction type

# Property sale

Critical issue: Buyer typically deducts on full sale consideration (not net capital gain) because: - Cannot compute capital gain accurately - Risk-averse approach - Compliance simplicity

Example: ₹3cr property sold by NRI with actual LTCG of ₹80L: - Without Form 128: Buyer deducts 20% of ₹3cr = ₹60L TDS - Correct TDS (on gain): 20% of ₹80L = ₹16L - Over-deduction: ₹44L blocked till ITR refund

# Mutual fund redemption

TDS deducted by AMC at redemption. Verify on Consolidated Account Statement (CAS).

# Interest income

# Dividend income

# Rental income

# Other payments

# DTAA rates — 6 major countries

# India-USA DTAA

US-resident NRI documents needed: TRC (issued by IRS), Form 10F, valid Indian PAN

# India-UK DTAA

# India-Singapore DTAA

# India-UAE DTAA

UAE-specific: TRC must be obtained annually (UAE has DTAA but tax residency proof annual)

# India-Canada DTAA

# India-Australia DTAA

# Form 128 — Lower TDS Certificate process

### What is Form 128 (formerly Form 13)? Application under Section 197 to Assessing Officer requesting lower or NIL TDS deduction, replacing buyer's automatic 20%/30% deduction with a certified rate.

# When to apply

1. Actual capital gain significantly less than sale value (cost basis high, gain modest)
2. Section 54/54F exemption planned (reinvestment in new residential property)
3. Section 54EC bonds planned (₹50L investment in NHAI/REC bonds for capital gains tax saving)
4. DTAA rate lower than Indian statutory rate
5. Tax losses available for set-off
6. NIL tax actually payable (rare but possible)

# Application timeline

Critical: Apply 30-60 days before expected sale to avoid delays.

# Required documents

• PAN, passport copy
• Sale agreement (draft if not signed)
• Cost of acquisition proof (sale deed of purchase)
• Improvement cost documents (with bills)
• Bank statements (capital gain computation support)
• TRC from country of residence
• Form 10F
• Capital gains computation working
• Section 54/54F/54EC declaration if applicable

### Where to apply TRACES portal: https://www.tdscpc.gov.in/ → "Request for Form 13 / Form 128" (online application)

OR Physical submission at Assessing Officer's jurisdiction (less common)

### TAN requirement for NRI property buyers - Buyer must obtain TAN before deducting TDS on NRI property purchase (till 30 September 2026 under transitional provisions) - Without TAN, buyer cannot deposit TDS or file Form 27Q - TAN application via NSDL — 7-15 days

# NRO vs NRE vs FCNR — strategic differences

### Strategic structuring - Maximize NRE/FCNR for tax-free returns + repatriation flexibility - NRO mandatory for Indian-sourced income parking (rent, dividend, pension) - NRO interest subject to 30% TDS — claim DTAA reduction via Form 10F + TRC - Convert NRO to NRE possible by remitting funds abroad and back (technically allowed under FEMA)

### Joint accounts - NRE: only with other NRIs (not residents) - NRO: can be joint with residents - FCNR: only with other NRIs

# Repatriation — USD 1 million annual limit

### LRS-like rule for NRIs Under FEMA, NRI can repatriate up to USD 1 million per financial year per individual from NRO accounts / proceeds of Indian asset sale.

### What's included in USD 1M limit - Sale proceeds of immovable property - Sale proceeds of financial assets (shares, MFs) - Inheritance/legacy proceeds - Pension - Provident fund proceeds - Other NRO funds

### What's NOT subject to limit - NRE/FCNR account funds (already foreign-sourced) - Current income (rental, salary) — typically repatriable separately

# Forms required for repatriation

### Process flow 1. Pay applicable Indian tax on capital gains / interest 2. Generate Form 15CA via Income Tax portal (online declaration) 3. Engage CA for Form 15CB (₹3-15K typical fee) 4. Submit to authorized dealer (bank) 5. Bank processes outward remittance 6. Funds credit to foreign account

### Beyond USD 1M - RBI prior approval required - Specific cases: medical treatment abroad, children's education - Approval timeline: 30-90 days - Often impractical for time-sensitive transactions

# Schedule FA, Schedule 5A for NRI ITR

### Schedule 5A — NRO bank account interest - Bank name, account number - Interest credited during FY - TDS deducted - DTAA treaty rate applied

### Schedule FA — Foreign Assets - Generally NRI exempt for foreign assets (asset already in country of residence) - Exception: If holding foreign assets unrelated to country of residence

### Schedule TR — Tax Relief - DTAA Article 25 / Section 90/91 relief - Foreign tax credit claim (if foreign tax paid on Indian-sourced income)

# Capital gains exemptions for NRI

# Section 54 — Reinvestment in residential property

# Section 54F — Reinvestment from any LTCG

# Section 54EC — Capital gains bonds

# Common NRI tax mistakes

### Mistake #1: Buyer not knowing NRI status Issue: Buyer deducts 1% (resident TDS) instead of 20-30%.
Fix: NRI seller upfront discloses; buyer obtains TAN; correct TDS deducted.

### Mistake #2: Form 128 application too late Issue: 30-45 day approval window; rushed transactions get full statutory TDS.
Fix: Apply when listing property, not at closing.

### Mistake #3: DTAA benefit not claimed Issue: Statutory 30% on NRO interest when DTAA gives 15%.
Fix: Submit TRC + Form 10F before each FY start to bank.

### Mistake #4: ITR not filed for refund Issue: Excess TDS deducted but ITR never filed; refund forfeited.
Fix: Always file ITR if TDS deducted, even if no current tax liability.

### Mistake #5: Form 10F submitted in paper format Issue: Since April 2023, only online Form 10F accepted.
Fix: Submit via Income Tax portal (https://www.incometax.gov.in/).

### Mistake #6: NRO interest not declared in ITR Issue: TDS-only treatment; Schedule 5A not filled.
Fix: Schedule 5A in ITR-2 mandatory for NRO interest declaration.

### Mistake #7: Section 54 reinvestment in wrong country Issue: NRI reinvesting in foreign property thinking Section 54 applies.
Fix: Reinvestment MUST be in Indian residential property only.

### Mistake #8: 15CA/15CB skipped for repatriation Issue: Bank refuses remittance; weeks of delay.
Fix: Pre-arrange Form 15CA + CA for 15CB BEFORE planned remittance date.

# Action plan — 60-day NRI tax compliance

### Days 1-10: Pre-transaction setup - Verify NRI status (FY-end residency calculation) - Obtain/update TRC from country of residence - Submit online Form 10F via IT portal - Open/verify NRE/NRO/FCNR account structure

### Days 11-30: For property sale - Engage Indian CA early - Compute estimated capital gain - File Form 128 application via TRACES - Provide buyer your TAN-ready documentation

### Days 31-45: Pre-closing - Receive Form 128 Lower TDS Certificate - Share certificate with buyer - Confirm reduced TDS in sale documentation - Plan Section 54/54F/54EC if applicable

### Days 46-60: Post-closing + ITR - Buyer files Form 27Q (quarterly TDS return) - Verify TDS credit in Form 26AS / AIS - Pre-arrange Form 15CA + 15CB for repatriation - File ITR-2 within 31 July 2026 for refund claim

# References (verified 23 May 2026)

• ClearTax — Section 195 TDS for NRIs Complete Guide
• InvestMates — Capital Gain Tax for NRI India 2026
• Dineshaarjav — Lower TDS Certificate Form 128 NRI 2026
• Tax2win — Section 195 TDS on NRI Property Sale
• CAForNRI — NRI Selling Property India 2026 Guide
• Canara HSBC Life — Section 195 TDS NRIs Explained
• InvestMates — NRI Remittance Tax India 2026 Rules
• GoINRI — TDS Deducted for NRIs Section 195

Disclaimer: Yeh article educational guidance hai based on Income Tax Act 1961, Income Tax Act 2025 (effective 1 April 2026, Form 13 renamed Form 128), and FEMA regulations. DTAA treaty rates vary by specific income type and treaty protocols — verify current treaty position for your country of residence. Form 128 process specific to each AO jurisdiction. Repatriation USD 1M limit under current RBI guidelines. Specific NRI cases (mixed residency status, dual taxation, complex inheritance) require qualified CA practicing in NRI taxation. Data verified 23 May 2026.

Written by

Prabhakar Kumar

Chartered Accountant (ICAI, Nov 2019)

Founder of VittSphere Technologies. Practicing CA serving 200+ MSME clients across Pune. 86% win-rate at AO and CIT(A) level tax appeals. Writes on Indian taxation, capital gains, and personal finance.