Form 128 is the application by a payee for a certificate of lower or nil deduction of tax under section 395(1) of the Income-tax Act, 2025, or lower collection under section 395(3). It replaced Form 13 from 1 April 2026 and is filed on the TRACES portal.

Can an NRI selling property in India get a lower TDS certificate?

Yes. The buyer must otherwise withhold on the full sale price. With a certificate under section 395, the buyer withholds at the rate the Assessing Officer specifies, usually based on the actual capital gain.

Is a lower deduction certificate needed to apply a treaty rate?

Not always. A payer can apply a more beneficial treaty rate where the non-resident provides a tax residency certificate and Form 42. A certificate is useful where the treaty position is contested or where tax is due on a net figure rather than the gross payment.

Is a section 197 certificate still valid after 1 April 2026?

A certificate already issued under section 197 for a period falling in tax year 2026-27 remains valid for payments made on or after 1 April 2026 and does not need to be reissued.

Insights · Income-tax Act 2025

Lower Deduction Certificate for Non-Residents: Form 128 Under Section 395

How non-residents, including NRIs selling property, get a nil or lower TDS certificate under section 395 using Form 128, which replaced Form 13 from April 2026.

By Vijay Dhawan, Managing Partner, LexVerge LLPUpdated 25 September 20265 min read

When an Indian payer must withhold tax at 20% or 35% of a payment to a non-resident whose real tax on that income is much lower, the difference sits with the government until the non-resident files a return and waits for a refund. The fix is a certificate from the Assessing Officer telling the payer to deduct at a lower rate or at nil. From 1 April 2026 the application is Form 128 under section 395(1) of the Income-tax Act, 2025. It replaces Form 13 under section 197, and the mechanism is otherwise the same.

Key points

Form 128 is the payee’s application under section 395(1) for TDS, and section 395(3) for TCS. It replaces Form 13
Form 129 is the payer’s application under section 395(2) to fix the part of a payment that is chargeable. It replaces Form 15E
Both are filed on the TRACES portal and verified electronically; PAN is mandatory
A certificate issued under section 197 for tax year 2026-27 remains valid for payments made after 1 April 2026
A certificate is specific to the payer, the period and, usually, an amount

When a certificate is worth applying for

The withholding rate on a non-resident is applied to the gross payment. Where the non-resident’s actual liability is computed on a net figure, or at a treaty rate that depends on facts the payer cannot verify, the gap can be large. The situations where we most often apply are these.

An NRI selling property in India. The buyer must withhold on the full sale price, not the gain. If the property was bought for Rs 1.2 crore and sold for Rs 1.5 crore, withholding on Rs 1.5 crore can be several times the tax actually due on the Rs 30 lakh gain. A certificate lets the buyer withhold on the gain, and it is usually the single biggest cash-flow saving available to a non-resident seller.
A foreign company with an Indian project or permanent establishment. Tax is due on profit attributable to India, but withholding runs on every invoice. A certificate aligns withholding with the expected tax on the estimated profit.
A contested treaty position. A payer can apply a treaty rate directly where the payee gives a tax residency certificate and Form 42, but when the characterisation is disputed (for example, whether a fee is business income or a royalty) a certificate protects the payer from being treated as an assessee in default.
Losses or low income. A non-resident with brought-forward losses, or whose total Indian income falls within the basic exemption, can ask for nil deduction.

The certificate route is rarely useful for a non-resident entertainer. Performance income taxed at the special 20% rate on gross receipts is a final tax, so there is usually no lower liability to certify. We cover that regime in TDS on payments to foreign artists.

Form 128 or Form 129: who applies

	Form 128	Form 129
Filed by	The person receiving the payment	The person making a payment to a non-resident
Provision	Section 395(1) (TDS) and 395(3) (TCS)	Section 395(2), read with section 400(3)
Replaces	Form 13 under section 197	Form 15E under section 195(2)
What the officer decides	The rate at which tax should be deducted, based on the payee’s estimated income	The proportion of the payment that is chargeable to tax in the payee’s hands
Typical use	NRI property sale, foreign company with an Indian project, nil liability	A composite payment where only part is taxable in India

What the application needs

PAN of the applicant and login to TRACES as a taxpayer
An estimate of total income for the tax year across all heads of income, not only the head under which the payment falls; the new form asks for all heads
Computation of income for any of the previous four years for which a return was not filed, and details of existing tax demands
The payer’s name, TAN, the nature of payment and the expected amount
For a property sale: the sale agreement, the purchase deed, evidence of cost and improvement, and a computation of the capital gain
For a treaty claim: the tax residency certificate, Form 42 and, where relevant, a declaration that there is no permanent establishment in India

How it works

Log in to TRACES and open the forms section: Dashboard, e-file and view, File Forms, Form No. 128.
Complete the form with estimated income, existing liabilities, tax already paid or deducted, and one annexure entry for each payer.
Upload the supporting computation and documents. Offline filing is not accepted.
E-verify and submit. The application goes to the Assessing Officer with jurisdiction, who may ask for more information.
The certificate is issued on TRACES, addressed to the named payer, with the rate, the period and, usually, the amount up to which it applies. The payer can verify it online.

Plan for three to six weeks between filing and issue, and apply before the payment date. A certificate cannot be applied retrospectively to a payment already made at the full rate; in that case the non-resident claims a refund in the return.

Why applications are refused or cut down

Outstanding tax demands, or returns not filed for earlier years
An income estimate that is not supported by documents, or that leaves out other Indian income
A treaty claim without a valid tax residency certificate for the relevant period, or with doubts about beneficial ownership
For property, a cost of acquisition that cannot be evidenced
Payer details that do not match the TAN or the agreement

What the payer should do with the certificate

Check it on TRACES, apply the certified rate only to payments within the period and amount stated, quote the certificate number in the TDS statement, and keep a copy with the remittance file. The accountant’s certificate in Form 146 should reflect the lower rate, and the payer should still file Form 145 before the money leaves India.

Our international taxation team prepares Form 128 applications and represents non-residents before the Assessing Officer. For the full map of renumbered provisions, see Income-tax Act 2025 section mapping.

Written by Vijay Dhawan, Managing Partner, LexVerge LLP. This article is general information, not tax or legal advice. Rates, thresholds and form numbers change; confirm the current position for your facts before acting.