Nanocrystalline CdS thin films are prepared by sol–gel dip coating for potential application as buffer layers in chalcogenide solar cells. X-ray diffraction and Raman spectroscopy results reveal that the films crystallize in hexagonal wurtzite structure. Spherical nano-grains with good surface coverage is observed in the scanning electron micrographs. The band gap values at different post-annealing temperatures are estimated from the optical absorption data. The surface work function which determines the band alignment at the heterojunction interface is obtained through Kelvin probe measurement. The native defects in CdS which can act as the recombination centers in chalcogenide solar cells are analysed by low temperature photoluminescence spectroscopy. The films annealed at 573, 623 and 673 K exhibit near infra-red emissions corresponding to the mid-gap cadmium vacancies. These kind of deep level hole traps are minimal for the films annealed at 723 K. The presence of strong exciton emission also ensures good crystalline quality of these films. The effect of mid-gap CdS acceptor density on the CIGS/CdS device performance has been studied through numerical simulation. © 2017, Springer Science+Business Media New York.