Tax Considerations for NRIs Selling Property in India

How NRI Property Sales Are Taxed Differently

When an NRI sells property in India, the buyer — not the seller — is legally responsible for deducting tax at source before any payment changes hands. This single difference from a resident sale catches many NRI sellers off guard, and it shapes almost every other decision in the transaction.

Long-Term vs Short-Term Capital Gains

Property held for more than two years qualifies for long-term capital gains treatment, taxed with indexation benefit that adjusts the purchase cost for inflation. Property sold within two years is taxed as short-term gains at the seller’s applicable slab rate — usually a meaningfully higher outcome.

• Confirm the exact holding period from the original purchase date
• Apply indexation to the acquisition cost for long-term sales
• Include registration and improvement costs in the cost base
• Factor in gains differently if the property was inherited or gifted

TDS: What Buyers Must Deduct, and Why It Matters

Buyers purchasing from an NRI seller must deduct TDS on the full sale value at the rate applicable to long-term or short-term gains, plus surcharge and cess — often well above the seller’s actual tax liability. That gap sits locked up until a return is filed and a refund processed, sometimes months later.

Many buyers, unfamiliar with the NRI-specific rate, either under-deduct — creating compliance risk for themselves — or over-deduct out of caution, leaving the seller to recover the excess through a refund claim.

Lowering TDS with a Certificate

An NRI seller can apply to the Assessing Officer for a lower or nil deduction certificate under Section 197, based on the actual capital gains rather than the full sale value. Done correctly, this avoids months of capital being locked up in a refund cycle.

Exemptions That Can Reduce Your Liability

Several exemptions under the Income Tax Act can reduce or eliminate capital gains tax on a property sale, provided the reinvestment conditions and timelines are met precisely.

• Section 54: reinvest gains in another residential property within the prescribed window
• Section 54EC: invest gains in specified capital gains bonds within six months
• Section 54F: exemption on sale of a non-residential asset, if reinvested in a residential property
• Track the reinvestment deadline separately for each exemption claimed

Repatriating Sale Proceeds Abroad

Moving sale proceeds out of India requires a chartered accountant’s certification through Forms 15CA and 15CB, and is subject to an overall limit of USD 1 million per financial year under FEMA, across all such remittances.

• Obtain Form 15CB certification before initiating the remittance
• File Form 15CA on the income tax portal ahead of the transfer
• Track cumulative remittances against the annual USD 1 million limit
• Retain the NRO account trail linking the sale to the remittance