Selling Property in India? Here's What NRIs Should Know About Taxes

 

For Non-Resident Indians (NRIs), selling a property in India is more than just finding the right buyer and signing documents. It comes with a set of tax implications that must be handled carefully to avoid penalties, delays, or complications—especially when repatriating funds overseas. In this blog, we simplify the important aspects of NRI tax on property sale, including capital gains tax, TDS, exemptions, and repatriation rules.

Understanding the Basics of Property Taxation for NRIs

The Income Tax Act of India treats NRIs differently from resident Indians when it comes to selling property. nri tax on property sale is primarily levied on the capital gains—i.e., the profit earned from the sale of the property. However, the rules depend on how long you’ve held the asset.

Capital Gains Tax: Short-Term vs Long-Term

• Short-Term Capital Gains (STCG):

  • If the property is sold within 24 months of acquisition.

  • Taxed as per your applicable income tax slab rates.

• Long-Term Capital Gains (LTCG):

  • If the property is held for more than 24 months.

  • Taxed at a flat rate of 20%, with the benefit of indexation (adjusting for inflation).

  • Additional surcharge and cess may apply.

TDS: A Mandatory Deduction for Buyers

One of the biggest pain points for NRIs is the Tax Deducted at Source (TDS). The buyer of the property is obligated to deduct TDS before making payment to the NRI seller:

• For LTCG, TDS is deducted at 20% (plus surcharge and cess).

• For STCG, TDS is deducted as per applicable income tax slabs.

• Importantly, TDS is deducted on the entire sale consideration, not just the profit amount.

This often results in higher deductions than necessary, but there's a solution.

Lower TDS Certificate: A Smart Way to Reduce Tax Burden

To prevent excess deduction, NRIs can apply to the Income Tax Department for a lower or nil TDS certificate under Section 197.

• This certificate allows the buyer to deduct TDS at a reduced rate based on the actual capital gain.

• Application is made using Form 13, supported by sale agreement, purchase cost, and calculation of gains.

Once the certificate is issued, the buyer is legally allowed to deduct a lower TDS.

Deductions to Save Tax on Capital Gains

There are specific tax-saving options under the Income Tax Act for NRIs:

• Section 54: Exemption on long-term capital gains if you reinvest in a residential property in India.

• Section 54EC: Exemption by investing up to ₹50 lakhs in specified bonds (REC, NHAI) within 6 months of sale.

• Section 54F: Full exemption if the entire sale proceeds (not just gains) are used to buy a new home.

These exemptions require strict compliance with timelines and usage conditions.

Repatriation of Sale Proceeds

Once the property is sold, you may want to transfer the funds back to your country of residence. Here's what you should know:

• Repatriation is allowed up to USD 1 million per financial year.

• The funds must be routed through your NRO (Non-Resident Ordinary) account.

• You need to submit Form 15CA and 15CB, along with sale and tax documents, to your bank.

• The property must have been purchased in compliance with FEMA norms.

Documentation Checklist for NRI Property Sale

To ensure a smooth transaction and tax compliance, keep the following documents ready:

• Sale deed and purchase deed

• PAN card and passport copy

• TDS challan (Form 26QB)

• Form 13 (if applying for lower TDS)

• CA certificate (Form 15CB)

• Declaration Form 15CA

• Proof of tax paid, exemptions claimed

These documents are also required during income tax return filing.

Do NRIs Have to File Income Tax Returns After Sale?

Yes. Even if TDS has been deducted at source, NRIs are required to:

• File an income tax return in India for the relevant financial year.

• Report capital gains and claim refunds (if excess TDS was deducted).

• Carry forward capital losses, if any, for future adjustments.

Non-compliance can invite notices and penalties from the tax authorities.

Conclusion: Plan Smart, Save More

Tax planning is critical when NRIs sell property in India. Whether it’s claiming exemptions, applying for a lower TDS certificate, or repatriating funds, proper strategy ensures you maximize your post-sale returns while staying fully compliant with Indian tax laws.

If you're unsure about the calculations, documentation, or repatriation process, consult a tax expert who specializes in NRI taxation. For end-to-end guidance on NRI property tax and compliance, Dinesh Aarjav & Associates is your trusted partner.