Real estate continues to be one of the most common investments held by Non-Resident Indians (NRIs) in India. Over time, many NRIs decide to sell their property for reasons such as portfolio restructuring, relocation, inheritance planning, or reinvestment in other opportunities.
However, selling property in India as an NRI involves specific tax and regulatory considerations that differ from those applicable to resident sellers. A property transaction involving an NRI typically involves TDS under Section 195, capital gains taxation, FEMA compliance, and repatriation of funds outside India.
Understanding these aspects in advance can help NRIs avoid unnecessary tax deductions, delays in transactions, and compliance issues with Indian authorities.
This guide explains the key tax implications and procedural steps involved when an NRI sells property in India.
Who is Considered an NRI for Property Taxation?
Under the Income Tax Act, 1961, the residential status of an individual determines the tax treatment of income in India.
An individual is considered a Non-Resident Indian (NRI) if they do not satisfy the conditions of residency under Section 6 of the Income Tax Act for a particular financial year.
This distinction is important because property transactions involving NRIs fall under Section 195 of the Income Tax Act, which governs tax deduction at source when payments are made to non-residents.
For comparison:
- Property purchased from a resident seller attracts TDS under Section 194-IA at 1% of the property value if sale value is Rs 50 lakhs or above.
- Property purchased from an NRI seller attracts TDS under Section 195, which is based on the applicable capital gains tax rate irrespective of sale value.
Therefore, transactions involving NRI sellers require careful tax computation before the sale is executed.
TDS under Section 195 on Property Purchase from an NRI
When a buyer purchases property from an NRI, Section 195 requires the buyer to deduct tax at source on the capital gains arising from the transaction.
This is different from transactions involving resident sellers where a flat 1% TDS is applicable.
For NRI sellers, the tax deduction depends on the nature of capital gains.
Long-Term Capital Gains
If the property is held for more than 24 months, the gain is treated as long-term capital gain.
Tax applicable:
- 12.5% on capital gains
- Applicable surcharge depending on income levels
- 4% health and education cess
In practice, the effective rate may range 13% to 14.95% depending on the sale value and applicable surcharge.
Short-Term Capital Gains
If the property is held for less than 24 months, the gain is treated as short-term and is taxed according to the normal income tax slab rates applicable to the NRI.
Because the buyer is responsible for deducting tax under Section 195, it is important that the capital gains calculation is determined correctly before the transaction is completed.
How Capital Gains Tax is Calculated
When an NRI sells a property in India, the capital gain is calculated as the difference between the sale consideration and the original purchase cost of the property. Unlike earlier provisions where indexation benefits were available, indexation benefit is presently not available in such cases, and the gain is computed on the simple difference between the sale price and purchase price.
Example
Property purchase price (2010): ₹50,00,000
Sale price (2026): ₹2,00,00,000
Capital Gain:
₹2,00,00,000 – ₹50,00,000 = ₹1,50,00,000
Tax on Long-Term Capital Gain:
12.5% on ₹1,50,00,000 = ₹18,75,000
In addition to the base tax, applicable surcharge and 4% health and education cess will also apply depending on the total taxable income of the NRI.
The final tax liability may therefore be slightly higher after considering surcharge and cess.
How to Reduce TDS Using a Lower TDS Certificate
A common issue NRIs face during property sales is excess tax deduction by buyers.
Since buyers are responsible for deducting tax under Section 195, they deduct tax on the entire sale value rather than only on the capital gains portion.
To avoid this problem, NRIs can apply for a Lower TDS Certificate under Section 197 by filing Form 13 with the Income Tax Department.
Once the certificate is issued:
- The buyer deducts tax at the lower rate specified in the certificate
- Excess tax deduction can be avoided
- Cash flow remains better during the transaction
This process is particularly useful where capital gains are small or exemptions are available.
Repatriation of Property Sale Proceeds
NRIs are allowed to repatriate funds from India up to USD 1 million per financial year per individual under FEMA regulations.
This limit includes:
- Sale proceeds of property
- Inherited assets
- Other eligible balances in NRO accounts
However, repatriation must follow certain procedures.
Key compliance requirements
- Funds should be available in an NRO account
- Applicable taxes must be paid
- Remittance requires certification through:
- Form 15CA (Income Tax Form)
- Form 15CB (Chartered Accountant Certificate)
These forms confirm that the remittance complies with Income Tax and FEMA regulations.
Banks require these documents before processing the outward remittance.
Common Mistakes NRIs Make During Property Sales
Property transactions involving NRIs often face delays or compliance issues due to lack of clarity around tax rules.
Some common mistakes include:
- Incorrect TDS deduction
Buyers sometimes deduct tax on the entire property value instead of capital gains.
- Not applying for Lower TDS Certificate
Failure to obtain a lower TDS certificate results in unnecessary tax deduction and delayed refunds.
- Ignoring capital gains exemptions
NRIs may be eligible for exemptions under:
- Section 54 – reinvestment in residential property
- Section 54EC – investment in specified bonds
FEMA compliance oversight
Funds must be repatriated through proper banking channels with required documentation.
Documents Required for Repatriation
Banks generally require the following documents:
- Sale deed of the property
- Purchase deed of the property
- Capital gains tax computation
- Form 15CA acknowledgement
- Form 15CB certificate with UDIN
- NRO account bank statement, Form A2
- PAN card copy
- Passport copy
Providing these documents helps ensure smooth processing of the remittance request.
Final Thoughts
Selling property in India as an NRI involves several aspects including capital gains taxation, TDS compliance, FEMA regulations, and repatriation procedures. Proper tax planning and compliance can significantly reduce tax liability and ensure smooth completion of the transaction.
NRIs planning to sell property in India should ideally seek professional guidance before finalising the transaction to avoid unnecessary tax deductions and compliance complications.
If you are an NRI dealing with property transactions in India and require assistance with capital gains computation, lower TDS certificates, Form 15CA/15CB certification, or repatriation of funds, professional advisory can help ensure that the process is handled efficiently and in compliance with Indian regulations.
Simplify your property exit with expert guidance on Capital Gains, TDS certificates, and 15CA/CB compliance.
Frequently Asked Questions
Yes. NRIs can claim exemption by reinvesting capital gains into a residential property in India, subject to conditions under the Income Tax Act.
Yes. NRIs can remit up to USD 1 million per financial year from their NRO account after completing the required tax compliance.
TDS is deducted based on the applicable capital gains tax rate. For long-term capital gains, the base tax rate is 12.5% plus surcharge and cess.
Yes, NRIs can file an Updated Return (ITR-U) after the due date to voluntarily correct errors or omissions in the original return. While additional tax and interest may apply, filing an updated return helps reduce the risk of penalties, prolonged disputes, and future income tax notices.
