Selling property in India as an NRI involves multiple layers of taxation, withholding requirements, and regulatory compliance. Understanding each layer ensures you meet your obligations correctly and avoid unnecessary tax outflows.
TDS on Property Sale
When an NRI sells property in India, the buyer is responsible for deducting Tax Deducted at Source (TDS) under Section 195 of the Income Tax Act before transferring the sale proceeds. The applicable TDS rates are:
| Holding Period | Gain Type | TDS Rate |
|---|---|---|
| More than 24 months | Long-Term Capital Gains (LTCG) | 12.5% of sale consideration |
| 24 months or less | Short-Term Capital Gains (STCG) | As per applicable income slab rate (up to 30%) |
Surcharge and 4% health and education cess apply over and above these rates, which means the effective TDS deduction can be considerably higher than the base rate.
Important: TDS under Section 195 is deducted on the entire sale consideration, not just the gain. This can result in a significant upfront cash outflow. If the actual tax liability is lower than the TDS deducted, you can claim a refund by filing your ITR.
To avoid excess TDS deduction, you may apply to the Income Tax Department in advance for a lower or nil TDS certificate under Section 197. This is particularly advisable for high-value property transactions.
Computing Capital Gains
Capital gains are calculated as the difference between the sale price and your cost basis. The tax treatment depends on the holding period:
Long-Term Capital Gains - property held for more than 24 months
Effective July 23, 2024, LTCG on property is taxed at a flat 12.5% without indexation benefit. The Cost Inflation Index (CII) adjustment, which previously allowed sellers to inflate the purchase cost for inflation and reduce taxable gains, is no longer available to NRIs. This applies regardless of when the property was originally purchased.
Please note that while resident individuals were given the option to choose between the old regime of 20% with indexation and the new regime of 12.5% without indexation for properties acquired before July 23, 2024, this option is not available to NRIs. NRIs are taxed at 12.5% without indexation in all cases.
Short-Term Capital Gains - property held for 24 months or less
Taxed at the applicable income tax slab rate, which can go up to 30% plus applicable surcharge and cess.
Components of cost basis:
- Original purchase price
- Improvement costs such as renovations, extensions, and major repairs
- Acquisition costs such as registration fees, stamp duty, and legal charges
- Sale costs such as brokerage, legal fees, and advertising expenses
Repatriation of Sale Proceeds
As an NRI, you can remit sale proceeds abroad through formal banking channels subject to the following conditions:
- Repatriation is permitted up to USD 1 million per financial year
- Form 15CA and Form 15CB certified by a Chartered Accountant are mandatory documents before the bank processes the remittance
- Your bank will process the outward remittance through SWIFT to your foreign bank account
- Ensure all tax liabilities are fully settled before initiating repatriation - your bank will require evidence of tax payment before processing the transfer
- Ensure your ITR correctly reflects the transaction for the relevant financial year
Documentation Checklist
Keep the following documents saved together in a clearly labelled folder for the relevant financial year:
- Original purchase deed and all payment proofs
- Invoices and receipts for all improvement expenses
- Property tax statements and maintenance bills
- TDS certificate issued by the buyer
- Form 15CA and Form 15CB filed for repatriation
- Bank statement confirming receipt of remitted funds in your foreign account
- Broker statements if applicable
- Lower TDS certificate under Section 197 if obtained
Key Points to Remember
- TDS on NRI property sale is governed by Section 195 - Section 194IA applies only when the seller is a resident Indian
- LTCG is taxed at 12.5% without indexation for all NRI property sales on or after July 23, 2024
- NRIs do not have the option to use the older 20% with indexation regime that was restored for resident individuals
- Apply for a lower TDS certificate under Section 197 in advance if the TDS is likely to significantly exceed your actual tax liability
- Form 15CA and Form 15CB are mandatory for repatriation of sale proceeds abroad
- Preserve all transaction documents for the applicable retention period
