2 Jun 2026Most NRIs I speak with assume property tax in India works the same way it did when they lived here. It doesn't — and the difference can cost you significantly if you're not prepared.
If you're an NRI selling immovable property in India, capital gains tax applies at rates that differ from resident Indians, and the TDS mechanism means the buyer deducts tax upfront before you even receive the sale consideration. Here's how it works in practice.
Short-Term vs Long-Term: The Starting Point
The holding period determines everything. If you've held the property for more than 24 months, the gain is long-term (LTCG). Under 24 months, it's short-term (STCG).
For NRIs, LTCG on property is taxed at 12.5% without indexation benefit (post-Budget 2024, effective 23 July 2024). Prior to that date, the rate was 20% with indexation — for properties acquired before July 2024, you may want to compute under both regimes and choose the lower liability. STCG on property is taxed at your applicable income tax slab rate based on total India-sourced income.
TDS: The Buyer's Obligation Under Section 195
When a resident Indian buys property from an NRI, they are legally required to deduct TDS under Section 195 of the Income Tax Act. The rate is 20% plus applicable surcharge and cess on LTCG (effective rate can reach 22.88% or higher depending on sale consideration), and slab rate plus surcharge and cess on STCG.
The critical issue: TDS is deducted on the gross sale consideration, not on the net gain. If you purchased the property for Rs 60 lakhs and are selling for Rs 1 crore, the buyer deducts TDS on Rs 1 crore — not on the Rs 40 lakh gain. This almost always results in excess TDS that you must recover as an ITR refund.
The buyer must deposit this TDS using Form 27Q, not Form 26QB (which applies only to resident-to-resident property transactions). This distinction is frequently missed by buyers and their CAs.
How to Reduce TDS: Section 197 and Form 13
If the TDS deductible under Section 195 exceeds your actual tax liability — which it almost always does — you can apply to the Jurisdictional Assessing Officer (JAO) for a lower or nil TDS certificate under Section 197 / Section 195(3).
The application is made online through the income tax portal in Form 13. The JAO reviews your capital gains computation and DTAA position (if applicable) and issues a certificate specifying a reduced deduction rate. This certificate is provided to the buyer before the transaction. Processing typically takes 15-30 days — plan ahead.
DTAA Relief: When Your Country of Residence Matters
India has Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. Depending on your country of tax residence, a DTAA may provide a credit mechanism or preferential treatment on capital gains.
- UAE residents: The India-UAE DTAA does not exempt capital gains on Indian immovable property. India retains full taxing rights. The DTAA prevents UAE from taxing it too — but since UAE has no personal income tax, this rarely provides practical benefit.
- US residents: The India-US DTAA provides a Foreign Tax Credit mechanism. You report the Indian gain to the IRS and claim credit for Indian taxes paid against your US liability.
- UK residents: Similar FTC mechanism. Pay Indian CGT first, claim credit in the UK against Capital Gains Tax liability there.
To claim DTAA benefit in India, you must furnish a Tax Residency Certificate (TRC) from your country of residence and file Form 10F on the Indian income tax portal. Without both documents, the Indian tax authority will not grant treaty relief.
Reinvestment Exemptions Available to NRIs
NRIs can claim the same capital gains exemptions available to resident Indians:
- Section 54: Exemption on LTCG from residential property if reinvested in another residential property in India within 2 years of sale (or 3 years for under-construction property). Cap: Rs 10 crore from AY 2024-25.
- Section 54EC: Invest up to Rs 50 lakhs in specified bonds (NHAI/REC) within 6 months of the sale date. Lock-in is 5 years.
- Section 54F: For LTCG from sale of assets other than residential property. The full net sale consideration must be reinvested in a residential property.
If reinvestment is not completed before the ITR filing deadline, the gains can be deposited in a Capital Gains Account Scheme (CGAS) account with a designated bank to preserve the exemption eligibility.
Repatriation of Sale Proceeds
After taxes are settled, you can repatriate net sale proceeds from your NRO account. Under FEMA, repatriation is permitted up to USD 1 million per financial year per NRI from the NRO account after payment of applicable taxes.
Your bank will require Form 15CA and Form 15CB before processing the outward remittance. Form 15CB is a CA's certificate confirming that the applicable taxes have been paid or the remittance is exempt. Without these, the bank will not process the transfer.
Filing the Income Tax Return
Capital gains must be reported in ITR-2 (where the NRI has no business income) or ITR-3. The due date for non-audit cases is 31 July of the assessment year.
For AY 2026-27, the basic exemption limit for NRIs is Rs 2.5 lakhs under the old regime and Rs 3 lakhs under the new regime. The enhanced exemption for senior citizens does not apply to NRIs regardless of age.
Common Mistakes NRIs Should Avoid
- Accepting Form 26QB instead of Form 27Q from the buyer — these are for different types of transactions
- Not applying for Form 13 in advance — leads to excess TDS deduction and months of delayed refund
- Missing the Section 54 reinvestment window — it runs from the date of transfer, not registration
- Assuming DTAA is automatic — you need TRC + Form 10F filed with the Indian tax authority
- Forgetting Form 15CA/15CB before repatriation — the bank will block the transfer
NRI property transactions require coordination between the buyer's CA, your CA, and your bank. Getting one piece wrong creates a cascade of compliance issues. If you're planning a property sale in India in 2026, engage your CA at least 60-90 days before the transaction — not after the sale deed is signed.
For personalised advice on your NRI property tax position, contact Regi Tom Antony & Associates, Chartered Accountants, Kochi.
Frequently Asked Questions — NRI Capital Gains Tax on Property in India
What is the capital gains tax rate for NRIs selling property in India in 2026?
For long-term capital gains (property held more than 24 months), the tax rate for NRIs is 12.5% without indexation, effective from 23 July 2024 (post-Budget 2024). For short-term capital gains (held 24 months or less), the gain is taxed at the applicable income tax slab rate. Both rates are subject to surcharge and 4% Health and Education Cess.
What TDS rate does the buyer deduct when purchasing property from an NRI?
The buyer must deduct TDS under Section 195 of the Income Tax Act at 20% plus applicable surcharge and cess on the gross sale consideration — not just on the gain. The effective rate can reach 22.88% or higher depending on the sale price. The buyer must use Form 27Q (not Form 26QB, which applies only to resident-to-resident transactions) to deposit the TDS.
How can an NRI reduce or avoid excess TDS on a property sale?
An NRI can apply to the Jurisdictional Assessing Officer (JAO) for a lower or nil TDS certificate under Section 197 / Section 195(3) by filing Form 13 on the income tax portal. The AO reviews the actual capital gains computation and issues a certificate at a reduced rate, which the NRI gives to the buyer before the transaction. This process takes 15–30 days, so it must be initiated well before the sale.
Can NRIs claim exemption from capital gains tax by reinvesting the sale proceeds?
Yes. NRIs can claim capital gains exemption under Section 54 (reinvest in another residential property within 2–3 years), Section 54EC (invest up to Rs 50 lakhs in NHAI/REC bonds within 6 months), or Section 54F (for sale of non-residential assets with full net consideration reinvested). If reinvestment is not completed before the ITR filing deadline, proceeds can be parked in a Capital Gains Account Scheme (CGAS) account.
Can NRIs repatriate the money received from selling property in India?
Yes. After paying all applicable taxes, NRIs can repatriate up to USD 1 million per financial year from their NRO account under FEMA regulations. The remitting bank requires Form 15CA and Form 15CB (a CA's certificate confirming taxes have been paid) before processing the outward remittance. Property purchased from NRE/FCNR funds has additional repatriation provisions.
Do NRIs need to file an income tax return in India after selling property?
Yes. Capital gains from the sale of Indian property must be reported in ITR-2 (or ITR-3 for business income). Filing is mandatory if the taxable income exceeds the basic exemption limit (Rs 2.5 lakhs under the old regime, Rs 3 lakhs under the new regime for NRIs). Even if TDS covers the full liability, filing is advisable to claim any refund, carry forward any capital loss, or establish a compliance record.