29 May 2026Selling property in India as an NRI is not simply a matter of signing the sale deed and receiving the proceeds. The transaction triggers a cascade of tax obligations — on both you as the seller and the buyer — and getting them wrong means either a significant cash flow hit through over-deducted TDS or, worse, a tax demand with interest and penalties after the transaction closes.
This guide covers the complete picture for NRI sellers in 2026, including the post-Finance (No. 2) Act 2024 changes to capital gains tax rates.
How Indian Tax Law Treats NRI Property Sales
When an NRI sells immovable property in India, the capital gain arising from the sale is taxable in India regardless of where the NRI is resident. This is because the property (and therefore the capital asset) is situated in India, and under Section 5 of the Income Tax Act, income accruing or arising in India is taxable here for all taxpayers — resident and non-resident alike.
The buyer is required to deduct TDS under Section 195 before making payment to the NRI seller. The buyer then remits the TDS to the government. The NRI receives the net consideration after TDS. Any excess TDS — above the actual tax liability — can be claimed as a refund in the NRI's Indian Income Tax Return.
Capital Gains Classification: Long-Term vs Short-Term
The tax rate depends on how long you held the property:
Long-Term Capital Gain (LTCG): Immovable property held for more than 24 months qualifies as a long-term capital asset. Two tax regimes now apply depending on acquisition date:
- Acquired before 23 July 2024: Taxed at 20% with indexation benefit. The indexed cost of acquisition is calculated using the Cost Inflation Index (CII) published by CBDT, which reduces the effective taxable gain by adjusting for inflation.
- Acquired on or after 23 July 2024: Taxed at 12.5% without indexation benefit. The Finance (No. 2) Act, 2024 removed indexation on properties acquired post this date.
Surcharge on LTCG: 10% if income (including LTCG) between ₹50 lakh and ₹1 crore; 15% between ₹1 crore and ₹2 crore; 25% above ₹2 crore. Health and Education Cess at 4% on tax plus surcharge. The effective all-in rate can reach 22.88% (at 20% with 15% surcharge and 4% cess) on the indexed gain, applied to the gross sale price for TDS purposes.
Short-Term Capital Gain (STCG): Property held 24 months or less. Taxed at slab rates applicable to the NRI. For NRIs, the maximum marginal rate of 30% applies, with surcharge and cess pushing the effective rate to approximately 34.32% for larger gains.
Why TDS Often Exceeds Your Actual Tax Liability
This is the core problem for NRI sellers, and it is important to understand it clearly.
TDS under Section 195 is deducted by the buyer on the gross sale consideration — the full price you receive. But your actual capital gains tax liability is computed on the gain after deducting the (indexed) cost of acquisition and improvement. On a property you bought for ₹30 lakh in 2012 and are now selling for ₹80 lakh, the indexed cost might be ₹58 lakh, leaving a taxable gain of ₹22 lakh. Tax at 20% = ₹4.4 lakh. But TDS at the effective rate of 22.88% on ₹80 lakh = approximately ₹18.3 lakh.
The difference — approximately ₹13.9 lakh in this example — sits with the government and is theoretically refundable after you file your ITR. But ITR processing and refund realisation can take 12–18 months. During this period, that capital is blocked.
The statutory remedy is Section 197 — a lower withholding certificate.
Applying for a Lower Deduction Certificate Under Section 197
Section 197 allows a taxpayer — including an NRI seller — to apply to the jurisdictional Assessing Officer for a certificate directing the buyer to deduct TDS at a lower rate, or nil, where the actual tax liability is demonstrably lower.
The application is filed online through the Income Tax portal (incometax.gov.in) using Form 13. Key documents required:
- Copy of the sale agreement / MoU specifying the proposed sale price
- Original purchase deed showing date and cost of acquisition
- Indexed cost computation (for pre-July 2024 acquisitions) or original cost (for post-July 2024)
- Capital gains computation prepared by a CA
- PAN card
- Passport and residency proof establishing NRI status
- Bank statements of NRE/NRO account (to establish existing income and tax positions)
- Tax Residency Certificate and Form 10F if DTAA benefit is also being claimed
- ITR copies for the last 2–3 years
Processing typically takes 30 days under the CBDT's prescribed timeline, though actual processing times vary. File the application as soon as the sale agreement is signed — before the sale deed is registered. Once the buyer deducts TDS at the full rate and deposits it, recovering the excess becomes a refund exercise that takes much longer.
Reinvestment Exemptions: Sections 54, 54EC, and 54F
Three exemption provisions can reduce or eliminate the LTCG liability for NRI sellers:
Section 54: If the property sold is a residential house, and you purchase another residential property in India within 1 year before or 2 years after the sale (or construct one within 3 years), the capital gain to the extent reinvested is exempt. NRIs can claim this but the new property must be in India. Note that only one house can be purchased for exemption unless the capital gain is below ₹2 crore (in which case two properties can be claimed — once in a lifetime).
Section 54EC: Invest the long-term capital gain (not the full sale proceeds — just the gain amount) in specified bonds issued by NHAI or REC within 6 months of the sale. Maximum investment: ₹50 lakh per financial year. The bonds have a mandatory 5-year lock-in. This option does not require purchasing another property.
Section 54F: Available when the capital asset sold is not a residential house (e.g., commercial property, land). The entire net sale consideration (not just the gain) must be reinvested in a residential house in India within the same timelines as Section 54. You must not own more than one other residential house on the date of sale.
If you plan to claim any of these exemptions, document the reinvestment carefully. These are claimed in the ITR — they can also be presented to the AO when applying for a Section 197 certificate to demonstrate that your net tax liability will be nil or lower.
Repatriation of Sale Proceeds
After the property is sold and taxes are settled, NRIs can repatriate the proceeds abroad. The FEMA rules govern this. Key points:
- Repatriation is permitted up to USD 1 million per financial year from NRO accounts (the standard channel for NRI property sale proceeds).
- The proceeds must first be deposited into an NRO account. From there, they can be transferred to an NRE account or directly remitted abroad.
- A CA certificate in Form 15CB and Form 15CA self-declaration are required before the bank will execute the remittance. These certify that applicable taxes have been paid or provision made.
- The bank will ask for evidence of tax payment — typically the ITR acknowledgement with tax paid confirmation, or a no-objection certificate from the IT department.
- If the property was inherited, the repatriation rules are slightly different and depend on the original acquisition route of the deceased owner.
DTAA Relief for NRI Sellers
If you are resident in a country with which India has a Double Taxation Avoidance Agreement (DTAA), the treaty may provide for a lower or nil withholding rate on capital gains. However, the treatment varies significantly by treaty:
- Most DTAAs give India the primary right to tax gains from immovable property situated in India. The DTAA typically does not reduce the Indian tax rate but ensures the tax is not levied again in the country of residence (credit is given there).
- Some older treaties (notably the India-Mauritius DTAA, though substantially amended) had more favourable treatment — but these are treaty-specific and you need professional advice.
- To claim any DTAA benefit, provide a valid Tax Residency Certificate and Form 10F to your CA and to the AO processing your Section 197 application.
Common Mistakes NRI Sellers Make
- Not obtaining a Section 197 certificate: The most expensive mistake. Leads to massive TDS deduction and a long wait for refund.
- Relying on the buyer's CA: The buyer's CA represents the buyer's interests. You need your own CA to represent your tax position independently.
- Missing the 6-month window for 54EC bonds: If you decide to invest in bonds for exemption, the investment must be made within 6 months of the date of transfer (sale). Missing this forfeits the exemption permanently.
- Not filing an Indian ITR: Even if TDS has been fully deducted, you must file an ITR in India for the year of sale to claim any refund of excess TDS, to declare the capital gains officially, and to ensure the transaction is on record.
- Power of Attorney issues: Many NRIs execute property transactions through a local PoA holder. Ensure the PoA is correctly registered, covers the specific transaction, and is current. Banks and sub-registrars have become increasingly strict about PoA validity.
- Incorrect property valuation: The sub-registrar will compare the sale consideration against the stamp duty value (circle rate / guidance value). If the stamp duty value exceeds the sale consideration, the higher of the two is taken as the deemed consideration for capital gains purposes under Section 50C. If the sale price is more than 10% below the stamp duty value, Section 56(2)(x) may also apply to the buyer. Price the transaction reasonably.
Step-by-Step Summary for NRI Sellers
- Before agreeing on price: Get a CA to compute the expected capital gains tax and net repatriation amount so you understand what you will actually receive after taxes and TDS.
- After signing agreement: Immediately apply for Section 197 certificate online with CA assistance.
- Provide certificate to buyer: Once Section 197 certificate is received, ensure the buyer has it before making any payment.
- Decide on reinvestment: If using Section 54 or 54F exemption, begin the reinvestment process within the prescribed timelines. For 54EC bonds, do not wait — the 6-month clock starts from the sale date.
- Ensure buyer files Form 27Q and issues Form 16A: You need Form 16A from the buyer to claim TDS credit in your ITR.
- File Indian ITR for the year of sale: Report capital gains, claim applicable exemptions, claim TDS credit, and if a refund is due, ensure bank account details (NRO account) are pre-validated on the portal.
- Repatriation: After ITR is filed and taxes settled, initiate Form 15CA/15CB process with CA and execute remittance through NRO account.
Frequently Asked Questions
Q: I inherited this property from my parents. What is the cost of acquisition for capital gains?
A: For inherited property, the cost of acquisition is the original cost to the previous owner (or the fair market value as on 1 April 2001, if the original acquisition was before that date). The holding period also includes the period it was held by the previous owner. This can significantly reduce the taxable gain and may even qualify the gain as long-term, resulting in a lower rate.
Q: My property is in my wife's name and she is also an NRI. Same rules apply?
A: Yes — the same Section 195 rules apply. The TDS obligation is on the buyer, and the tax on capital gains falls on the registered owner (your wife). She would apply for the Section 197 certificate in her name using her PAN.
Q: Can I avoid paying tax in India entirely by paying tax in my country of residence?
A: Generally no — India has primary taxing rights on gains from Indian immovable property under most DTAAs. You may get a tax credit in your country of residence for taxes paid in India, but you cannot substitute residence-country tax for Indian tax on this income.
Q: The buyer is refusing to deduct TDS at the lower rate even though I have a Section 197 certificate. What can I do?
A: A valid Section 197 certificate is binding on the payer (buyer) under the statute. If the buyer refuses to honour it, they become liable for interest and penalties on excess deduction. You can raise this formally with the Income Tax department. In practice, most buyers comply once the certificate is verified — the issue is usually the buyer's CA not being familiar with the process.
How We Can Help
At Regi Tom Antony And Associates, we handle NRI property sale tax matters end to end — capital gains computation, Section 197 applications, Form 13 filing, DTAA analysis, Form 15CA/15CB for repatriation, and ITR filing for the year of sale. We work with NRI clients across the UK, USA, UAE, Australia, Canada, and Singapore.
If you are planning to sell property in India, contact us before you sign the agreement of sale. The tax structuring done at that stage determines the outcome; restructuring after the sale deed is registered is significantly more difficult and expensive.
This article is for general information only. Verify current provisions with a CA before proceeding with your transaction.