12 Nov 2022

Updated: May 2026

Tax on NRI Property Sale in India: Complete 2026 Guide

Selling property in India as a Non-Resident Indian (NRI) is one of the most tax-complex transactions in Indian personal finance. The transaction involves capital gains tax, TDS obligations on the buyer, repatriation rules under FEMA, and potential DTAA benefits. Getting any of these wrong can result in excess TDS deduction, locked funds in India, or a tax notice years later. At Regi Tom Antony And Associates — tax advisors in Kerala and across India — we handle NRI property sale advisory from transaction planning through to repatriation.

Capital Gains Tax on NRI Property Sale — Post Finance (No. 2) Act, 2024

The Finance (No. 2) Act, 2024 made significant changes to capital gains taxation on property, effective 23 July 2024:

Long-Term Capital Gains (LTCG) — Property Held More Than 24 Months

• Tax rate: 12.5% (reduced from 20%)
• Indexation benefit: Removed for properties acquired on or after 23 July 2024
• Indexation available for property acquired before 23 July 2024 (with an option to choose between 12.5% without indexation or 20% with indexation — whichever is lower)
• Surcharge and 4% cess apply on top of the base rate

Short-Term Capital Gains (STCG) — Property Held 24 Months or Less

• Taxed at applicable income tax slab rates (not a flat rate)
• For NRIs, this means slab rates under old or new regime as applicable

Computing Capital Gains

LTCG (without indexation):

Sale Consideration − Cost of Acquisition − Cost of Improvement − Selling Expenses = LTCG

LTCG (with indexation, for property acquired before 23 July 2024):

Sale Consideration − Indexed Cost of Acquisition − Indexed Cost of Improvement − Selling Expenses = LTCG

Indexed cost = Actual cost × (CII of year of sale ÷ CII of year of acquisition). Cost Inflation Index (CII) for FY2025–26 is 363.

TDS on NRI Property Sale — Section 195

This is the most common pain point for NRI sellers. Under Section 195, the buyer is responsible for deducting TDS before paying the sale consideration to the NRI seller:

• LTCG property (held >24 months): TDS at 12.5% + surcharge (25% surcharge if capital gains exceed ₹2 crore — effective TDS rate = 15.625%) + 4% cess
• STCG property: TDS at 30% (slab rate for NRIs) + surcharge + cess
• The buyer must obtain a TAN (Tax Deduction Account Number) and deposit TDS via Form 26QB
• TDS certificate in Form 16B must be issued to the NRI seller within 15 days of TDS deposit

Lower TDS Certificate under Section 197: If the actual capital gains tax is lower than the TDS being deducted (e.g., due to reinvestment exemptions or when sale is at a loss), the NRI can apply to the Income Tax Officer for a Certificate under Section 197 authorising the buyer to deduct TDS at a lower rate or nil. This must be applied for and obtained before the sale transaction. Regi Tom Antony And Associates regularly obtains such certificates for NRI clients — this service can save lakhs in excess TDS that would otherwise be blocked until ITR processing.

LTCG Exemptions Available to NRIs

NRIs can claim the same LTCG exemptions as residents:

Section 54 — Reinvestment in Residential Property

• Exemption on LTCG from sale of residential property if proceeds are reinvested in another residential property in India
• Must purchase new property within 1 year before or 2 years after sale, OR construct within 3 years
• Maximum exemption: LTCG or cost of new property, whichever is lower
• New property must be in India only (NRIs cannot claim exemption by buying property abroad)
• New property cannot be sold within 3 years of purchase/construction

Section 54F — LTCG from Any Asset Reinvested in Residential Property

• Available when selling non-residential property (commercial, plot, etc.) and reinvesting entire net sale consideration (not just LTCG) in residential property
• Same timeline as Section 54: 1 year before / 2 years after (purchase) or 3 years (construction)
• Proportionate exemption if entire proceeds not reinvested
• Not available if more than 2 residential properties owned at the time of transfer (other than the new house)

Section 54EC — Investment in Capital Gain Bonds

• LTCG can be invested in notified bonds (NHAI, REC) within 6 months of sale
• Maximum investment: ₹50 lakh per financial year
• Lock-in: 5 years; bonds cannot be transferred or pledged
• Interest on bonds is taxable; only the capital gain portion invested is exempt

Capital Gains Account Scheme (CGAS)

If you cannot reinvest the capital gains before the ITR due date for the year of sale, deposit the unutilised amount in a Capital Gains Account Scheme (CGAS) bank account before the due date. The deposit preserves your exemption entitlement while you arrange the reinvestment. Funds must be used within the prescribed reinvestment period.

FEMA — Repatriating Sale Proceeds

After paying applicable taxes and holding funds in your NRO account, you can repatriate up to USD 1 million per financial year from property sale proceeds. Requirements:

• Form 15CA (self-declaration) and Form 15CB (CA certificate confirming tax compliance) — filed on the Income Tax portal before bank processes the transfer
• ITR for the year of sale filed and assessment completed (or at minimum, self-assessment tax paid)
• Documentary evidence of original acquisition — sale deed, bank statements showing purchase fund source
• Property must have been purchased in accordance with FEMA regulations (from NRE/NRO account or inward remittance)

For end-to-end NRI property sale advisory — from TDS certificate application to repatriation — visit www.nriblueprint.com or read NRI Tax Blueprint 2025 by CA Regi Tom Antony, available on Amazon.

Frequently Asked Questions

Is indexation still available for NRI property sales in 2026?

Indexation is available only for properties acquired before 23 July 2024. For such properties, NRIs have a choice: pay LTCG at 12.5% without indexation, or pay at 20% with indexation — and choose whichever results in lower tax. For properties acquired on or after 23 July 2024, only the 12.5% without indexation option applies. This choice should be computed carefully on a case-by-case basis, especially for older properties in high-appreciation locations.

What if the buyer does not deduct TDS on my NRI property sale?

The buyer has a statutory obligation under Section 195 to deduct TDS. If the buyer fails to deduct, the buyer is treated as an "assessee in default" under Section 201 and is liable for the TDS amount plus interest at 1.5% per month from the date of payment to the date of actual deposit. The NRI seller is still liable for the underlying tax — they must pay self-assessment tax and file an ITR. Non-deduction by the buyer does not relieve the seller of tax liability.

Can an NRI sell inherited property in India and repatriate the proceeds?

Yes, with specific conditions under FEMA Master Direction on Remittance of Assets. Inherited property can be sold and proceeds repatriated up to USD 1 million per financial year (within overall NRO account remittance limits), subject to applicable capital gains tax payment and Form 15CA/15CB filing. The property must have been inherited from a person resident in India. Multiple properties can be sold in the same year but the USD 1 million per year cap covers all sources combined from the NRO account.