Selling Property as an NRI: Capital Gains, TDS and Repatriation

Selling Indian property as an NRI involves significantly more complexity than a typical resident transaction. Capital gains tax, TDS deducted at source by the buyer, FEMA repatriation limits and exemption planning all interact, and getting any one of them wrong can result in substantial overpayment of tax, blocked funds or penalties. We have guided many NRI sellers through this process, and the same questions arise every time. This guide answers them in full.

Short-Term vs Long-Term Capital Gains — The 24-Month Rule

The first step in any NRI property sale is determining whether the gain qualifies as short-term or long-term. Under both the existing framework and the Income Tax Bill introduced in Parliament in February 2026, immovable property held for more than 24 months qualifies as a long-term capital asset. Property held for 24 months or less produces a short-term capital gain.

The holding period is counted from the date of acquisition — typically the date of the registered sale deed — to the date of the sale deed for the current transaction. For inherited property, the original owner's date of acquisition is used to determine the holding period, which often results in long-term treatment even when the NRI has personally held the property for a short time.

Capital Gains Tax Rates Under the Income Tax Bill 2026

The Income Tax Bill 2026, introduced to replace the Income Tax Act 1961, consolidates and simplifies the capital gains provisions while preserving the rate structure established by the 2024 Union Budget amendments.

For property acquired before 23 July 2024, the seller may choose between two methods: 12.5 per cent without indexation, or 20 per cent with cost inflation indexation applied to the purchase price. The method that results in a lower tax liability should be chosen, and this calculation must be performed before the sale to inform TDS planning.

TDS Deducted by the Buyer — How It Works

When a buyer purchases property from an NRI seller, the buyer is legally obligated to deduct TDS from the sale consideration before making payment. This is one of the most misunderstood aspects of NRI property sales, and failure to deduct correctly exposes the buyer — not the seller — to penalties.

The TDS rates applicable are:

• Long-term capital gain: 12.5 per cent of the sale consideration, plus applicable surcharge and cess. The effective rate is approximately 14.96 per cent in most transactions.
• Short-term capital gain: 30 per cent of the sale consideration, plus applicable surcharge and cess. The effective rate exceeds 35 per cent for higher income brackets.

Note that unlike the Rs 50 lakh threshold that applies when a resident Indian sells property, there is no minimum threshold for NRI sellers. TDS must be deducted on the entire sale consideration, from the first rupee, regardless of the amount.

The buyer deposits the TDS using Form 27Q and issues a TDS certificate (Form 16A) to the NRI seller. The seller claims this as a credit when filing the Indian Income Tax Return and receives a refund if the actual tax liability is lower than the TDS deducted.

Applying for a Lower TDS Certificate — Form 13

In most NRI property sales, the TDS deducted at the standard rate significantly exceeds the actual tax liability. This happens because TDS is applied to the entire sale consideration, while the actual tax is levied only on the capital gain — a much smaller amount. The excess tax is refunded after filing the ITR, but this can take several months.

To avoid this cash flow disruption, the NRI seller can apply to the Income Tax Officer for a lower or nil TDS certificate under the provisions now codified in the Income Tax Bill 2026. The application is filed using Form 13, along with supporting documents including the draft sale agreement, computation of capital gains, and evidence of acquisition cost. Once approved, the certificate specifies the rate at which the buyer should deduct TDS.

The process typically takes four to six weeks. Sellers should initiate this application well before the sale is finalised. If the buyer deducts at the standard rate before the certificate is obtained, the excess can only be recovered through the ITR refund process.

Exemptions That Reduce Capital Gains Liability

Reinvestment in Residential Property

The long-standing exemption for reinvestment in residential property remains available under the Income Tax Bill 2026. An NRI who sells a long-term residential property and reinvests the capital gains in a new residential property in India can claim full exemption on those gains. The new property must be purchased within one year before or two years after the date of sale, or constructed within three years.

For NRIs with LTCG not exceeding Rs 2 crore, this exemption can be applied to two residential properties, but this option is available only once in a lifetime. If the new property is sold within three years of purchase, the exemption is reversed and the gains become taxable in that year.

Investment in Specified Bonds

Up to Rs 50 lakh of long-term capital gains can be invested in bonds issued by NHAI (National Highways Authority of India) or REC (Rural Electrification Corporation) within six months of the property sale. These bonds carry a five-year lock-in period. The exemption is available regardless of whether the seller reinvests in property.

Section 54F — For Non-Residential Property

When the property being sold is not a residential property — a commercial space, plot, or industrial unit — the applicable exemption requires the NRI to invest the entire net sale proceeds (not just the gains) in a new residential property within the same timelines described above. This is a more demanding condition and requires careful planning of the sale structure.

Repatriating Sale Proceeds to Your Country of Residence

Once the sale is complete and taxes have been settled, the NRI seller can repatriate the net proceeds abroad. The funds must first be credited to the NRI's NRO (Non-Resident Ordinary) account in India. From the NRO account, repatriation is subject to an overall limit of USD one million per financial year.

To transfer funds out of the NRO account, the bank requires:

• Form 15CA: A self-declaration by the remitter confirming the nature of remittance and applicable taxes.
• Form 15CB: A certificate from a Chartered Accountant confirming that Indian income tax has been paid or provided for on the amount being remitted.
• Registered sale deed and proof of acquisition cost
• TDS certificate (Form 16A) from the buyer
• Proof of Indian Income Tax Return filed for the relevant year (or acknowledgement of payment)

Avoiding Double Taxation — DTAA Benefits

India has Double Taxation Avoidance Agreements (DTAAs) with more than 90 countries, including the USA, UK, UAE, Canada, Australia and Singapore. Under these treaties, the capital gains tax paid in India can be claimed as a credit against the tax liability in the NRI's country of residence, preventing the same gain from being taxed twice.

To claim DTAA benefits in the country of residence, the NRI typically requires a Tax Residency Certificate (TRC) issued by the Indian Income Tax authorities confirming their NRI status, along with copies of TDS certificates and the Indian ITR acknowledging the tax paid. The specific documentation and credit mechanism varies by country, so a tax adviser in the country of residence should be consulted alongside the Indian tax process.

Filing the Indian Income Tax Return

NRIs with capital gains from property sales in India must file an Indian Income Tax Return using ITR-2 (for capital gains not arising from business). The due date is 31 July of the assessment year following the year of sale, or 31 October if the accounts are subject to audit.

Filing the ITR is the mechanism through which excess TDS is refunded, exemptions under the reinvestment provisions are claimed, and the overall tax position is finalised. An NRI who has paid more TDS than their actual liability can only recover the excess by filing. Missing the deadline results in interest on any outstanding tax and forfeiture of refund claims in some circumstances.

Transaction Timeline — Planning the Sale

A well-planned NRI property sale should follow this sequence:

1. Compute capital gains and determine LTCG or STCG status
2. Evaluate exemption options (reinvestment, bonds) and decide on strategy
3. File Form 13 for lower TDS certificate if appropriate — allow four to six weeks
4. Execute sale agreement and arrange registration date
5. Buyer deducts TDS at certified or standard rate and deposits with government
6. Collect TDS certificate (Form 16A) from buyer after quarter end
7. File Indian ITR by the applicable deadline
8. Submit Form 15CA and 15CB to bank for repatriation of net proceeds
9. Claim DTAA credit in country of residence with appropriate documentation