NRI Selling Property in India: Capital Gains, TDS, Repatriation and Everything Else You Need to Know

Selling a property in India when you live abroad is one of the more administratively demanding financial transactions an NRI can undertake. The property may have been in the family for decades. The paperwork is in India, the bank accounts are in India, and you are not.

The buyer, the registrar, the tax authorities, and the bank all have requirements that must be met in a specific sequence, and the consequences of getting any step wrong, whether it is TDS being deducted at the wrong rate, proceeds landing in the wrong account, or repatriation paperwork being incomplete, can cause delays measured in months and tax headaches measured in lakhs.

This article walks through the entire process in the sequence it actually happens: the tax classification, the TDS obligation on the buyer, the capital gains computation, the exemptions available to reduce the tax, how the proceeds reach your account, and how you get the money out of India if that is your intention. It covers both properties acquired as an NRI and properties acquired before you became an NRI, because the rules differ in ways that matter.

NRIs can sell most types of Indian property they legitimately hold. The principal categories are residential property such as houses and flats, commercial property such as shops and office spaces, and plots of land. Agricultural land, plantation property, and farmhouses are handled differently.

Agricultural land, plantation property, and farmhouses cannot be sold by an NRI to another NRI or to a foreign national under FEMA rules. They can only be sold to a resident Indian. This restriction applies regardless of how the NRI came to own the land: whether through purchase as a resident Indian before becoming an NRI, through inheritance, or through gift. The buyer must be a resident Indian citizen.

Residential and commercial property, by contrast, can be sold by an NRI to any of the following: another NRI, a resident Indian, a Person of Indian Origin (where applicable), or an OCI cardholder, subject to the general conditions of the transaction. There is no requirement to sell to a resident Indian specifically.

Property Type	Can Sell To	Any Restrictions?
Residential property (flat, house, villa)	Resident Indian, NRI, OCI cardholder	None beyond standard FEMA and income tax compliance
Commercial property (shop, office, warehouse)	Resident Indian, NRI, OCI cardholder	None beyond standard compliance
Plot of land (non-agricultural)	Resident Indian, NRI, OCI cardholder	None beyond standard compliance
Agricultural land	Resident Indian citizen only	Cannot be sold to NRI, OCI, or foreign national
Plantation property	Resident Indian citizen only	Same restriction as agricultural land
Farmhouse	Resident Indian citizen only	Same restriction as agricultural land

The capital gain from a property sale is the difference between the sale price and the cost of acquisition, adjusted for permissible deductions and, for long-term assets, for inflation through indexation where applicable. The classification of the gain as short-term or long-term depends on how long the property was held before the sale.

For immovable property, the holding period threshold for long-term classification is 24 months. If you held the property for more than 24 months before selling, the gain is a Long-Term Capital Gain (LTCG). If you held it for 24 months or less, the gain is a Short-Term Capital Gain (STCG). This 24-month threshold is different from the 12-month threshold that applies to listed equity, so NRIs who are accustomed to equity taxation should not conflate the two.

Category	Holding Period	Tax Rate	Indexation Available?
Short-Term Capital Gain (STCG)	24 months or less	Taxed at the seller's applicable income tax slab rate	No
Long-Term Capital Gain (LTCG)	More than 24 months	12.5% flat (without indexation, post Budget 2024)	No; indexation benefit removed for property sales from 23 July 2024 onwards
LTCG for properties purchased before 23 July 2024	More than 24 months	Option to choose: 12.5% without indexation OR 20% with indexation, whichever is lower	Yes; transitional relief for pre-July 2024 acquisitions

The removal of the indexation benefit for property capital gains, announced in Budget 2024 and effective from 23 July 2024 onwards, was a significant change. Previously, NRIs could inflate the cost of acquisition using the Cost Inflation Index (CII) published by the Income Tax Department, reducing the taxable gain substantially on properties held for many years.

This benefit is no longer available for properties sold after 23 July 2024 on fresh acquisitions. However, for properties purchased before that date, the transitional relief allows taxpayers to compare the tax liability under both regimes and choose the lower one. This is a case where careful computation matters before deciding whether to sell or delay.

Computing the Capital Gain: What Goes Into the Calculation

The capital gain is not simply the difference between the sale price and what you originally paid. Several adjustments are permitted, and NRIs should ensure these are all properly accounted for before computing the taxable gain.

The sale consideration is the amount received or receivable from the buyer. However, under Section 50C of the Income Tax Act, if the sale consideration declared in the sale deed is lower than the stamp duty value (the value determined by the state government for stamp duty purposes), the stamp duty value is substituted as the deemed sale consideration for computing capital gains. This provision prevents underreporting of sale prices in property transactions and applies equally to NRIs and resident sellers.

The cost of acquisition for NRI sellers depends on when and how the property was acquired. If the property was purchased, the cost is the actual purchase price plus incidental costs such as stamp duty, registration fees, brokerage paid at the time of purchase, and any legal charges. If the property was inherited, the cost of acquisition for the heir is the cost at which the previous owner acquired it, which may need to be traced through older documents.

The cost of improvement refers to capital expenditure incurred on the property after acquisition, such as construction costs for a new floor, renovation of a structural nature, or other capital improvements. These costs increase the cost basis and reduce the taxable gain. Routine maintenance expenditure does not qualify as cost of improvement.

Component	What It Includes	Effect on Taxable Gain
Sale consideration	Amount received from buyer; or stamp duty value if higher under Section 50C	Higher sale consideration means higher gain
Cost of acquisition	Original purchase price plus stamp duty, registration, brokerage paid at purchase	Higher cost reduces the gain
Cost of improvement	Capital expenditure on structural improvements after acquisition	Reduces the gain
Transfer expenses	Brokerage paid on sale, legal charges for sale, any applicable transfer taxes	Deductible from the sale consideration; reduces the gain
Indexed cost (for pre-July 2024 acquisitions only)	Cost of acquisition multiplied by applicable Cost Inflation Index ratio	Reduces the gain by adjusting for inflation during the holding period

TDS on Property Sale: The Buyer's Obligation

This is the aspect of NRI property sales that causes the most administrative friction and where mistakes are made most often. When an NRI sells property in India, the buyer is legally required to deduct TDS from the sale consideration before making payment. The TDS is deducted at the time of payment or at the time of crediting, whichever is earlier.

The TDS rates for NRI property sellers are prescribed under Section 195 of the Income Tax Act and are significantly higher than the rates applicable to resident Indian sellers. A resident Indian selling property to a buyer faces TDS at 1 percent of the sale value if the consideration exceeds Rs 50 lakh. An NRI faces TDS based on the applicable capital gains rate, which for LTCG is 12.5 percent and for STCG is the slab rate, plus surcharge and cess.

Because surcharge applies on top of the base TDS rate for higher income levels, and because the surcharge on property capital gains does not have the same cap that equity gains have, the effective TDS rate for NRI property sellers can be substantially higher than the flat 12.5 percent headline rate.

Gain Type	TDS Rate (Base)	Surcharge	Effective TDS Rate (Approximate)
LTCG (held more than 24 months)	12.5%	Nil for total income up to Rs 50 lakh; 10% for Rs 50 lakh to Rs 1 crore; 15% above Rs 1 crore	12.5% to 14.375% plus 4% cess; higher for very large transactions
STCG (held 24 months or less)	Slab rate applicable to NRI (typically 30% for most NRIs)	Same surcharge as above	30% to 34.5% plus 4% cess for highest bracket; lower for lower income NRIs
Resident Indian seller (for comparison)	1% if consideration above Rs 50 lakh	Not applicable	1% flat; seller self-computes tax at filing

The buyer must deposit the deducted TDS to the government using Challan 281 and must issue Form 16A (TDS certificate) to the NRI seller within the specified timelines. Failure to deduct TDS or under-deduction makes the buyer personally liable for the undeducted amount plus interest and penalty. This is why buyers of NRI property are often particularly careful about the TDS deduction, and why it is important for NRI sellers to understand what amount should be deducted so they can verify that the buyer is complying correctly.

The buyer is legally responsible for deducting TDS when purchasing property from an NRI. The NRI seller does not self-withhold. However, the seller must verify that the correct amount is being deducted, because excess deduction leads to tax being locked with the government until a refund is processed.

Reducing the TDS Burden: The Lower Deduction Certificate

One of the most useful but least utilised provisions for NRI property sellers is the ability to apply to the Income Tax Department for a certificate permitting the buyer to deduct TDS at a lower rate. This is done under Section 197 of the Income Tax Act.

The standard TDS on LTCG from property is computed on the full sale consideration, not on the net capital gain. If the property was purchased for Rs 50 lakh and is being sold for Rs 1.5 crore, the capital gain is Rs 1 crore. But if you are also reinvesting the gains in another property or in Bonds under Section 54EC (discussed below), the actual taxable gain may be much lower or even nil. Without a Section 197 certificate, the buyer would still deduct TDS at 12.5 percent on the full Rs 1.5 crore sale price, which is Rs 18.75 lakh, even though your actual tax liability is far less or zero.

By obtaining a Section 197 certificate from the Assessing Officer, the NRI seller can establish the correct TDS rate based on the anticipated net capital gain after exemptions. The buyer then deducts TDS at the lower certified rate, and the NRI seller does not need to wait for a potentially large refund after filing the return.

The application for a Section 197 certificate requires filing an application online on the income tax portal, supported by documents including the sale agreement, computation of capital gains, evidence of any reinvestment planned, PAN, and other relevant information. The application should be filed well in advance of the sale transaction, as processing can take several weeks. The certificate, once issued, is valid until the date of the sale deed.

Exemptions Available to Reduce Long-Term Capital Gains Tax

For long-term capital gains on property, Indian tax law offers two major exemptions that can significantly reduce or eliminate the tax liability. Both are available to NRIs on the same terms as resident Indians, which is an important and sometimes underappreciated point.

Section 54: Reinvestment in Another Residential Property

Under Section 54, an individual or HUF can claim exemption from LTCG on sale of a residential property if the gains are reinvested in purchasing or constructing another residential property in India.

• The new property must be purchased within one year before or two years after the date of sale, or constructed within three years from the date of sale.

• The exemption is limited to the amount of capital gains, not the full sale consideration. If the gain is Rs 60 lakh and the new property costs Rs 80 lakh, only Rs 60 lakh is exempt.

• Only one residential property can be purchased or constructed for the exemption, subject to an exception: if the capital gain does not exceed Rs 2 crore, the taxpayer has the option to invest in two residential properties. This option can be exercised only once in a lifetime.

• The new property must be held for at least three years after purchase or completion. If sold before three years, the previously claimed exemption is reversed and added back to the capital gains of the year of sale.

• The new property must be located in India. The exemption is not available if the NRI reinvests in property abroad.

For NRIs, the Section 54 exemption requires that the new property is also purchased or constructed in India. The provision does not specify that the seller must be a resident; NRIs can claim it on the same terms. However, the practical complexity of buying a new property in India while living abroad, and the three-year holding requirement on the new property, means some NRI sellers prefer the Section 54EC bond route instead.

Section 54EC: Investment in Capital Gains Bonds

Section 54EC provides an exemption from LTCG on property if the gains are invested in specified bonds issued by National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC), or other notified bonds. These bonds are sometimes called 54EC bonds or capital gains bonds.

• The investment must be made within six months of the date of transfer of the property.

• The maximum investment that can be made in 54EC bonds in any financial year is Rs 50 lakh. The same cap of Rs 50 lakh applies across all sales in a financial year combined.

• The bonds have a mandatory lock-in period of five years. They cannot be sold, pledged, or hypothecated during this period.

• If the bonds are redeemed before five years due to any reason, or if the bonds are sold or pledged, the exemption is reversed.

• The interest earned on 54EC bonds is taxable as income at the applicable slab rate. The bonds do not offer any additional tax exemption on the interest income.

Feature	Section 54 (New Property)	Section 54EC (Capital Gains Bonds)
Eligible asset	Residential property in India	NHAI, REC, or other notified bonds
Time limit for reinvestment	1 year before or 2 years after sale (purchase); 3 years for construction	Within 6 months of date of transfer
Maximum exemption	Full LTCG amount (up to amount invested in new property)	Rs 50 lakh per financial year
Lock-in on new asset	3 years minimum; else exemption reversed	5 years; cannot sell, pledge, or hypothecate
Returns from new asset	Appreciation of property; rental income taxable	Fixed interest income; taxable at slab rate
Available to NRIs?	Yes; new property must be in India	Yes; same terms as resident Indians
Repatriation of the reinvested amount	Sale proceeds of new property subject to FEMA rules	Bond redemption proceeds credited to NRO account; repatriation subject to normal limits

The Section 54EC route is simpler for NRIs who do not want to commit to buying another property in India. The maximum Rs 50 lakh exemption is a meaningful limitation, however. For NRIs selling high-value property with large capital gains, the 54EC bonds can only shelter a portion of the gain, and the Section 54 route becomes necessary for larger exemptions.

Capital Gains Account Scheme: When You Cannot Reinvest Before Filing

A practical problem arises when the property has been sold but the NRI has not yet found a new property to buy, and the deadline for filing the income tax return is approaching. In this situation, the NRI cannot claim the Section 54 exemption in the return without having made the reinvestment. To address this, the Capital Gains Account Scheme (CGAS) allows the taxpayer to deposit the unutilised capital gains into a designated account with a scheduled bank before the due date of filing.

The amount deposited in the CGAS is treated as having been invested for the purposes of the exemption. The taxpayer then has the balance of the three-year period from the date of sale to withdraw the CGAS funds and apply them to a qualifying property purchase or construction.

If the CGAS funds are not utilised within the permitted period, or if the account is withdrawn for non-qualifying purposes, the exemption is reversed and the capital gains become taxable in the year of expiry or misutilisation, along with applicable interest for late payment of tax.

CGAS accounts must be opened at a bank designated to offer this scheme and must be in the taxpayer's name. For NRIs, the account is typically opened in India and linked to an NRO account for funding purposes.

Property Sale Proceeds: Which Account Do They Go To?

Under FEMA and RBI guidelines, the proceeds from the sale of Indian property by an NRI must be credited to an NRO account in India. This is a mandatory routing requirement and is the same regardless of whether the original property was purchased using NRE funds or NRO funds. Sale proceeds from property always go to the NRO account first.

This has a practical implication that NRIs sometimes find frustrating: even if the property was purchased using funds from an NRE account (which is freely repatriable), the sale proceeds flow to the NRO account, where they are subject to the repatriation cap of USD 1 million per financial year.

The buyer will typically pay the sale consideration after deducting TDS. The net amount (after TDS) is what the NRI seller receives. This net amount must be credited to an NRO account. The NRI can then initiate repatriation from the NRO account after meeting the applicable tax and compliance requirements.

Property sale proceeds, regardless of how the property was originally funded, must flow into the NRI's NRO account. Repatriation abroad is then subject to the USD 1 million annual cap and the compliance requirements for NRO repatriation.

Repatriating the Sale Proceeds: How to Get the Money Out of India

Once the property sale proceeds are credited to the NRO account, the NRI can repatriate them abroad subject to the following conditions and process.

The FEMA rules permit repatriation of up to USD 1 million per financial year from an NRO account, covering all sources of NRO account funds including property sale proceeds, rental income, dividends, and other Indian income. This USD 1 million cap is per financial year and is reset on 1 April each year.

For property sale proceeds specifically, the cap is further specified: up to two properties worth of proceeds can be repatriated from the NRO account. If an NRI has sold more than two properties and wants to repatriate proceeds from all of them, the amount beyond two properties' worth is subject to specific RBI approval.

To initiate repatriation, the NRI must submit the following to the bank handling the repatriation.

• Form 15CA and Form 15CB: Form 15CB is a certificate from a Chartered Accountant confirming that the applicable taxes have been paid or provided for on the remittable amount. Form 15CA is an online declaration made by the NRI on the income tax portal.

Together, these forms certify to the bank that the funds being remitted are clean from a tax perspective.

• Copy of the sale deed (registered).

• Copy of the TDS certificate (Form 16A) received from the buyer.

• Copy of the income tax return filed for the year of sale, if available.

• Bank statements showing the credit of sale proceeds to the NRO account.

• The bank may require additional documents depending on the transaction size and their internal compliance requirements.

Step	Action Required	Who Does It
Sale proceeds received	Credit to NRO account after TDS deduction	Buyer credits net proceeds to NRO account
File Indian ITR	Report property sale, compute capital gains, claim exemptions, settle tax	NRI; ideally with a CA in India
Obtain Form 16A	TDS certificate from buyer	Buyer must issue within prescribed time
Get CA certificate (Form 15CB)	CA certifies taxes paid; required before repatriation	Chartered Accountant engaged by NRI
File Form 15CA online	NRI declaration on income tax portal before remittance	NRI; supported by CA
Submit documents to bank	Bank reviews and processes repatriation	NRI submits; bank processes
Funds remitted abroad	NRO account debited; foreign account credited	Bank executes the wire transfer

Filing the Indian Income Tax Return After Property Sale

An NRI who sells property in India is required to file an Indian income tax return (ITR) for the year of sale, regardless of whether the full TDS was deducted by the buyer and regardless of whether any additional tax is owed. The ITR serves as the formal record of the capital gain computation, any exemptions claimed, and the tax liability after adjusting for TDS.

The NRI must file ITR-2 if the income is only from capital gains and no business income exists. The return should report the sale consideration, the cost of acquisition and improvement, the computed capital gain, and any exemption claimed under Section 54 or 54EC. TDS deducted by the buyer is available as a credit against the tax liability computed in the return.

If the TDS deducted exceeds the actual tax liability, the excess is a refund that the NRI claims through the return. Given the high TDS rates applicable to NRI property sellers, refunds are common. The refund is typically processed within a few months of filing and is credited to the bank account linked to the NRI's income tax portal account, which should be the NRO account in India.

The due date for filing the ITR is typically 31 July of the assessment year following the financial year of sale. For a property sold in FY2025-26, the due date would be 31 July 2026. Late filing attracts a fee of up to Rs 5,000 under Section 234F and also forfeits the right to carry forward capital losses.

Special Case: Selling Inherited Property

NRIs frequently sell property they have inherited from Indian relatives. The tax treatment of inherited property has some specific rules worth knowing.

When property is inherited, the cost of acquisition for the heir is the cost at which the previous owner originally purchased the property. If the previous owner purchased a flat in 1985 for Rs 3 lakh and the NRI inherits it and sells it in 2025 for Rs 2 crore, the capital gain is computed using the 1985 cost, not zero. For properties owned before 1 April 2001, the taxpayer has the option to substitute the fair market value as on 1 April 2001 as the cost of acquisition, which in most cases produces a significantly lower gain.

The holding period for inherited property includes the period during which the previous owner held it. The 24-month threshold for long-term classification applies to the combined period of ownership. Most inherited properties have been held for decades, so LTCG treatment almost always applies.

The same LTCG tax rate of 12.5 percent applies to inherited property, and the same exemptions under Sections 54 and 54EC are available. The same TDS obligation applies to the buyer.

Determining the original cost for a property purchased many decades ago can be challenging if records have been lost. Documentary evidence such as old sale deeds, revenue receipts, or family records is needed. In the absence of documentary evidence, the fair market value as on 1 April 2001 (which can be assessed using government circle rates and a professional valuation) is typically used as the substitute cost.

Overseas Tax on India Property Sale Proceeds: The DTAA Angle

Selling Indian property creates a taxable event in India. But it may also create a taxable event in the country where the NRI is tax-resident, depending on that country's domestic tax law and whether a Double Taxation Avoidance Agreement (DTAA) applies.

India has DTAAs with most countries where large NRI populations reside, including the United States, United Kingdom, Canada, Australia, Singapore, UAE, and many others. The DTAA typically allocates the right to tax capital gains from immovable property to the country where the property is situated, which is India.

This means the DTAA generally gives India the primary right to tax the gain from Indian property, and the NRI's country of residence typically provides a foreign tax credit for the Indian tax paid, rather than taxing the gain again in full.

However, DTAA provisions vary by treaty and by article within each treaty. The US-India DTAA, for example, gives both countries the right to tax capital gains from real property, with the US providing a foreign tax credit for Indian taxes paid. This can still result in residual US tax liability if the Indian TDS or capital gains tax paid is lower than the US tax that would have been due on the same gain under US rules.

NRIs should consult a cross-border tax professional who is familiar with both Indian tax law and the tax laws of their country of residence before finalising a property sale. The interaction between Indian capital gains tax, DTAA provisions, and overseas tax filing obligations is complex enough that general guidance is insufficient for planning a specific transaction.

Common Mistakes NRIs Make When Selling Indian Property

• Not applying for a Section 197 certificate in advance. This results in TDS being deducted on the gross sale consideration at the full capital gains rate, locking up large amounts with the government until a refund is processed through the ITR. The refund process works, but it can take 12 to 18 months and involves compliance steps that could have been avoided.

• Allowing the buyer to deposit TDS at the resident Indian rate of 1 percent. Buyers who are unaware of the higher NRI TDS obligation sometimes apply the 1 percent rate used for resident sellers. This is a TDS shortfall, and both the buyer and the NRI seller face compliance consequences. The NRI must ensure the buyer understands the correct applicable rate.

• Receiving sale proceeds in an NRE account instead of NRO. NRE accounts are designed for foreign earnings remitted to India. Property sale proceeds from India are not foreign earnings and should be credited to an NRO account. Crediting to an NRE account creates a FEMA compliance issue.

• Missing the six-month deadline for 54EC bond investment. NRIs who intend to claim the Section 54EC exemption must invest in the bonds within six months of the property transfer date. Missing this deadline forfeits the exemption entirely.

• Not filing the ITR for the year of sale. Some NRIs believe that since TDS was deducted by the buyer, their tax obligation is complete and no filing is necessary. This is incorrect. ITR filing is mandatory if the income exceeds the basic exemption limit, and the refund of excess TDS is only accessible through a filed return.

• Not accounting for the stamp duty value under Section 50C. If the stamp duty value of the property exceeds the sale consideration agreed with the buyer, the higher stamp duty value is used as the deemed sale consideration. NRIs who do not account for this will undercompute the capital gain, leading to a discrepancy when the income tax department processes the return.

A Timeline Summary of the NRI Property Sale Process

Stage	Action	Timing
Before sale	Apply for Section 197 lower TDS certificate if gains are expected to be reduced by exemptions	Several weeks before the sale registration date
At sale	Ensure buyer deducts correct TDS; obtain PAN details of buyer; ensure sale deed is registered	On the date of sale and registration
Within 6 months of sale	Invest in 54EC bonds if claiming Section 54EC exemption	No later than 6 months from date of transfer
Within 1 to 2 years of sale	Purchase new residential property if claiming Section 54 exemption	1 year before or 2 years after sale date for purchase
Before ITR filing date	Deposit unutilised exemption amount in CGAS if property purchase not yet completed	Before the due date of ITR (typically 31 July)
By 31 July of assessment year	File ITR-2; report capital gain; claim exemptions; claim TDS credit; request refund if applicable	Annual ITR deadline
After ITR is processed	Obtain Form 15CB from CA; file Form 15CA online; submit repatriation request to bank	As soon as ITR is filed and taxes are settled
Ongoing	Maintain records of sale deed, TDS certificates, reinvestment proofs, and CGAS statements for at least 7 years	Continuous

Selling property in India as an NRI is manageable, but it requires planning that begins well before the sale agreement is signed. The sequence matters: the Section 197 application must precede the sale, the TDS must be deducted correctly by the buyer, the proceeds must land in the right account, the ITR must be filed with the capital gain computed precisely, any exemptions must be claimed within the applicable deadlines, and the repatriation must be supported by the correct documentation before the bank will process the transfer.

The tax rates on property capital gains for NRIs are higher than most NRIs expect when they first encounter them. The removal of indexation benefits for recent acquisitions has increased the effective tax on older properties. But the exemptions under Sections 54 and 54EC, and the Section 197 mechanism for reducing TDS at source, provide legitimate tools to manage the burden. Used correctly, these provisions can result in significantly lower tax than the headline rate suggests.

Every NRI property sale is different in its specifics: the property value, the holding period, whether the original purchase was as a resident or an NRI, whether there is any inheritance involved, and what the overseas tax obligations look like. The combination of Indian and overseas tax law makes this one of the transactions where generic guidance is most likely to lead you astray and professional advice most likely to pay for itself.

Disclaimer: This article is for educational purposes only and does not constitute legal, tax, or financial advice. Tax provisions, TDS rates, FEMA rules, and DTAA implications are subject to change and are based on the position as understood at the time of writing. The Budget 2024 changes to indexation and capital gains rates involve transitional provisions that require case-by-case analysis. NRIs selling Indian property should engage a qualified chartered accountant with NRI tax experience and a FEMA-qualified professional before completing any transaction. Non-compliance with FEMA or income tax provisions can attract penalties and interest.