As a Non-Resident Indian (NRI) selling property in India, you’ll encounter two main taxes: Tax Deducted at Source (TDS) by the buyer and Capital Gains Tax (CGT) on profits. These apply to sales of residential/commercial properties in India, regardless of your country of residence. Key updates from Budget 2024 (effective July 23, 2024) include a reduced long-term CGT rate of 12.5% without indexation, though you can opt for 20% with indexation if it lowers your liability. Always compute both to choose the better option. Strategies focus on minimizing TDS upfront, claiming exemptions via reinvestment, and optimizing timing. Note: Rates exclude surcharge (up to 37% for high earners) and 4% cess.
TDS is deducted on the full sale consideration (not just gains) when no lower-deduction certificate is furnished; for NRI property sales, buyers generally withhold at 20% for long-term and 30% for short-term, subject to surcharge and cess, and sellers can claim credit in the ITR.
Capital Gains Tax (Short-Term) applies at slab rates (up to 30% plus surcharge and 4% cess) if held for 24 months or less, computed and paid via the NRI’s ITR.
Capital Gains Tax (Long-Term) applies at 12.5% without indexation for transfers on/after July 23, 2024; for assets acquired before that date, an NRI may opt for 20% with indexation if beneficial, computed and paid via ITR.
For NRIs, TDS is governed by Section 195 and is deducted by the buyer at rates aligned to the nature of gains, with long-term typically at 20% and short-term at slab rates, plus applicable surcharge and cess; a lower or nil TDS certificate (Form 13) can align withholding to the estimated final tax.
Unlike residents subject to Section 194-IA at 1% for consideration above ₹50 lakh, NRIs fall under Section 195 and face higher withholding unless a lower-deduction certificate is obtained; buyers risk penalties if TDS is not deducted and deposited correctly.
The Union Budget 2024 introduced a uniform LTCG rate of 12.5% on transfers made on or after July 23, 2024; for land/building acquired before that date, taxpayers may choose 20% with indexation if that yields a lower liability.
The policy simplifies holding periods to broadly 12 and 24 months and withdraws indexation for many assets acquired after July 23, 2024, while retaining the option for pre-23 July 2024 acquisitions of immovable property to use 20% with indexation.
| Tax Type | Applicability | Rate (FY 2025–26) | Deducted By |
|---|---|---|---|
| TDS | On full sale consideration (not just gains) for all NRI property sales. | 20% (long-term, held >24 months); 30% (short-term, held ≤24 months) | Buyer (deposits to government; you can claim credit in ITR) |
| Capital Gains Tax (Short-Term) | Profits on assets held ≤24 months. | Slab rates (up to 30% + surcharge/cess) | Self-assessed via ITR |
| Capital Gains Tax (Long-Term) | Profits on assets held >24 months. | 12.5% without indexation (new default); or 20% with indexation (opt-in if beneficial) | Self-assessed via ITR |
Reduce TDS Burden with a Lower Deduction Certificate: Apply for Form 13 (under Section 197) to the Assessing Officer at least 30 days before sale; this caps TDS at your estimated actual CGT (e.g., 10-15% instead of 20/30%), using your sale value, cost, and indexation where applicable.
Benefit: Avoids excess withholding—claim refund later via ITR if over-deducted; critical since standard TDS otherwise applies on gross consideration for NRIs in buyer practice under Section 195; with a certificate, withholding aligns to estimated gains.
Tip: Using a chartered accountant expedites filing, with typical processing windows in the one-to-two-week range in simple cases, though timelines may vary by jurisdiction and case complexity.
Optimize Capital Gains Calculation: Indexation for Long-Term Gains: Adjust purchase cost using the Cost Inflation Index when eligible (for property acquired before 23 July 2024 if opting 20% with indexation); this can significantly reduce taxable gains compared to the 12.5% flat route; compute both and choose the lower.
Timing the Sale: Selling after 24 months qualifies for LTCG rates; for transfers post-July 23, 2024, many recent acquisitions favor the 12.5% rate without indexation compared to indexation at 20%; older acquisitions often still benefit from indexation.
Joint Ownership: If co-owned with a resident spouse, gains split proportionally; the resident’s TDS is 1% under Section 194-IA (subject to conditions), which can reduce overall cash outflow relative to full Section 195 withholding on the entire consideration if structured and documented correctly.
Claim Exemptions via Reinvestment: Section 54: Reinvest LTCG from sale of a residential house into one or two residential properties in India within specified timelines; exemption is up to the LTCG amount and proportionate if partial reinvestment, with a ₹10 crore cap on new asset cost for exemption computation.
Section 54F: On sale of non-residential assets (e.g., land, commercial property, shares), reinvest net sale proceeds in one residential house; cannot own more than one house at the time of transfer; exemption is proportionate and capped at ₹10 crore; use CGAS if funds aren’t deployed by ITR due date.
Section 54EC: Invest up to ₹50 lakh of LTCG in specified bonds (NHAI/REC) within 6 months, with a 5-year lock-in; this offers exemption up to the bond limit when conditions are satisfied.
NRI Tip: The Capital Gains Account Scheme (CGAS) preserves eligibility for 54/54F deductions if the ITR due date arrives before reinvestment; deposit unutilized amounts into CGAS and utilize within the statutory windows to keep the exemption valid.
Repatriation and Double Taxation Relief: Up to USD 1 million per FY can generally be repatriated from NRO after meeting tax obligations; higher amounts require RBI approval; using NRE/FCNR channels simplifies forex, subject to FEMA compliance.
For US/Canada NRIs: Foreign Tax Credit (FTC) is typically claimable in the residence country against Indian CGT under DTAA principles, subject to local disclosures (e.g., FATCA/Form 8938 in the US) and documentary proof of Indian taxes paid.
Strategy: Using DTAA residency and TRC can mitigate higher withholding in some flows; ensure documentation (PAN, TRC, Form 10F) aligns with treaty positions where relevant.
Additional Planning Tips: Pre-Sale Audit: Independent valuation, title diligence, and documentary alignment avert disputes that may inflate taxes or delay lower-deduction certificates.
ITR Filing: File within timelines (generally July 31 for non-audit and October 31 where audit applies) using ITR-2/3 for NRIs to claim TDS credits and exemptions; maintain computation proof of choosing 12.5% vs 20% with indexation.
High-Value Sales: Ensure Form 16A/16B issuance by the buyer and Form 26QB compliance in applicable cases; reconcile AIS/TIS with TDS deposits to avoid mismatches.
Recent Case Insight: Courts have historically recognized composite residential units as a single house and allowed staged investments tied to construction, but current caps and timelines apply strictly; professional guidance is recommended for high-value cases.
These strategies can cut effective tax from 20-30% to near-zero with smart reinvestment. However, rules evolve (e.g., no indexation for post-2001 immovable property in some cases), so consult NRI CareConnect for your specifics.
Section 54F of the Income Tax Act provides tax exemption on long-term capital gains (LTCG) from the sale of any asset other than a residential house (e.g., land, shares, gold), if the net sale proceeds are reinvested in purchasing or constructing one residential house in India. The exemption is proportional to the amount reinvested, capped at ₹10 crore (effective AY 2024-25). Eligible taxpayers: Individuals or HUFs (including NRIs); key rule: the taxpayer must not own more than one residential house at the time of sale (excluding the new one), and the new property can’t be sold within 3 years, or the exemption is revoked.
| Rule | Details |
|---|---|
| Asset Sold | LTCG from non-residential assets (held >24 months); e.g., land, commercial property, shares. |
| Reinvestment | Full net proceeds in one new residential house; proportional if partial; use Capital Gains Account Scheme (CGAS) for unutilized funds by ITR due date. |
| Timeline | Purchase: 1 year before or 2 years after sale; Construction: 3 years after sale. |
| Ownership Limit | ≤1 residential house owned at sale date. |
| Cap & Lock-in | Exemption ≤₹10 Cr; new property lock-in 3 years (breach triggers withdrawal). |
Here are real-world and illustrative examples, including calculations (assuming FY 2025-26 rates: 12.5% LTCG without indexation; indexation optional if beneficial). Tax savings assume 12.5% rate + 4% cess (~13%).
Basic Proportional Reinvestment (Mr. X’s Land Sale Scenario) An individual sells urban land (purchased June 2020 for ₹50 lakh) for ₹5 crore on Aug 14, 2024. Indexed cost: ₹60.21 lakh (using CII 363/301). LTCG: ₹4.40 crore. Reinvests ₹3 crore in a new residential flat (Aug 2025); owns no other house.
Exemption Calculation: Proportional = LTCG × (Reinvested / Sale Proceeds) = ₹4.40 Cr × (₹3 Cr / ₹5 Cr) = ₹2.64 Cr.
Taxable LTCG: ₹1.76 Cr (tax ~₹22.88 lakh at 13%).
Tax Savings: ~₹34.32 lakh (on exempted ₹2.64 Cr). Conditions: Reinvestment within 2 years; no additional house bought.
Full Reinvestment on Under-Construction Property (Land Sale Example) Sell agricultural land for ₹1 crore (LTCG: ₹40 lakh). Buy under-construction flat (possession 2030, but construction completes by 2028) using full ₹1 crore proceeds; own zero other houses.
Exemption Calculation: 100% of ₹40 lakh LTCG (full proceeds reinvested).
Taxable LTCG: ₹0 (tax ₹0).
Tax Savings: ₹5.2 lakh (full ₹40 lakh at 13%). Conditions: Construction within 3 years; deposit in CGAS if not fully used by ITR deadline (Jul 31, 2026); sale agreement within 1 year before/after.
Multiple Investments in Same Property (ITAT Delhi Case: Mahinder Kumar Jain, 2014 – Updated for 2025 Rules) Sell commercial property in 2008-09, invest ₹47.84 lakh in farm house construction. Sell five more assets in 2010-11, invest ₹1.59 Cr in the same under-construction house (owns only one other flat). Total LTCG: ~₹2.07 Cr.
Exemption Calculation: ₹47.84 lakh (2008-09) + ₹1.59 Cr (2010-11) = ₹2.07 Cr (proportional/full per year).
Taxable LTCG: ₹0 (full exemption).
Tax Savings: ~₹26.91 lakh (at 13% on ₹2.07 Cr; within ₹10 Cr cap). Conditions: Same property allowed across years; construction completes within 3 years per sale; no more than one house owned.
High-Value Multi-Floor Purchase (Delhi HC: Lata Goel Case – Adapted for 2025) Sell shares (LTCG: ₹90 Cr) and buy multiple floors in one Delhi building (treated as one house). Own no other residential property.
Exemption Calculation: Full ₹90 Cr LTCG (reinvested in single “house” structure).
Taxable LTCG: ₹0 (but capped at ₹10 Cr exemption if over; here, partial tax on excess).
Tax Savings: ~₹1.3 Cr (on ₹10 Cr at 13%); court read multiple floors as one house in similar precedents; current statutory cap applies.
Long-term choice: 12.5% vs 20% with indexation: For property acquired before July 23, 2024, compute LTCG tax both ways—without indexation at 12.5% and with indexation at 20%—then choose the lower; older acquisitions with large inflation adjustments often favor indexation.
Example decision rule: If indexed cost uplift reduces gains by more than approximately 37.5% compared to unindexed gains, the 20% route often wins; otherwise, the 12.5% flat rate may be lower post-23 July 2024 transfers.
Holding period optimization: Deferring a sale to cross 24 months converts STCG to LTCG, lowering the base rate from slab (up to 30% plus surcharge/cess) to 12.5% without indexation or 20% with indexation as applicable.
Surcharge management: For very high incomes, the surcharge up to 37% can materially change effective rates; sequencing reinvestment and utilization of 54/54F/54EC can reduce taxable gains and therefore surcharge impact.
Lower deduction certificate (Form 13): Provide the buyer a copy of the lower/nil deduction order so withholding is done on estimated gains instead of gross consideration; gather purchase proofs, cost of improvement, brokerage, and CII-backed computation to support the application.
Buyer compliance checklist: PAN verification, TAN registration for TDS deposit, correct section (195), timely payment and return filing, and issuance of TDS certificate to the NRI seller; missteps can delay repatriation and trigger notices.
Dealing with multiple sellers: TDS must be computed separately per seller class (resident vs NRI; long-term vs short-term); proper allocation in the sale deed and payment schedules prevents over-withholding.
Section 54: Permits investment in one or two residential properties if gains ≤ ₹2 crore once in a lifetime; for broader claims, invest in one property; overall exemption recognizes a ₹10 crore cap on new asset cost for computation.
Section 54F: Requires investing the net sale consideration into one residential house and owning not more than one house on the transfer date; proportionate exemption applies when reinvestment is partial; ₹10 crore cap applies.
Section 54EC: Bonds must be purchased within six months; limit ₹50 lakh; lock-in five years; ensure KYC and tranche availability before deadlines.
CGAS: If the ITR due date arrives before the purchase/construct is completed, deposit unutilized amounts into a CGAS Type A/B account to preserve eligibility, then deploy as per the permitted window.
Repatriation: Up to USD 1 million per financial year from NRO balances is permitted, subject to documentation of source and tax compliance; larger amounts require RBI approval; routing via NRE/FCNR at the outset simplifies conversion where permissible.
DTAA and FTC: Maintain evidence of Indian TDS and final tax payment for foreign credit claims; obtain a Tax Residency Certificate (TRC) and complete Form 10F to support treaty positions; mismatches can delay refunds or FTC.
Bank documentation: Ensure purpose codes, sale deed, TDS challans, and CA certificates (e.g., Form 15CB where applicable) are in order for smooth remittances.
Missing the CGAS deposit before the ITR due date can forfeit exemptions; diarize deadlines and pre-arrange bank CGAS processes well in advance.
Owning more than one residential house at the time of transfer disqualifies 54F; verify classification of properties and updated municipal records to avoid inadvertent disqualification.
Treating multiple floors/units as separate houses can threaten exemptions unless facts support a single residential house; align documentation and floor plans with case law reasoning and current caps.
Ignoring surcharge: High-income surcharge can make a substantial difference; model scenarios with and without reinvestment to understand real cash outcomes.
