Tax on Sale of Property in India for NRIs

Property sales by NRIs have seen greater numbers due to higher income from overseas and multiple connections with India. It is crucial to know about the tax on property sale in India for NRIs and the NRI property sale tax deduction rules in order to avoid any surprises. With the Finance Act, 2024, amending the computation of long-term capital gains (LTCG), this guide gives the updated rules, key exemptions, and guidance for managing your property sale tax for NRIs.

When and How NRIs are Taxed on Property Sale?

An NRI is considered so under FEMA and the Income Tax Act if they reside in India for not more than 182 days during a financial year. The NRI capital gains are taxable in India on the sale or transfer of a property in India (even inherited property), irrespective of their residential status, which means the tax on property sale in India for NRI is completely applicable.

Capital Gains Explained: Short-Term vs Long-Term?

The type of gain (short-term or long-term) determines the applicable tax rate. In case of immovable properties sold within 24 months, the gain is short-term capital gain (STCG), and it is taxed at the slab rate of the seller (for NRI is around 30% plus surcharge and cess).

If you hold the property for more than 24 months, it is a long-term capital gain (LTCG). As per the post, the Finance Act 2024 amendments, if the property sale happens on or before 22 July 2024, the old regime (20% with indexation) applies. And for sales on or after 23 July 2024, the new regime of flat 12.5% without indexation applies (the resident-taxpayer “20% with indexation vs 12.5%” choice does not apply to NRIs).

TDS Rules and Buyer’s Role (Section 195) 

When the property sale is by an NRI, the buyer (resident or domestic company) is obligated under the Income-Tax Act, 1961 (Section 195) to deduct tax at source (TDS) before making any payment.

For short-term gains, TDS is deducted at the rate of 30% (plus applicable surcharge and cess) on the total sale consideration. For long-term gains, TDS on the entire sale consideration is 12.5% (plus surcharge and cess) for transactions on or after 23 July 2024; it was 20% with indexation benefit under the old regime.

Example: You sell for ₹ 1 crore (assuming this qualifies as LTCG). Buyer should deduct ~₹ 20 lakh (i.e., 20% of ₹ 1 crore) if pre pre-July 2024 regime applies; ~₹ 12.5 lakh if after 23 July 2024 under the new regime. TDS will be deposited by a buyer on or before the 7th of the next month (for most months), and Form 16A will be issued to the seller. The seller may claim a reduced or zero deduction through Form 13, should the actual tax liability be lower.

So, an NRI who is subject to tax deduction for NRI on property sale should make sure that the buyer deducts TDS and files it.

Finance Act Latest Updates 

The main update in the Finance Act 2024 is that long-term capital gains (LTCG) arising on or after 23 July 2024 from the transfer of an immovable property are taxed at 12.5% (without indexation). Transfers on or before this date have the option of 20% with Indexation or 12.5% without Indexation.

Illustration: Bought a property for ₹ 30 lakh (indexed cost say ₹ 40 lakh), then sold after 30 months for ₹ 1 crore:

• Under old regime: Taxable gain = ₹ 60 lakh → tax at 20% = ₹ 12 lakh.

• Under new regime: taxable gain = ₹ 70 lakh (no indexation) → tax at 12.5% = ₹ 8.75 lakh.

This illustrates how the new rate lowers the headline percentage but eliminates the inflation cushion, which could lead to higher property sales tax for NRI on older holdings.

Exemptions for NRIs (Sections 54, 54F, 54EC)

Some of the relief consumers may claim concerning income tax in 1961,  are even available for NRI under that Act:

• Section 54: When you sell a long-term residential house and invest the sale proceeds in another residential property in India (either within one year before the purchase or two years after the sale) or construct one within three years, you may utilize the whole or part of the capital gains for claiming exemption. NRIs can apply. 

• Section 54F: If the asset sold is any other long-term capital asset (other than a residential house) and the net sale consideration is invested in a new residential property in India, relief can be availed. 

• Section 54EC: You are allowed to invest the capital gain of up to ₹50 lakh in specific bonds (such as bonds of National Highways Authority of India or Rural Electrification Corporation Limited) within six months of the sale to avail the exemption. NRIs are also applicable.

Repatriation Process and Documentation

After the sale, they credit the proceeds to your NRO account. For outward remittance, please adhere to rule 37BB: Submit Form 15CA and obtain Form 15CB in case of requirement (taxable remittances, generally> ₹5 lakh). 

You can repatriate upto USD 1 million in a financial year from your NRO account under the scheme issued by the RBI after paying all the tax on property sale in India for NRI dues.

If the property has been purchased with foreign exchange, sale proceeds are repatriable to the extent of the original forex for not more than two residential properties; beyond that, the repatriation route lies in the USD 1M route, non-compliance with 15CA/15CB can bring in a fine of ₹1,00,000 (Sec 271I)

DTAA and Country-Specific Rules (US, UK, UAE)

India has entered into Double Taxation Avoidance Agreements (DTAs) with many countries for the prevention of double taxation of the same income.

Relief is given under a DTAA by way of credit for foreign taxes paid or by exempting the income in one country.

If you sell property in India as an NRI:

• Capital gains are taxable in India under most DTAA under Article 13 of those agreements.

• In the US or UK, you must report the gain and take a foreign tax credit for the Indian tax.

• In the UAE, there is no personal income tax, so Indian tax is final.

Practical NRI Seller Checklist

Before and after selling your property in India, here’s a simple checklist that will keep you legally compliant and well-informed:

• You can file for Form 13 (certificate for lower/nil TDS) if you expect a lower tax liability.

• Make sure TDS is deposited by the buyer, and you receive Form 16A.

• Get the CA certificate for repatriation (form 15CB).

• Keep copies of Form 15CA/15CB, sale deed, purchase deed, title deed, tax invoice, and ITR (for non-resident ITR, use ITR-2).

• Claim relevant exemptions under section 54, 54F, or 54EC (if applicable).

• Maintain all records for 8 years in accordance with tax regulations.

This will help you to deal with the NRI property sale tax and comply hassle-free.

Conclusion

Selling property in India as an NRI is important in Taxation terms like TDS, capital gains, exemptions, and repatriation. The new 12.5% LTCG rate simplifies filing but eliminates indexation benefits. Keep yourself compliant, document well, and file timely returns to reduce your tax on property sale for NRI.

FAQs

1. What happens if the TDS is not deducted by the buyer under Section 195?

The buyer can be declared a defaulter under Section 201 and penalized; the NRI may face difficulty in claiming TDS credit.

2. Am I still eligible to claim exemption under Sec 54/54F if I purchase a property overseas?

No, reinvestment must be in a residential property located in India.

3. I bought a property in 2010 and intend to sell it in 2025. What is the rate?

LTCG on the property will be taxed at 12.5% without indexation (plus surcharge & cess). NRIs do not get the 20% with indexation option under the new rules.

4. How long does it take to get the money repatriated after the sale?

After paying tax and filing Form 15CA/15CB, you can repatriate USD 1 million per financial year as per RBI guidelines.