Selling Property in India as an NRI: Tax, TDS, and Repatriation Guide

You inherited a flat in Mumbai. Your father bought it in 2005 for Rs 25,00,000. Today it is worth Rs 1,50,00,000. You sell it. The tax you pay depends entirely on one question: did you hold the property for more than 2 years?

**Long-term capital gains (held over 2 years):** Post-Budget 2024, LTCG on property is taxed at a flat 12.5% under Section 112 of the Income Tax Act. The catch: indexation benefit has been removed. Your gain is simply sale price minus purchase price (or fair market value as of April 1, 2001, whichever is later), without any inflation adjustment.

For the Mumbai flat example: Sale price Rs 1,50,00,000 minus cost of acquisition Rs 25,00,000 (or FMV as of 01-04-2001 if purchased before that date) = Rs 1,25,00,000 gain. Tax at 12.5% = Rs 15,62,500.

**Short-term capital gains (held under 2 years):** STCG is taxed at your applicable slab rate, which for NRIs is 30% + surcharge + cess on income exceeding Rs 10,00,000. Effective rate: approximately 31.2%. On that Rs 1,25,00,000 gain, STCG tax would be Rs 39,00,000. That is Rs 23,37,500 more than LTCG.

**The holding period counts from the date of purchase, not the date you became an NRI.** If your father bought the flat in 2005 and you inherited it in 2023, your holding period is from 2005, not 2023. For inherited property, the date of acquisition by the previous owner is your date of acquisition (Section 49(1), Income Tax Act).

**For gifted property:** Same rule. The holding period and cost of acquisition of the previous owner carry forward to you.

When an NRI sells property in India, the buyer is legally required to deduct Tax Deducted at Source (TDS) under Section 195 of the Income Tax Act. This is not optional. The buyer who fails to deduct TDS becomes personally liable for the tax plus interest.

**TDS rates for NRI property sellers:** - LTCG (property held over 2 years): 12.5% of the sale consideration, not the gain. If you sell for Rs 1,50,00,000, TDS is Rs 18,75,000, even if your actual gain is only Rs 50,00,000. - STCG (property held under 2 years): 30% + surcharge + cess on the sale consideration. On Rs 1,50,00,000, that is approximately Rs 46,80,000.

**The TDS is on the full sale price, not the gain.** This is the part that shocks most NRI sellers. The buyer deducts TDS on the entire sale consideration because they have no way to verify your cost of acquisition. This means you will almost always overpay through TDS and must file an Indian tax return to claim a refund.

**How to reduce TDS: Apply for a lower TDS certificate.** Under Section 197, you can apply to the Assessing Officer for a certificate specifying a lower TDS rate based on your actual tax liability. Submit Form 13 with: - Sale agreement showing the sale price - Purchase deed showing the cost of acquisition - Computation of capital gains - Any exemption claims (Section 54, 54EC)

The AO will issue a certificate within 30 days specifying the exact TDS amount. This prevents the buyer from deducting TDS on the full sale price and saves you from tying up lakhs in refund claims for 12-18 months.

**Buyer's TDS deposit:** The buyer deposits TDS using Form 26QB within 30 days of the month in which TDS is deducted, and issues Form 16A to you. Verify the TDS credit in your Form 26AS or Annual Information Statement (AIS) on the income tax portal.

The Income Tax Act provides two main exemptions for capital gains on property sale. Used correctly, they can reduce your tax to zero.

**Section 54: Reinvest in another residential property.** - Available for LTCG on sale of a residential house - Buy or construct one residential property in India - Timeline: buy within 1 year before or 2 years after the sale date, or construct within 3 years after sale - The new property must be residential (commercial property does not qualify) - Exemption is limited to one property (Budget 2023 capped this, removing the earlier two-property option) - If you do not buy immediately, deposit the capital gains amount in a Capital Gains Account Scheme (CGAS) in a nationalized bank before the ITR filing deadline

**Section 54EC: Invest in specified bonds.** - Available for LTCG on sale of any capital asset (not just residential property) - Invest in bonds issued by NHAI or REC within 6 months of the sale date - Maximum investment: Rs 50,00,000 per financial year - Lock-in period: 5 years (you cannot sell, pledge, or transfer these bonds) - Interest rate: approximately 5.0% (lower than FD rates, but the tax saving justifies it) - The bonds are not repatriable, so this locks your money in India for 5 years

**Practical example:** You sell a flat for Rs 1,50,00,000 with LTCG of Rs 1,00,00,000. Tax at 12.5% = Rs 12,50,000.

Option A: Buy another flat worth Rs 1,00,00,000 or more within 2 years. Full Section 54 exemption. Tax: zero.

Option B: Invest Rs 50,00,000 in 54EC bonds within 6 months. Exemption on Rs 50,00,000. Remaining Rs 50,00,000 taxed at 12.5% = Rs 6,25,000. You saved Rs 6,25,000.

Option C: Combine both. Buy a Rs 60,00,000 flat (Section 54 covers Rs 60,00,000) and invest Rs 40,00,000 in 54EC bonds. Full exemption. Tax: zero.

**NRI-specific trap:** You must have an NRO account to receive the sale proceeds. The Section 54 reinvestment and 54EC bond purchase must happen from the NRO account. If you repatriate the money before reinvesting, you lose the exemption claim.

You sold the property. You paid the tax (or got a lower TDS certificate). Now you want to send the money to your US bank account. This is where FEMA regulations add another layer.

**Repatriation limit:** NRIs can repatriate up to $1,000,000 (USD one million) per financial year from their NRO account, under the RBI's Liberalised Remittance Scheme guidelines for NRI repatriation (not to be confused with LRS for residents). This includes all NRO repatriation, not just property sale proceeds.

**If your sale proceeds exceed $1,000,000:** You will need to spread the repatriation across financial years, or apply for special RBI permission for amounts exceeding the limit.

**Form 15CA/CB process:** Every repatriation from NRO requires two forms:

**Form 15CA:** An online declaration by the remitter (you) on the income tax portal, stating the nature of the remittance and confirming tax compliance. Filed before the bank processes the transfer.

**Form 15CB:** A certificate from a practicing Chartered Accountant (CA) confirming that taxes have been paid on the remitted amount. Required for remittances exceeding Rs 5,00,000 in a financial year. The CA verifies your tax computation, TDS certificates, and ITR acknowledgment.

**Documents your bank will require:** - Sale deed (registered) - Purchase deed (registered) or inheritance/gift deed - Form 15CA (generated on income tax portal) - Form 15CB (from your CA) - ITR acknowledgment showing capital gains reported - TDS certificates (Form 16A from buyer) or lower TDS certificate (Section 197) - NRO account statement showing the credit of sale proceeds - PAN card copy - FEMA declaration confirming NRI status

**Timeline reality:** From property sale to money landing in your US account, expect 2-4 months. The bottleneck is usually the CA certificate (Form 15CB), which requires your ITR to be filed first, and the bank's compliance review.

**Cost of repatriation:** CA charges for Form 15CB typically run Rs 5,000-15,000. Bank charges for outward remittance from NRO vary: SBI charges Rs 500 + GST, HDFC charges Rs 1,000 + GST. The receiving bank in the US may charge $15-25 for an incoming wire.

Selling Indian property triggers tax obligations in both India and the US. The India-US Double Taxation Avoidance Agreement (DTAA) ensures you do not pay full tax in both countries, but you must report correctly to claim the benefit.

**US reporting requirements:**

**Schedule D (Form 1040):** Report the capital gain on your US tax return. Convert the sale price and purchase price to USD using the exchange rates on the respective transaction dates. The gain is the difference in USD terms.

**Important:** The gain in USD may be different from the gain in INR because of exchange rate movement. If the rupee depreciated between purchase and sale, your USD gain will be smaller than the INR gain (and vice versa). Use the exchange rate on the date of each transaction.

**Foreign Tax Credit (Form 1116):** Under Article 13 of the India-US DTAA, capital gains on immovable property are taxable in the country where the property is located (India). Under Article 23, the US provides relief by allowing a credit for taxes paid to India.

File Form 1116, General Category, to claim the Indian tax paid (TDS or tax per ITR) as a credit against your US tax on the same income. The credit is limited to the lesser of: (a) the Indian tax paid, or (b) the US tax attributable to the Indian-source gain.

**Practical example:** You sell property in India with a gain of Rs 1,00,00,000 (approximately $118,000 at 84.75 INR/USD). India taxes this at 12.5% = Rs 12,50,000 ($14,750). On your US return, the gain is $118,000, taxed at your marginal rate. If your US tax on this gain is $28,000, you claim a Foreign Tax Credit of $14,750, reducing your US tax to $13,250. Total tax paid: $14,750 (India) + $13,250 (US) = $28,000, which equals what you would have paid to the US alone.

**If Indian tax exceeds US tax:** Excess FTC can be carried back 1 year or carried forward 10 years under IRC Section 904(c).

**FBAR and FATCA note:** The NRO account holding sale proceeds counts toward your FBAR and Form 8938 thresholds. A Rs 1,50,00,000 sale credit to NRO pushes most NRIs well above both thresholds. File accordingly.

**Mistake 1: Not getting a lower TDS certificate.** Without a Section 197 certificate, the buyer deducts TDS on the full sale price. On a Rs 1,50,00,000 sale with Rs 50,00,000 gain, you overpay Rs 6,25,000 in TDS and wait 12-18 months for a refund. Apply for the certificate before closing.

**Mistake 2: Missing the Section 54 reinvestment deadline.** You have 2 years to buy or 3 years to construct. If you miss it, open a Capital Gains Account Scheme (CGAS) before your ITR filing deadline for the sale year. Money sitting in your NRO savings account does not count as CGAS.

**Mistake 3: Repatriating before claiming exemptions.** If you transfer sale proceeds out of India before reinvesting under Section 54 or 54EC, you lose the exemption. Keep the money in NRO until your tax planning is complete.

**Mistake 4: Using the wrong cost of acquisition for inherited property.** Your cost basis is the previous owner's purchase price (or FMV as of 01-04-2001 for pre-2001 purchases), not the market value on the date you inherited. Getting this wrong inflates or deflates your gain and changes your tax liability.

**Mistake 5: Forgetting to report on the US return.** Even if you paid tax in India, the sale must appear on your US Schedule D. The Foreign Tax Credit does not happen automatically. You must file Form 1116 to claim it. Omitting the sale from your US return is underreporting foreign income, which extends the statute of limitations to 6 years and triggers FATCA penalties.

**Mistake 6: Not accounting for stamp duty and registration charges.** Both the buyer's stamp duty (if paid by you during purchase) and registration charges are part of your cost of acquisition. Improvement costs (renovations with receipts) also add to the cost basis. Every rupee added to cost reduces your taxable gain.

**Mistake 7: Selling in March without tax planning.** If you sell in February or March, your repatriation window for the current financial year is tight. The NRO repatriation limit resets on April 1. Time your sale to maximize the repatriation window and avoid splitting proceeds across years unnecessarily.