A Complete Guide to Selling Property in India as an NRI: Tax Implications for NRIs Who Want to Sell Property in India

There is a fair amount of confusion about the tax implications for NRIs who want to sell any property they may have in India. This article explores how much tax liability will arise in India and how TDS will be deductible in this case. Selling property in India as a Non-Resident Indian (NRI) involves navigating complex tax regulations. Missing key steps can lead to penalties or higher tax liabilities.

Who is Considered a Non-Resident in India?

As per the Income Tax Act, an individual is classified as a non-resident if:

• They spend less than 182 days in India during a financial year, OR

• They stay in India for less than 60 days in the financial year and ≤365 days in the preceding four years.

Non-residents face different tax treatments compared to residents, especially for property sales.

Capital Gains Tax for NRIs: STCG vs. LTCG

Profits from selling property are taxed as capital gains, categorized as:

1. Short-Term Capital Gains (STCG)

• Applies if the property is sold within 2 years of purchase.

• Taxed at income tax slab rates (5%–30%) based on your total taxable income.

2. Long-Term Capital Gains (LTCG)

• Applies if the property is held for over 2 years.

• NRIs had to pay 12.5% flat tax (no indexation benefit).

TDS (Withholding Tax) on Property Sales

The buyer must deduct TDS before paying the NRI seller:

*If the NRI doesn’t provide a Lower Tax Deduction Certificate from the Income Tax Department, TDS is deducted at 30% regardless of gain type.If you want to apply for a lower deduction certificate, you need to file Form 13 with the assessing officer. The AO then goes through the details of the form and is satisfied; then, he/she can issue a lower deduction certificate.

Key Requirements:

• Buyer must obtain a TAN (Tax Deduction Account Number).

• Seller must share their PAN; else, TDS is deducted at 30%.

• Form 26QB (1% TDS for residents) does not apply to NRIs.

Tax Exemptions to Reduce LTCG Liability

1. Section 54 Exemption

This exemption is available when there is a long-term capital gain on the sale of house property of the NRI. To avail yourself of this exemption, you must invest in house property in India. Please note – you do not have to invest the entire sale proceeds; only by investing up to the amount of capital gains could the whole capital gains be claimed as exempt. Of course, your purchase price of the new property may be higher than the amount of capital gains. However, your exemption shall be limited to the total capital gain on sale. Also, you can purchase this property either one year before the sale or two years after the sale of your property. You are also allowed to invest the gains in the construction of a property, but construction must be completed within three years from the date of sale. 
This new house property must be situated in India. The exemption under section 54 shall not be available for properties bought or constructed outside India to claim this exemption. (Remember that this exemption can be withdrawn if you sell this new property within three years of its purchase). The maximum LTCG claimed as exempt under this Section shall be Rs 10 crores.

Reinvest capital gains in another residential property:

• Purchase within 2 years of sale or construct within 3 years.

• Exemption = Amount reinvested (only for residential properties).

2. Section 54EC Exemption 

You can save taxes on your LTCG by investing them in certain bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC), which have been specified for this purpose. These bonds are redeemable after five years and must not be sold before the completion of 5 years from the date of sale of the house property. 
Note that you cannot claim this investment under any other deduction. You are allowed six months to invest in these bonds – though to claim this exemption, you must invest before the return filing date. 
Budget 2014 specified that you are allowed to invest a maximum of Rs 50 lakhs in these bonds in a financial year. 

Invest gains in specified bonds (e.g., NHAI, REC, PFC):

• Maximum investment: ₹50 lakhs.

• Lock-in period: 5 years (interest is taxable).

• Bonds must be bought within 6 months of the sale.

Avoid Double Taxation: DTAA Benefits

India’s Double Taxation Avoidance Agreements (DTAAs) with 90+ countries allow NRIs to:

• Claim a tax credit in their resident country for taxes paid in India.

• Submit a Tax Residency Certificate (TRC) to prove eligibility.

Example: If you’re a U.S. resident, DTAA may cap India’s tax rate on property sales at 15%.

Repatriation of Sale Proceeds by NRI outside India

The NRI seller must submit Form 15CA and 15CB to repatriate the sale proceeds of a property with the authorised dealer bank. The Form 15CB must be signed and submitted by a chartered accountant. An NRI seller can repatriate up to USD 1 million in a year outside India.

Penalties to Avoid

• Late ITR filing: ₹5,000–₹10,000.

• Incorrect TDS deduction: 1.5% monthly interest on pending dues.

Understand capital gains tax, TDS, exemptions, and DTAA benefits for NRIs selling property in India. Avoid penalties and optimize tax savings. Expert guidance included. Navigating tax laws can be overwhelming. Our experts specialize in NRI property sales, TDS compliance, and DTAA claims. Contact us today for personalized assistance: