Sale of Immovable Property in India by NRIs: Taxation & Compliance

The sale of property in India by Non-Resident Indians (NRIs) involves a very different taxation and compliance framework compared to resident sellers. While the transaction may appear straightforward, the layers of taxation, TDS rules, FEMA requirements, repatriation process, and documentation make it essential for NRIs to prepare in advance.

This article provides a clear, practical guide on the tax and regulatory considerations NRIs must keep in mind when selling immovable property in India.

What laws are applicable for sale:

NRI property transactions are governed primarily by:

• Income-tax Act, 1961
• FEMA (Transfer of Immovable Property) Regulations
• RBI Master Directions for repatriation
• TDS & withholding rules for payments to NRIs

NRIs can sell:

• Residential property
• Commercial property
• Agricultural land / farmhouse / plantation property only if originally acquired by inheritance or gift

Taxation:

a) Long-Term Capital Gains (LTCG)

Applies when property is held for more than 24 months.

• Tax rate: 20% + surcharge + cess
• Eligible for indexation benefit
• Eligible for exemptions under Sections 54, 54EC, 54F

b) Short-Term Capital Gains (STCG)

Applies when property is held for up to 24 months.

• Taxed at slab rates applicable to NRIs
• No indexation, no exemptions

c) Deductions & Cost Adjustments Available

NRIs can reduce taxable gains through:

• Indexed cost of acquisition
• Indexed cost of improvement
• Brokerage fees / stamp duty / registration charges
• Renovation and repair expenses (if capital in nature)

TDS Obligations — A Tricky Issue

TDS rules differ significantly for NRI sellers.

a) Buyer must deduct TDS at:

• 20% (plus surcharge and cess) for LTCG
• 30% (plus surcharge and cess) for STCG
• TDS applies on gross sale value, not on capital gain
•  Consequences

This often results in excess TDS, causing cash flow issues for NRI sellers.

b) How to Reduce TDS?

NRIs can apply for: Lower / NIL TDS Certificate (Form 13)

Issued by the Assessing Officer (International Tax) based on the seller’s:

• Estimated capital gains
• Cost documentation
• Proposed exemptions
• Past tax returns

This certificate allows the buyer to deduct TDS at a much lower rate, sometimes even NIL.

Exemptions Available to NRI Sellers

NRIs are eligible for the same exemptions as residents:

• Section 54

Reinvestment in another residential property (India).
Allows proportionate or full exemption.

• Section 54EC

Investment in NHAI/REC bonds within 6 months (limit: ₹50 lakh).

• Section 54F

Reinvestment of sale amount into residential property (India).

These exemptions must be planned before executing the sale.

Filing Income Tax Return (ITR) — Mandatory for NRIs

NRIs must file ITR in India if they:

• Sell a property
• Have capital gains
• Want to claim refund of excess TDS
• Want to claim exemptions under Section 54/54EC/54F

Even if capital gains are exempt, ITR filing is compulsory to validate the exemption.

Repatriation of Sale Proceeds under FEMA

After selling property, NRIs may repatriate sale proceeds abroad, subject to FEMA requirements.

a) If property was purchased from:

• Foreign funds (NRE/FCNR/overseas remittance)

— Proceeds are freely repatriable up to the amount of initial investment.

• Domestic funds (NRO account)

— Repatriation permitted up to USD 1 million per financial year.

b) Mandatory Documents for Repatriation

• Form 15CA/15CB (from Chartered Accountant)
• Sale deed
• Bank credit advice / FIRC
• Proof of original purchase and source of funds
• Capital gains computation
• TDS certificate (Form 16A)

c) Route for remittance

Only through the NRO account; banks will not repatriate from NRE unless proof of original investment through NRE exists.

Joint Ownership:

• All co-owners must obtain separate lower TDS certificates
• Repatriation is allowed in proportion to ownership
• Capital gains must be computed individually

Common Errors NRIs Make and How to Avoid Them

•  Assuming TDS is 1%

This applies only to resident sellers. For NRIs, TDS is much higher.

•  Ignoring Lower TDS Certificate

This often results in large refunds locked up for months.

•  Using Power of Attorney improperly

PoA must be notarised + apostilled/consularised.

•  Not keeping original purchase documents

Banks require proof of original investment for repatriation.

•  Treating repatriation as automatic

Banks strictly follow FEMA conditions.

•  Not filing ITR despite TDS deduction

ITR is mandatory to complete the tax cycle.

Practical Guidance for NRI Sellers

•  Start the sale process early — especially the Form 13 (Lower TDS) application
• Collect all historical purchase and payment proofs
• Ensure buyer is aware of NRI TDS rules
• Engage CA for 15CA/15CB before signing sale deed
• Maintain complete property and tax file for 8–10 years for audits
•  Evaluate DTAA implications if capital gains tax is paid in India

Conclusion

Selling immovable property in India as an NRI requires careful coordination across Income Tax, TDS, and FEMA repatriation rules. With proper planning—especially around lower TDS certificates, exemption claims, and repatriation documentation—NRIs can significantly reduce tax leakage, avoid compliance issues, and ensure smooth transfer of funds. An expert professional will surely help in this complicated process.

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In case you have any concern and queries or need any support regarding sale of immovable property , you may like to contact us.

Abhinarayan Mishra, FCA, FCS; Managing Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi;  +9910744992, ca.abhimishra@gmail.com