NRI Selling Property in India: TDS & Capital Gains

TDS on NRI Property Sale: The Basics

When a buyer purchases property from an NRI, they are legally required to deduct TDS under Section 195 of the Income Tax Act. The rates are significantly higher than the 1% TDS applicable for resident sellers:

Long-term property (held 2+ years)

• Base TDS rate: 20% of the total sale consideration
• Surcharge: 10% if sale exceeds ₹50 lakh, 15% if sale exceeds ₹1 crore, 25% above ₹2 crore
• Health & Education Cess: 4% on (TDS + surcharge)
• Effective rate: 20.8% to 23.92% depending on sale value

Short-term property (held under 2 years)

• Base TDS rate: 30% of the total sale consideration
• Surcharge + cess: Same structure as above
• Effective rate: 31.2% to 35.88%

LTCG Calculation: 12.5% Without Indexation

From FY 2024-25 (Budget 2024 changes), long-term capital gains on property are taxed at a flat 12.5% without indexation. The earlier option of 20% with CII (Cost Inflation Index) indexation has been modified:

• Property acquired after 23 July 2024: LTCG at 12.5% without indexation only
• Property acquired before 23 July 2024: You can choose the lower tax from: 12.5% without indexation OR 20% with indexation. The government grandfathered older properties

Example calculation

Property purchased in 2015 for ₹40 lakh, sold in 2026 for ₹1 crore:

• Without indexation: Gain = ₹1 crore − ₹40 lakh = ₹60 lakh. Tax at 12.5% = ₹7.5 lakh + cess
• With indexation (if applicable): Indexed cost = ₹40 lakh × (CII 2026 / CII 2015). If indexed cost is ₹62 lakh, gain = ₹38 lakh. Tax at 20% = ₹7.6 lakh + cess
• Choose: Without indexation (lower tax at ₹7.5 lakh)

Use our Capital Gains Calculator to compute both scenarios for your specific property.

Form 13: Lower TDS Certificate — Essential for NRIs

Form 13 is an application under Section 197 of the Income Tax Act that allows you to obtain a certificate authorizing the buyer to deduct TDS at a lower rate (proportional to your actual tax liability) instead of the standard 20%+ on the full sale price.

How to apply for Form 13

1. File online: Application is filed on the TRACES portal (tdscpc.gov.in) or through your Assessing Officer
2. Provide details: Property details, sale consideration, cost of acquisition, expected capital gain, and your PAN
3. Supporting documents: Property purchase agreement, bank statements showing purchase payment, improvement receipts, and the proposed sale agreement
4. Processing time: 30-45 days (apply well before the planned sale date)
5. Certificate issued: Specifies the lower TDS rate or nil TDS amount. Valid for the specific transaction and financial year

Buyer's Obligations: What Your Buyer Must Do

Buyers of NRI-owned property have specific legal obligations. As the seller, you should ensure your buyer understands and follows these requirements, because non-compliance creates problems for both parties:

1. Obtain TAN: The buyer must have a Tax Deduction Account Number (TAN) to deduct and deposit TDS. They can apply on the Income Tax website
2. Deduct TDS at correct rate: 20%+ for LTCG, 30%+ for STCG, or the lower rate specified in the Form 13 certificate
3. Deposit TDS using Form 26QB: Filed online within 30 days of the month in which TDS is deducted. Late deposit attracts interest at 1.5% per month
4. Issue TDS certificate (Form 16A): Must be issued to the NRI seller within 15 days of filing Form 26QB
5. Pay sale consideration to NRO account: The buyer must credit the net amount (sale price minus TDS) to the NRI's NRO account

Buyer beware: If the buyer fails to deduct TDS, they become personally liable for the TDS amount plus interest (1-1.5% per month) and penalties. Many buyers are unaware of NRI TDS rules — share this guide with your buyer.

Repatriation of Property Sale Proceeds

After the sale is complete and all taxes paid, NRIs can repatriate the proceeds abroad subject to RBI and FEMA regulations:

Repatriation process

1. Sale proceeds to NRO account: The buyer credits the net amount to your NRO account
2. File ITR in India: Report the capital gain and claim credit for TDS deducted
3. Obtain Form 15CB: A Chartered Accountant certifies that all Indian taxes have been paid and the amount is eligible for remittance
4. File Form 15CA online: Declaration filed on the Income Tax portal before the remittance
5. Bank processes remittance: Your NRO bank initiates the international wire transfer to your overseas account

Limits and restrictions

• Repatriation is allowed for sale proceeds of up to 2 residential properties
• NRO account remittance is subject to the $1 million per financial year limit
• If the sale proceeds exceed $1 million, the balance can be repatriated in the next financial year
• The property must have been acquired in compliance with FEMA regulations

DTAA: Avoiding Double Taxation

NRIs may be taxed on the property sale in both India and their country of residence. DTAA treaties prevent double taxation by providing a tax credit mechanism:

• Tax credit method: Tax paid in India on the capital gain is credited against the tax owed in the country of residence. You effectively pay the higher of the two countries' rates, not both
• Documentation required: Tax Residency Certificate (TRC) from your country of residence, Form 10F, and proof of Indian tax paid (Form 26AS / AIS)

Example (US NRI): India taxes LTCG at 12.5%. US taxes long-term property gains at 15-20%. Under the India-US DTAA, the 12.5% paid in India is credited against your US tax. You pay only the difference (2.5-7.5%) to the IRS, not the full US rate on top of Indian tax.