Understanding Tax Implications for NRIs Selling Property in India

Non-Resident Indians (NRIs) often invest in property in India, but selling such assets comes with specific tax implications under the Income Tax Act, 1961. This article explains the key tax rules NRIs need to understand when selling property in India, including capital gains tax, Tax Deducted at Source (TDS), and compliance with repatriation laws. To illustrate, let’s consider an example: an NRI purchased a flat in India for Rs 11,000,000 in June 2023 and sold it for Rs 18,000,000 in December 2024. We’ll use this case to demonstrate how the tax rules apply.

Classifying the Capital Gain: Short-Term vs. Long-Term

When an NRI sells a property in India, the first step is to determine whether the gain qualifies as a Short-Term Capital Gain (STCG) or a Long-Term Capital Gain (LTCG). This depends on the holding period of the property. A residential property is considered a long-term asset if held for more than 24 months (2 years). If the holding period is 24 months or less, the gain is classified as short-term.

In our example, the NRI bought the flat in June 2023 and sold it in December 2024. The holding period is 18 months (from June 2023 to December 2024), which is less than 24 months. Therefore, the gain from this sale is classified as a Short-Term Capital Gain (STCG).

Calculating the Capital Gain

The capital gain is calculated using the formula:

Capital Gain = Sale Consideration – Cost of Acquisition – Cost of Improvement – Cost of Transfer

• Sale Consideration is the amount for which the property is sold.
• Cost of Acquisition is the original purchase price.
• Cost of Improvement includes expenses on renovations or upgrades (if any).
• Cost of Transfer covers expenses like brokerage or legal fees incurred during the sale.

Let’s apply this to our example:

• Sale Consideration: Rs 18,000,000 (the selling price in December 2024).
• Cost of Acquisition: Rs 11,000,000 (the purchase price in June 2023).
• Cost of Improvement: Since no improvements are mentioned, we assume this to be Rs 0.
• Cost of Transfer: No brokerage or transfer costs are specified, so we assume Rs 0.

STCG = 18,000,000 – 11,000,000 – 0 – 0 = Rs 70,00,000

Thus, the NRI in our example has a short-term capital gain of Rs 70,00,000.

Tax on Short-Term Capital Gains for NRIs

For NRIs, STCG from property sales is taxed at the applicable income tax slab rates based on their total taxable income in India for the financial year in which the sale occurs. The sale in our example took place in December 2024, which falls under Financial Year (FY) 2024-25 (Assessment Year 2025-26). We’ll use the tax slab rates under the new tax regime (default as per the Finance Act 2024) for FY 2024-25:

• Up to Rs 3,00,000: Nil
• Rs 3,00,001 to Rs 6,00,000: 5% (on the amount exceeding Rs 3,00,000)
• Rs 6,00,001 to Rs 9,00,000: Rs 15,000 + 10% (on the amount exceeding Rs 6,00,000)
• Rs 9,00,001 to Rs 12,00,000: Rs 45,000 + 15% (on the amount exceeding Rs 9,00,000)
• Rs 12,00,001 to Rs 15,00,000: Rs 90,000 + 20% (on the amount exceeding Rs 12,00,000)
• Above Rs 15,00,000: Rs 1,50,000 + 30% (on the amount exceeding Rs 15,00,000)

Assuming the NRI has no other taxable income in India for FY 2024-25, the STCG of Rs 70,00,000 is the only income to be taxed. Let’s compute the tax liability for our example:

• Up to Rs 3,00,000: Nil
• Rs 3,00,001 to Rs 6,00,000: 5% of (6,00,000 – 3,00,000) = 5% of 3,00,000 = Rs 15,000
• Rs 6,00,001 to Rs 9,00,000: 10% of (9,00,000 – 6,00,000) = 10% of 3,00,000 = Rs 30,000
• Rs 9,00,001 to Rs 12,00,000: 15% of (12,00,000 – 9,00,000) = 15% of 3,00,000 = Rs 45,000
• Rs 12,00,001 to Rs 15,00,000: 20% of (15,00,000 – 12,00,000) = 20% of 3,00,000 = Rs 60,000
• Rs 15,00,001 to Rs 70,00,000: 30% of (70,00,000 – 15,00,000) = 30% of 55,00,000 = Rs 16,50,000

Total tax = Rs 15,000 + Rs 30,000 + Rs 45,000 + Rs 60,000 + Rs 16,50,000 = Rs 18,00,000

Surcharge and Cess

Additional charges apply on the tax amount:

• Surcharge: If the total income exceeds Rs 50,00,000, a surcharge is applicable. For income between Rs 50,00,000 and Rs 1,00,00,000, the surcharge is 10% of the tax amount. In our example, the income is Rs 70,00,000, so the surcharge applies:
  • Surcharge = 10% of Rs 18,00,000 = Rs 1,80,000
• Health and Education Cess: 4% of (Tax + Surcharge) = 4% of (18,00,000 + 1,80,000) = 4% of 19,80,000 = Rs 79,200

Total Tax on STCG = Rs 18,00,000 + Rs 1,80,000 + Rs 79,200 = Rs 20,59,200

So, the NRI in our example has a tax liability of Rs 20,59,200 on the STCG.

Tax Deducted at Source (TDS) for NRIs

When an NRI sells property in India, the buyer is required to deduct TDS under Section 195 of the Income Tax Act. For short-term capital gains (holding period less than 2 years), the TDS rate is 30% on the entire sale consideration, not just the gain, unless the NRI obtains a lower deduction certificate from the tax authorities.

In our example:

• Sale Consideration: Rs 18,000,000
• TDS Rate for STCG: 30%
• TDS Amount: 30% of Rs 18,000,000 = Rs 5,400,000

TDS also attracts a surcharge and cess:

• Surcharge on TDS: If the sale consideration exceeds Rs 50,00,000, a surcharge applies. For a sale value between Rs 50,00,000 and Rs 1,00,00,000, the surcharge is 10% of the TDS amount.
  • Surcharge = 10% of Rs 5,400,000 = Rs 540,000
• Health and Education Cess: 4% of (TDS + Surcharge) = 4% of (5,400,000 + 540,000) = 4% of 5,940,000 = Rs 237,600

Total TDS Deducted = Rs 5,400,000 + Rs 540,000 + Rs 237,600 = Rs 6,177,600

The buyer in our example will deduct Rs 6,177,600 as TDS and pay the NRI the remaining amount: Rs 18,000,000 – Rs 6,177,600 = Rs 11,822,400.

Claiming a TDS Refund Through ITR Filing

The TDS deducted often exceeds the actual tax liability, as it’s calculated on the sale value rather than the gain. NRIs can claim a refund by filing an Income Tax Return (ITR) for the relevant financial year. In our example, the NRI’s actual tax liability is Rs 20,59,200, but the TDS deducted is Rs 6,177,600. The excess TDS can be refunded:

• TDS Deducted: Rs 6,177,600
• Actual Tax Liability: Rs 20,59,200
• Refundable Amount: Rs 6,177,600 – Rs 20,59,200 = Rs 41,18,400

The NRI can file ITR (using a form like ITR-2 or ITR-3, depending on other income sources) for FY 2024-25 to claim a refund of Rs 41,18,400.

Options to Reduce Tax Liability

While STCG does not qualify for exemptions like Sections 54, 54EC, or 54F (which apply to long-term capital gains), NRIs can explore other ways to manage their tax burden:

• Lower TDS Certificate: NRIs can apply for a lower TDS certificate (Form 13) before the sale. If approved, the TDS rate can be reduced to reflect the actual tax liability. In our example, a lower certificate could have reduced the TDS closer to Rs 20,59,200, minimizing the refund process.
• Section 80C Deductions: If the NRI has other taxable income in India, they can claim deductions under Section 80C (up to Rs 1,50,000) for investments like life insurance premiums or principal repayment on a home loan, reducing their overall tax liability.

Repatriating Sale Proceeds Under FEMA

NRIs often wish to repatriate the sale proceeds to their country of residence. This requires compliance with the Foreign Exchange Management Act (FEMA), 1999. NRIs can repatriate up to USD 1 million per financial year (April-March), subject to submitting Form 15CA and Form 15CB (certified by a chartered accountant) to the authorized dealer bank.

In our example, the net proceeds after TDS are Rs 11,822,400. At an exchange rate of 1 USD = 84 INR (as of May 2025), this amounts to approximately USD 141,000, which is well within the USD 1 million limit for FY 2024-25. The NRI can repatriate the entire amount, assuming no other repatriations have occurred in the same financial year.

Key Takeaways

Selling property in India as an NRI involves navigating capital gains tax, TDS, and FEMA regulations. Using our example, the NRI incurred a short-term capital gain of Rs 70,00,000, resulting in a tax liability of Rs 20,59,200 (including surcharge and cess). However, the buyer deducted TDS of Rs 6,177,600, leading to a refund of Rs 41,18,400 upon filing ITR. NRIs can minimize such discrepancies by applying for a lower TDS certificate and ensure compliance with FEMA for repatriation. Understanding these rules and planning ahead can help NRIs manage their property transactions efficiently.