Selling Property in India as an NRI: TDS, Capital Gains & Repatriation
Selling Indian immovable property as a non-resident involves three separate legal questions: how much capital-gains tax is actually payable, how much withholding tax the buyer must deduct at source, and how the remaining proceeds can legally be remitted abroad under FEMA. This guide separates those three issues and reflects the transition to the Income Tax Act, 2025.
Key 2026 Statutory Rules at a Glance
Interactive Capital Gains & Withholding Estimator
Calculate estimated capital gains and compare statutory withholding vs. Lower Withholding Certificate (Form 128) results.
Standard Withholding Calculation
Without a Form 128 certificate, the buyer may be advised to deduct TDS on the gross consideration. An NRI seller can claim refund of excess TDS by filing Form ITR-2.
1. The Three Distinct Questions: Gain, TDS & Repatriation
An NRI property sale should never be reduced to a single percentage. Tax liability, buyer withholding, and outward remittance are governed under separate legal provisions:
| Legal Question | What It Actually Means | Governing Factors |
|---|---|---|
| 1. Capital Gains Tax | How much tax the NRI seller ultimately owes the Indian government. | Sale price vs. Stamp duty value, actual acquisition cost, holding period, and Section 54/54EC exemptions. |
| 2. Buyer Withholding (TDS) | How much tax the buyer must deduct at source from the payment. | Non-resident withholding rules, Section 395(1) / Form 128 Lower Deduction Certificate, and PAN. |
| 3. Outward Repatriation | How much net sale proceeds can be remitted abroad to the NRI's home country. | FEMA USD 1 Million/FY facility, Form 145/146 (replacing Form 15CA/15CB), and bank verification. |
2. 23 July 2024 Reform: NRI Long-Term Capital Gains at 12.5%
The Finance (No. 2) Act, 2024 introduced sweeping changes to capital-gains taxation for immovable property transfers:
| Transfer Period | NRI Long-Term Tax Rate | Indexation Benefit Availability |
|---|---|---|
| Transfers on or after 23 July 2024 | 12.5% (Flat) | No Indexation permitted for NRIs |
| Transfers before 23 July 2024 | 20% (Standard) | Indexation permitted under older 1961 Act rules |
3. Lower or Nil Withholding: Form 128 (Replacing Form 13)
Under the Income Tax Act, 2025 and Income-tax Rules, 2026, the procedural machinery for lower tax deduction has been modernized:
Applies to transactions and proceedings initiated under the repealed 1961 Act.
Current statutory application filed on TRACES for Tax Year 2026–27.
Why Form 128 Is Essential for NRI Sellers:
- Prevents excessive tax withholding on the gross sale consideration.
- Directs the Assessing Officer to issue a certificate specifying TDS based on actual capital gains rather than the full transaction price.
- Eliminates years of waiting for massive tax refunds from the Income Tax Department.
4. Capital Gains Tax Exemption Options (Section 54 & 54EC)
NRIs are fully eligible to claim capital-gains relief under Indian tax law by reinvesting their proceeds:
Section 54 (Reinvestment in Residential House in India):
Available when selling a residential property. You can exempt capital gains by purchasing another residential property in India within 1 year before or 2 years after the sale (or constructing within 3 years). Statutory cap: ₹10 Crores.
Section 54EC (Capital Gain Infrastructure Bonds):
Invest up to ₹50 Lakhs of long-term capital gains in specified bonds (NHAI, REC, PFC, IRFC) within 6 months of the transfer date. Bonds carry a mandatory 5-year lock-in period.
Section 54F (Sale of Non-Residential Asset):
Available when selling long-term commercial property or land. Requires reinvesting the net sale consideration into a residential house in India.
5. Repatriating Sale Proceeds Abroad: USD 1 Million Facility
Under FEMA regulations, NRIs and PIOs can repatriate up to USD 1 Million per financial year from their NRO accounts representing property sale proceeds:
- Form 145 & Form 146: Under the Income-tax Rules, 2026, foreign remittance declarations transition from the old Form 15CA/15CB to Form 145 (challan information) and Form 146 (CA certification).
- Audit Trail: The Authorized Dealer (AD) bank requires the registered sale deed, prior purchase deed, proof of tax compliance, and Form 145/146.
- Not LRS: The USD 1 Million facility is separate from the Liberalised Remittance Scheme (LRS) and is specifically tailored for non-residents.
Top 8 NRI Property Sale Mistakes to Avoid
- Applying the resident 1% TDS rule (Section 194-IA) to an NRI seller.
- Assuming a flat 23.92% TDS deduction is universally mandatory without applying for Form 128.
- Using indexed acquisition costs for post-23 July 2024 NRI property transfers.
- Failing to account for Section 50C circle rate adjustments when agreement value is lower than stamp duty value.
- Investing in unapproved bonds expecting Section 54EC exemption (only REC, PFC, NHAI, IRFC qualify).
- Waiting until after sale registration to apply for a Lower Withholding Certificate.
- Ignoring the transition to Form 141 (property TDS reporting) and Forms 145/146 for remittance.
- Assuming that property sale proceeds can be remitted abroad without bank FEMA clearance.
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