NRIs Selling
Property in India

Understanding Capital Gains Tax for NRIs Selling Property in India

Introduction

For Non-Resident Indians (NRIs), selling property in India often involves more than just closing a deal and transferring funds. The capital gains tax component is crucial, as even a minor compliance error can lead to unexpected tax demands or refund delays. Understanding how the tax works — and what forms and procedures to follow — can save both time and money.

How the Tax Is Calculated

When an NRI sells property in India, the tax treatment depends mainly on two factors — the duration of ownership and the accuracy of procedural compliance.

• If the property is held for more than 24 months, it is classified as a long-term capital asset, and the gains are taxed at 20% with indexation benefits (which adjust the purchase cost for inflation).
• If sold within 24 months, it is considered a short-term capital asset, and the gains are taxed according to the applicable income tax slab rates, which may go up to 30%.

Role of the Buyer: TDS Deduction

In the case of an NRI seller, the buyer is legally responsible for deducting Tax Deducted at Source (TDS) before making payment:

• For Long-Term Gains: TDS at 20% plus applicable surcharge and cess.
• For Short-Term Gains: TDS at the applicable income tax slab rate.

The deducted amount must be deposited with the Indian Income Tax Department using Form 27Q — a crucial step that ensures the tax credit correctly reflects in the NRI’s PAN account.

⚠️ Note: If the buyer mistakenly uses Form 26QB (meant for resident sellers), the TDS may not show up in the NRI’s tax records, leading to avoidable complications later.

Key Compliance Tips for NRIs

1. Confirm correct TDS form: Always ensure the buyer uses Form 27Q for NRI transactions.
2. Check TDS credit: Verify that deducted tax appears in your Form 26AS or Annual Information Statement (AIS).
3. Maintain all records: Keep the sale deed, payment proofs, TDS certificate (Form 16A), and cost details of improvements.
4. Claim exemptions wisely: Use Sections 54, 54EC, or 54F to reinvest capital gains and reduce or defer tax.
5. File an Indian ITR: Even if TDS is deducted, filing your return allows you to claim refunds and maintain compliance.

Avoiding Double Taxation

India has Double Taxation Avoidance Agreements (DTAA) with over 80 countries. This means if you have paid capital gains tax in India, you can claim credit in your country of residence, ensuring that you’re not taxed twice on the same income.

Summary

For NRIs, understanding capital gains tax is as important as finding the right buyer. The Indian taxation framework allows for fair treatment — provided procedures are followed correctly. Ensuring the right TDS form, verifying credit, and timely filing can prevent unwanted legal or financial issues later.

At NRI Service Desk, we help you navigate property sales, documentation, and taxation seamlessly, ensuring that every step is compliant, transparent, and stress-free.