Rahul had agreed to sell his Mumbai flat for ₹80 lakh. His buyer deducted nearly ₹12 lakh as TDS before transferring the balance. But Rahul's actual tax liability was a fraction of that, and he had no idea he could have avoided most of it.
Most NRIs discover their tax obligations after the sale has happened. By then, the window to reduce TDS or claim exemptions is closed. This guide walks you through six NRI selling property in India tax planning steps to take before the sale, so you keep more of what you earn.
Good NRI selling property in India tax planning starts at least 30-40 days before you sign the sale agreement, not after the deal is done.
Step 1: Confirm Your Residency Status and How Long You Held the Asset
Your NRI status is the starting point. It determines which tax rates apply, whether you can claim DTAA benefits, and which compliance forms you need to file in India and the US.
If you are a non-resident Indian (NRI), the Income Tax Act classifies you based on how many days you spent in India in a given financial year. Your residential status for the year you sell the property determines your tax treatment for that transaction.
Next, check your holding period. For immovable property, a holding period of 24 months or more makes it a long-term capital asset. Under 24 months, it is short-term. This distinction has a big impact on your tax rate.
For equity and equity mutual funds, the threshold is 12 months. For debt mutual funds and bonds purchased after April 2023, gains are taxed at slab rates regardless of holding period, since the indexation and LTCG benefits on debt funds were removed.
Start here before anything else. Getting the residency status or holding period wrong can mean applying the wrong tax rate entirely.
Step 2: Calculate Your Capital Gains and Estimated Tax
Once you know your holding period, calculate your estimated gain. This tells you how much tax you owe, which directly affects how much TDS you should ask your buyer to deduct.
For Property: The Indexation Rule Changed in 2024
Before July 23, 2024, NRIs could use the cost inflation index (CII) to adjust the purchase price upward before calculating gains. That benefit is gone for property sold on or after July 23, 2024.
Today, LTCG on property is simply: sale price minus your original purchase price, taxed at 12.5%. Resident individuals and Hindu Undivided Families who bought the property before July 23, 2024 get a choice between paying 12.5% without indexation or 20% with indexation, whichever works out lower. That choice does not extend to NRIs. As a non-resident, you pay 12.5% without indexation no matter when you originally bought the property.
The 12.5% rate carries a surcharge and 4% cess on top, and the surcharge depends on your total Indian income for the year: nil up to ₹50 lakh, 10% of the tax between ₹50 lakh and ₹1 crore, and capped at 15% of the tax above ₹1 crore (the surcharge on long-term capital gains cannot exceed 15%, however high your income goes). Only at that top band does the effective rate reach approximately 14.95% of the gain (12.5% tax, 15% surcharge on that tax, 4% cess on the total). Most NRIs, whose Indian-source income from this sale falls below ₹1 crore, pay less than that.
Here is a real-number example. Priya bought a flat in Chennai in 2010 for ₹35 lakh. She sells it in 2026 for ₹1.2 crore. Her capital gain is ₹85 lakh. Her estimated LTCG tax is 12.5% of ₹85 lakh, which comes to ₹10.6 lakh, before surcharge and cess.
Short-term gains on property (held under 24 months) are taxed at your applicable income tax slab rate, which can reach 30% plus surcharge and cess.
Step 3: Apply for a Lower TDS Certificate Before the Sale
This is the step most NRIs miss, and it is the most expensive mistake you can make.
Under Section 195 of the Income Tax Act, the buyer is required to deduct TDS (Tax Deducted at Source) on the full sale value, not on your actual capital gain. So if you sell for ₹1.2 crore, the buyer may deduct TDS on the entire ₹1.2 crore. Your actual taxable gain might be ₹85 lakh, but you still have ₹16-18 lakh locked up as TDS.
Getting that refund back from the Income Tax Department can take one to two years.
Form 13, filed under Section 197, lets you apply for a lower or nil TDS certificate. You submit your calculation showing the actual gain and actual tax liability. The tax officer reviews it and issues a certificate that the buyer can use to deduct a lower rate.
Apply at least 30 to 40 days before your sale date on the TRACES portal. You can also work with a CA to do this. The certificate is specific to the transaction and the financial year.
This one step can prevent you from tying up lakhs of rupees in a refund process. It is worth doing before you even finalize the sale agreement. To understand how to lower your TDS in detail, including the documents required for the application, see the dedicated guide.
One numbering note: the Income-tax Act, 2025 replaced the Income-tax Act, 1961 from April 1, 2026. For sales from that date onward, TDS on payments to non-residents (old Section 195) and the lower-deduction certificate process (old Section 197, Form 13) are now covered under Sections 397(3)(d) and 395(1) of the new Act. The underlying process is unchanged: you still apply to the Assessing Officer for a lower or nil deduction certificate before the sale. A certificate already issued under old Section 197 before April 1, 2026 remains valid for tax year 2026-27.
Step 4: Check If You Qualify for a Tax Exemption
Before you sell, check whether you can reinvest the proceeds in a way that reduces or eliminates your capital gains tax entirely. Three exemption routes are available to NRIs.
Section 54: Selling a Residential Property
If you sell a residential property and reinvest the long-term capital gains (not the full sale value) into another residential property in India, you can claim an exemption under Section 54. You must purchase the new property within 2 years of the sale, or construct it within 3 years.
The maximum exemption is capped at ₹10 crore. You must not sell the new property within 3 years of buying it, or the exemption is reversed.
For a full overview of the property sale process in India, including legal and documentation steps, that guide has the details. This article focuses only on the tax planning side.
Section 54F: Selling Mutual Funds, Stocks, or Other Assets
If you are selling assets other than a residential property, such as mutual funds, listed shares, or commercial property, Section 54F applies. Here, you must invest the entire net sale consideration (not just the gain) into a new residential property in India.
If you reinvest only a portion, the exemption is proportionate. The same 2-year purchase or 3-year construction timeline applies. The ₹10 crore cap also applies here.
Section 54EC: Capital Gains Bonds
If you do not want to buy property, you can invest up to ₹50 lakh of your long-term capital gain into bonds issued by REC (Rural Electrification Corporation) or NHAI (National Highways Authority of India) within 6 months of the sale. These bonds have a 5-year lock-in. The interest is taxable, but the capital gain is fully exempt.
Capital Gains Account Scheme
If you plan to reinvest under Section 54 or 54F but have not yet identified a property, open a Capital Gains Account Scheme (CGAS) account with a scheduled bank before filing your ITR for that year. You deposit the unspent proceeds there. This protects your exemption eligibility until you are ready to reinvest.
Step 5: Handle Your US Tax Obligations Too
Selling Indian property while living in the US means you have obligations in both countries. Most NRIs handle the India side correctly and ignore the US side entirely. That is a costly oversight.
How the India-US DTAA Works
Under the India-US DTAA (Double Tax Avoidance Agreement), India has the primary right to tax capital gains from the sale of property located in India. You pay your tax in India first.
The DTAA then gives you a credit mechanism in the US. You are not taxed again on the same gain in the US. But you must claim the credit actively. It does not happen automatically.
Filing Form 1116 in the US
Report the Indian property sale on Schedule D of your US tax return. The gain is calculated in USD using the exchange rate on the sale date.
Then file Form 1116 (Foreign Tax Credit) to claim a credit for the Indian tax you paid. This offsets your US tax liability on that same income, dollar for dollar, so you do not pay double.
FBAR and FATCA: Do Not Ignore These
If the sale proceeds sit in your NRO or NRE account at any point in the calendar year, and the total value of all your foreign financial accounts exceeds USD 10,000, you must file an FBAR (FinCEN Form 114) with the US Treasury by April 15. You can find the official FBAR filing instructions at fincen.gov.
Under FATCA, Indian banks already report your account details to the IRS if you hold a US person classification. Make sure your US filings are consistent with what is reported.
Step 6: Plan How You Will Bring the Money Back
Your sale proceeds will land in your NRO account in India. From there, repatriation to the US has rules you need to plan around before the sale, not after.
The standard limit is USD 1 million per financial year from your NRO account, under RBI's FEMA Remittance of Assets facility, the rule NRIs and PIOs use to send home sale proceeds, account balances and other assets held in India. (This is a different rule from the Liberalised Remittance Scheme, which is only open to resident individuals in India, not NRIs.) The USD 1 million cap is per person, per April-to-March financial year.
For residential property you bought in foreign exchange, up to 2 such properties get a carve-out: you can repatriate the amount you originally paid in foreign exchange, or funds from your NRE or FCNR(B) account, without it counting against the USD 1 million cap. The gain on the sale, and anything above what you originally paid, still goes through the USD 1 million NRO limit. Property you acquired by inheritance or with rupee funds does not get this carve-out at all; repatriating those proceeds always counts against the USD 1 million annual limit. Proceeds from a 3rd residential property bought in foreign exchange also fall under the USD 1 million annual limit regardless of the amount.
If you expect your sale proceeds to exceed USD 1 million, plan which financial year you finalize the sale and which year you remit, to spread the repatriation across two years.
To move the money, you will need: a registered sale deed, a tax clearance certificate, and Form 15CA and Form 15CB for remittances above ₹5 lakh. Form 15CB must be certified by a chartered accountant. To understand how to repatriate your sale proceeds step by step, including the bank documentation process, see the full guide.
Common Mistakes NRIs Make When Selling Property
Applying for Form 13 too late. The application takes 30-40 days to be processed. Many NRIs only think about this after the sale agreement is signed, when it is too late.
Assuming indexation still applies. The indexation benefit on long-term property gains was removed from July 23, 2024. Your tax calculation is now simpler but potentially higher.
Forgetting the US tax return. Many NRIs treat the Indian tax payment as the end of the story. It is not. You must report the sale on your US return and file Form 1116.
Missing the CGAS deadline. If you plan to claim Section 54 or 54F but have not yet bought a new property, you must open a CGAS account before your ITR filing deadline. Miss this and you lose the exemption.
Not planning for the third property. NRIs who sell a third residential property are surprised to find their repatriation is now subject to the USD 1 million cap.
Budget 2026 note for sellers: From October 1, 2026, a resident individual or HUF buyer purchasing your property no longer needs to obtain a TAN to deposit TDS; they can use their PAN instead. If your buyer is unfamiliar with this change, share this update to speed up the process.
Conclusion
Getting your NRI selling property in India tax planning right is not complicated once you know the steps. Confirm your residency status, calculate your capital gains accurately, apply for a Form 13 certificate 30-40 days early, check whether you qualify for Section 54 or 54EC exemptions, handle your US filings via DTAA and Form 1116, and plan your repatriation in advance.
The difference between planning ahead and waiting until after the sale can easily run into several lakhs of rupees. InvestMates helps NRIs manage exactly these cross-border financial decisions. If you are planning a property or investment sale, start your tax planning today.
Frequently asked questions
What TDS rate applies when an NRI sells property in India?
The buyer must deduct TDS under Section 195 on the full sale consideration, not just the capital gain, applying the rate that corresponds to your actual tax liability: 12.5% for long-term gains, plus a surcharge (nil up to ₹50 lakh of your total Indian income, 10% between ₹50 lakh and ₹1 crore, capped at 15% above ₹1 crore) and 4% cess. Only at that top surcharge band does the effective rate reach approximately 14.95%; most NRIs pay less. For short-term gains, the rate can reach 30% plus surcharge and cess. However, if the actual tax liability is lower than the TDS, you can apply for a lower deduction certificate using Form 13. For a detailed breakdown of TDS for NRIs, including rates for other income types, see the full guide.
Can NRIs claim the indexation benefit on property sold after July 2024?
No. The indexation benefit on long-term capital gains from immovable property was removed effective July 23, 2024, as part of Budget 2024 changes, for every seller. Resident individuals and HUFs who bought the property before that date still get a grandfathered choice between 12.5% without indexation and 20% with indexation, whichever is lower, but that choice applies only to residents, not to NRIs. As an NRI, your taxable LTCG is simply the sale price minus your original purchase price, taxed at 12.5%, regardless of when you originally bought the property.
What is Form 13 and how does it help NRIs selling property?
Form 13 is an application you file with the Income Tax Department to obtain a lower or nil TDS deduction certificate. Without it, the buyer deducts TDS on the entire sale value under Section 195. With a Form 13 certificate, TDS is deducted only on your actual estimated tax liability, which is usually much lower. You file Form 13 on the TRACES portal, ideally 30-40 days before the sale. The certificate is valid for the specific transaction and financial year.
Do NRIs need to pay tax in the US on property sold in India?
You must report the sale on your US tax return, but the India-US DTAA prevents you from being taxed twice on the same income. India has the primary right to tax the capital gain. You then claim a foreign tax credit using Form 1116 on your US return to offset the Indian tax you already paid. The credit reduces your US tax liability dollar for dollar. You still need to report the transaction on Schedule D of your US return and comply with FBAR and FATCA obligations if applicable.
How much of the property sale proceeds can an NRI repatriate to the US?
Under RBI's FEMA Remittance of Assets facility, NRIs can repatriate up to USD 1 million per financial year (April to March) from their NRO account after paying applicable taxes. For residential property bought in foreign exchange, the first 2 such properties carry a carve-out: you can repatriate the amount you originally paid in foreign exchange, or funds from your NRE or FCNR(B) account, outside the USD 1 million cap. The gain beyond that amount, and proceeds from a 3rd such property, go through the USD 1 million limit, as does any property you acquired by inheritance or with rupee funds. If your proceeds exceed the USD 1 million limit in a single year, you can plan the remittance across two financial years, or apply to the RBI for approval to remit a larger amount in one year.