Experts say these aspects should ideally be planned before the sale agreement is finalised, as the amount deducted upfront and the amount that can eventually be transferred overseas can be different.
How is the property sale taxed?
The tax treatment depends on the holding period.
CA Chandni Anandan, Tax Expert at ClearTax, an Indian financial technology platform, said a property held for 24 months or less is treated as a short-term capital asset, with the gain taxed at the NRI’s applicable slab rate.
For a property held for more than 24 months, the gain is generally taxed as long-term capital gain at 12.5% without indexation. The 20% rate with indexation, available in specified cases for properties acquired before July 23, 2024, does not apply to NRIs, Anandan said.
The seller should also check whether any relief is available under the relevant DTAA.
Why can TDS be much higher than the actual tax?
The buyer is responsible for deducting TDS when purchasing property from an NRI. Anandan said the deduction is made on the sale consideration, rather than only on the capital gain.
For long-term gains, the applicable rate is generally 12.5%, while short-term gains are subject to applicable rates, along with surcharge and cess.
This can result in a significant amount being withheld even though the seller’s final tax liability may be lower.
CA Dhananjay Malik, Co-founder of NRISimplify, an India-based advisory and professional services firm, said TDS at the time of sale should not be treated as the final tax liability. If excess tax is deducted, the NRI can claim a refund through the income-tax return.
An NRI can also explore a lower or nil deduction certificate before the transaction, where eligible.
Can NRIs claim tax exemptions?
Certain exemptions can reduce the capital gains tax if the prescribed conditions are met.
Anandan said Section 54 allows a seller of a residential house to reinvest the capital gain in another residential house, subject to the applicable conditions and a ₹10 crore exemption cap.
For a long-term asset other than a residential house, such as commercial property, Section 54F may apply. Here, the net sale consideration is reinvested in a residential house, with the eligible reinvestment capped at ₹10 crore.
Another option is Section 54EC, under which capital gains from eligible long-term immovable property can be invested in specified bonds within six months, subject to a ₹50 lakh limit.
The distinction is important: Section 54 links the exemption to the capital gain reinvested, while Section 54F links it to the net sale consideration and can provide proportionate exemption when only part of the amount is reinvested.
What happens when the NRI wants to take the money abroad?
Receiving the sale proceeds in an Indian bank account does not automatically mean the entire amount can be remitted overseas.
Malik said that, for certain NRI property transactions, the FEMA framework permits repatriation from NRO balances of up to USD 1 million per financial year, subject to the applicable conditions, documentation and tax compliance. The rules can also vary depending on how the property was acquired, including through inheritance or using rupee funds.
The remittance also involves tax documentation. Malik said that from April 1, 2026, Forms 145 and 146 broadly correspond to the earlier Forms 15CA and 15CB, with a chartered accountant’s certificate required in cases meeting the prescribed criteria.
What documents should be kept ready?
Ashwini Kumar, Advocate and Founder of My Legal Expert, an artificial intelligence-powered litigation start-up, said NRIs should maintain a complete documentary trail covering the purchase and sale deeds, acquisition records, payment proofs, bank statements, tax and TDS records, and ownership and source-of-funds documents.
For inherited or jointly owned property, succession and ownership documents may also be required.
Kumar said the authorised dealer bank may seek documents establishing the transaction, payment of applicable taxes and the legitimate source of funds before processing the remittance.
A mismatch in ownership records or inadequate documentation of the source of funds can delay repatriation even after the property has been sold.
What are the common mistakes?
One mistake is assuming that living outside India means there is no Indian tax liability on the sale. Another is treating TDS as the final tax payable.
Anandan advised NRIs claiming DTAA relief to keep documents such as the Tax Residency Certificate and Form 10F, where applicable, and to verify their TDS credit in Form 26AS/AIS while filing the return.
Kumar said tax compliance, property documentation and repatriation should be viewed as interconnected rather than separate steps.
For an NRI, therefore, the property sale should ideally be planned backwards from the intended use or repatriation of the proceeds, with tax, TDS, documentation and FEMA requirements checked before the transaction is completed.