Selling property in India as an NRI is significantly more complex than for resident sellers. Buyers must deduct 20-30% TDS under Section 195 (not 1% Section 194-IA that applies for resident sellers), often creating short-term liquidity issues even when your actual capital gains are much lower.

This 2026 guide covers TDS calculation, LTCG rules, Section 54/54F/54EC exemptions to reinvest and defer/eliminate tax, Section 197 lower-deduction certificate, Form 15CA/15CB documentation and USD 1 million repatriation.

Section 195 TDS, Section 54/54F/54EC exemptions, Section 197 lower-deduction, Form 15CA/15CB and FEMA repatriation cap are established Income Tax Act + RBI rules. Verify current rates + forms at incometax.gov.in and rbi.org.in before filing.

The Critical Difference: Sec 194-IA vs Sec 195

AspectSection 194-IA (Resident Seller)Section 195 (NRI Seller)
Applies toBuyer of property from residentBuyer of property from NRI
ThresholdConsideration > ₹50 lakhAny amount
TDS Rate1% of consideration20% LTCG / 30% STCG on total consideration (default)
BaseSale valueSale value (unless Section 197 certificate)
FormForm 26QBForm 27Q
Buyer's TANNot requiredRequired

Critical: The 20-30% TDS is on the FULL sale value, not just the capital gain. If you sell a ₹1 crore property with only ₹30 lakh gain, TDS is still ₹20 lakh unless you get a lower-deduction certificate.

Capital Gains Calculation

Long-Term Capital Gain (LTCG)

Property held > 24 months (2 years) qualifies as long-term:

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  • Rate: 20% + surcharge + 4% cess
  • Indexation benefit applies (Cost Inflation Index - CII)
  • LTCG = Sale Price - Indexed Cost of Acquisition - Indexed Cost of Improvement - Transfer Expenses

Short-Term Capital Gain (STCG)

Property held < 24 months:

  • Rate: Slab rates for NRI (typically 30% + surcharge + cess)
  • No indexation benefit
  • STCG = Sale Price - Cost of Acquisition - Cost of Improvement - Transfer Expenses

LTCG Exemptions - Reinvest to Save Tax

Section 54 - Buy Another Residential Property

  • Applicable if selling residential property
  • Reinvest LTCG in another residential property in India
  • New purchase: within 1 year before or 2 years after sale
  • Construction: within 3 years
  • Only 1 residential property purchase allowed (exception: LTCG < ₹2 crore + one-time - 2 properties)
  • Deposit unutilised amount in Capital Gains Account Scheme (CGAS) before ITR due date

Section 54F - Sell Any Long-Term Asset, Buy Residential

  • Applicable if selling non-residential long-term asset (equity, gold, plot) and buying residential property
  • Full LTCG exempt if entire sale proceeds reinvested in one residential property
  • Proportionate exemption if partial reinvestment
  • Must not own more than 1 house on date of sale (excluding new one)

Section 54EC - Invest in Specified Bonds

  • Reinvest LTCG in bonds of NHAI, REC, PFC, IRFC etc.
  • Maximum ₹50 lakh per FY (across all Sec 54EC bonds)
  • Lock-in: 5 years
  • Interest ~5-5.5% taxable
  • Invest within 6 months of sale date

Section 197 Lower-Deduction Certificate

This is the KEY tool to avoid excess TDS. Apply for a certificate authorising lower or nil TDS deduction on your actual estimated capital gain:

  1. Apply before property sale via Form 13 on incometax.gov.in
  2. ITO (Income Tax Officer) issues certificate specifying reduced TDS rate/nil rate
  3. Share certificate with buyer
  4. Buyer deducts TDS as per certificate (e.g., 5% instead of 20%)
  5. Timeline: 4-6 weeks typically

Repatriation of Sale Proceeds - USD 1 Million Cap

Post-tax sale proceeds go to NRO account. To repatriate abroad:

USD 1 Million Annual Cap Applies

  • Sale of up to 2 residential properties (original investment amount) can be repatriated additionally
  • Beyond that, all NRO outward remittances covered by USD 1 million annual cap
  • Form 15CA + Form 15CB (CA certificate) required

Form 15CA/CB Process

  1. Chartered Accountant issues Form 15CB certifying tax compliance
  2. File Form 15CA online at incometax.gov.in
  3. Submit to bank
  4. Bank processes SWIFT transfer

Documents Required for NRI Property Sale

  • Sale agreement + registered sale deed
  • Property title documents (parent + subsequent)
  • Encumbrance certificate (latest)
  • Property tax paid receipts
  • Society NOC
  • Approved building plan + occupancy certificate
  • Passport + PAN
  • Original purchase deed with cost of acquisition proof
  • Improvement bills (for cost-of-improvement claim)
  • Section 197 lower-deduction certificate (if obtained)

Step-by-Step NRI Property Sale Process

  1. List property via broker or online portal (99acres, MagicBricks, NoBroker)
  2. Legal due diligence - verify property title + encumbrance is clear
  3. Estimate capital gain with CA
  4. Apply for Section 197 certificate if TDS will be more than actual tax
  5. Negotiate + finalise buyer
  6. Draft sale agreement - lawyer review
  7. Token amount via bank draft
  8. Buyer applies for TAN (mandatory for Section 195 TDS deduction)
  9. Buyer deducts TDS + deposits to IT Dept (Form 27Q)
  10. Final payment + registration at Sub-Registrar
  11. Update PAN records - Section 6 disclosure
  12. File ITR-2 in India to reconcile TDS vs actual tax; claim refund if applicable
  13. Form 15CA + Form 15CB for repatriation
  14. Wire funds abroad from NRO account (within USD 1M cap)

US-Based NRI - Additional Considerations

  • Report Indian property sale on US Form 8949 + Schedule D
  • Claim Foreign Tax Credit on Form 1116 for India TDS
  • US LTCG rates: 0%/15%/20% (federal) - depending on income bracket
  • Also state tax applicable (varies)
  • Section 54/54F/54EC exemption in India may not have US equivalent - full US tax still due on gain

Common Mistakes to Avoid

  • Assuming buyer will deduct only 1% TDS (Sec 194-IA) when actually 20% (Sec 195) applies
  • Not applying for Section 197 certificate - massive over-deduction
  • Missing Form 15CA/15CB for repatriation
  • Not investing in Sec 54/54F/54EC in time (specific window)
  • Failing to deposit Sec 54 unutilised amount in CGAS before ITR due date
  • Not claiming DTAA relief in US (missing Foreign Tax Credit)
  • Confusing NRO 1M repatriation cap with property-specific 2-property allowance

FAQ

What TDS applies when NRI sells property?

20% + surcharge + cess (LTCG) or 30% + surcharge + cess (STCG) under Section 195. Applied on TOTAL sale value, not just capital gain, unless Section 197 lower-deduction certificate obtained.

How can NRIs reduce TDS on property sale?

Apply for Section 197 lower-deduction certificate (Form 13) BEFORE sale. ITO issues certificate specifying reduced rate based on actual estimated capital gain. Share with buyer.

Can I reinvest and save tax on property sale?

Yes - Section 54 (residential to residential), Section 54F (any long-term to residential), Section 54EC (LTCG in specified bonds, max ₹50L). Each has specific conditions.

How much can NRI repatriate from property sale?

Original investment amount of up to 2 residential properties + USD 1 million annual cap for balance.

Do I need TAN if I buy from NRI?

Yes - buyer must obtain TAN (via Form 49B) before deducting TDS under Section 195.

Is Section 194-IA 1% TDS applicable when NRI sells?

NO. Section 194-IA applies only when SELLER is resident Indian. NRI seller triggers Section 195 (20-30% TDS).

Trusted Sources

  • Incometax.gov.in - Section 195, 197, 54/54F/54EC, ITR-2 filing
  • RBI.org.in - FEMA repatriation rules
  • Your qualified CA + property lawyer - essential for complex transactions

Disclaimer: Informational only. Tax rates + FEMA rules + exemption conditions change - verify at incometax.gov.in and rbi.org.in. Consult qualified CA + property lawyer BEFORE listing property for sale.

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