NRI Property Sale in India – Capital Gains Tax & Section 195 TDS

Selling immovable property in India as a Non-Resident Indian (NRI) involves critical tax and regulatory obligations. While resident sellers only face a 1% TDS under Section 194-IA, NRI property sales are governed by the strict rules of Section 195 of the Income Tax Act, 1961.

Under Section 195, buyers are mandated to deduct 20% to 30% TDS (plus surcharge and health cess). If you do not plan in advance, this tax is deducted on the total gross sale consideration rather than the actual capital gains, unnecessarily locking up millions of Rupees in tax withholdings.

Understanding Short-Term vs Long-Term Capital Gains

The tax rate on your property sale depends on how long you owned the asset:

• Long-Term Capital Asset (Holding Period > 24 Months): Taxed at 12.5% without indexation or 20% with indexation (for properties acquired before 23 July 2024 as per updated budget provisions). The effective TDS deducted by the buyer is ~20.8% to 23.92%.
• Short-Term Capital Asset (Holding Period ≤ 24 Months): Taxed at normal slab rates applicable to the NRI. The standard TDS rate is 30% (plus surcharge and cess, totaling 31.2% or higher).

The Biggest Trap: TDS Deducted on Gross Sale Value

How to Get a Lower TDS Certificate (Form 13)

To prevent excessive tax deductions, an NRI seller should apply for a Lower or Nil TDS Certificate under Section 197:

• Step 1: Sign the Agreement to Sell (ATS): Obtain a registered or notarized ATS with the buyer.
• Step 2: Submit Form 13 on TRACES Portal: File Form 13 online on the TRACES website with your Assessing Officer (AO).
• Step 3: Upload Supporting Documents:
  • Original purchase deed and proof of payment.
  • Agreement to Sell and buyer's PAN and TAN.
  • Bank statements showing purchase and advance sale proceeds.
  • Estimated computation of capital gains (certified by a CA).
  • Proof of proposed reinvestment under Section 54 / 54EC (if claiming exemption).
• Step 4: Certificate Issuance: The AO issues a specific certificate mentioning the reduced TDS percentage. Provide this to the buyer before the final sale deed registration.

Legal Ways to Save Capital Gains Tax (Section 54 & 54EC)

NRIs can legally reduce or completely eliminate their capital gains tax liability using statutory exemptions:

Repatriating Property Sale Funds Abroad (FEMA Rules)

Once the sale is completed and funds are credited to your NRO Bank Account:

• NRIs can repatriate up to USD 1 Million per financial year.
• Submit Form 15CA (self-declaration online on income tax portal) and Form 15CB (certificate from a practicing Chartered Accountant confirming all taxes have been fully settled).
• Your authorized dealer (AD) bank will process the remittance directly to your overseas bank account.

Frequently Asked Questions

Can an NRI sell inherited property in India?
Yes. NRIs can freely sell inherited property to resident Indians or other NRIs. The cost of acquisition is considered the original cost paid by the previous owner who bought it.

How long does it take to obtain a Form 13 certificate?
It generally takes between 3 to 6 weeks from the date of online submission of all complete documents. It is recommended to apply as soon as the Agreement to Sell is executed.

Can the buyer use their personal PAN to deduct TDS for an NRI?
No. Unlike transactions with resident sellers, the buyer MUST obtain a Tax Deduction and Collection Account Number (TAN) to deduct and deposit TDS under Section 195.

Conclusion

Selling real estate in India as an NRI does not have to result in locked liquidity or unexpected tax notices. By applying early for a Section 197 Lower Deduction Certificate (Form 13) and structuring your capital gains reinvestments under Section 54/54EC, you can smoothly safeguard your hard-earned wealth.