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Introduction

An NRI selling property in India must consider more than the capital-gains tax rate. The transaction may involve:

• Determining Indian residential status
• Establishing whether the property gain is taxable in India
• Calculating the correct holding period and capital gain
• Applying the stamp-duty valuation provisions
• Claiming exemptions under sections 54, 54EC or 54F
• Ensuring that the buyer deducts TDS under the provisions applicable to non-resident sellers
• Reporting the sale in the correct income-tax return
• Repatriating the sale proceeds outside India through an authorised dealer bank

Which Income-tax Act Applies?

The Income-tax Act, 2025 came into force on 1 April 2026. It applies from Tax Year 2026-27. Returns relating to FY 2025-26 and AY 2026-27 continue to be governed by the Income-tax Act, 1961, even when those returns are filed after 1 April 2026.

The date of payment or credit is also relevant for TDS. A payment or credit made up to 31 March 2026 is governed by the 1961 Act, whereas one made from 1 April 2026 is governed by the 2025 Act.

Who Is Treated as an NRI?

For income-tax purposes, an NRI is an individual who is not resident in India under the applicable residential-status tests.

Residential status is determined separately for each financial year or tax year. It is not decided merely by citizenship, passport, visa, OCI card or the type of bank account maintained.

Under the general tests, an individual may become resident in India when present in India for:

• At least 182 days during the relevant year; or
• At least 60 days during the relevant year and 365 days during the preceding four years.

Special rules apply to Indian citizens leaving India for employment, crew members, Indian citizens or persons of Indian origin visiting India, persons having Indian income exceeding the prescribed threshold and certain Indian citizens who are not liable to tax in another country.

Therefore, an individual living abroad should calculate residential status before treating a property sale as an NRI transaction.

Income-tax residence and FEMA residence are different

Income-tax residential status is determined under the Income-tax Act by reference to physical presence and other statutory tests.

FEMA residence is based primarily on the person’s intention and purpose of stay in or outside India. The classification can affect:

• Whether an NRE, NRO or FCNR account may be maintained
• The account into which sale proceeds may be deposited
• Repatriation of the sale consideration
• Eligibility for exemption of certain bank interest

NRI and OCI: What Is the Difference?

An NRI is generally an Indian citizen residing outside India. An OCI cardholder is a foreign national holding an Overseas Citizen of India card. OCI status does not amount to Indian citizenship.

For FEMA purposes, an OCI residing outside India is generally given treatment similar to an NRI for acquiring, holding, transferring and repatriating eligible immovable property.

Both NRIs and OCIs may generally purchase or sell residential and commercial property in India. They cannot ordinarily purchase agricultural land, plantation property or a farmhouse except through inheritance or another specifically permitted route.

For income-tax purposes, however, the tax treatment of a property sale depends on:

• Residential status under the Income-tax Act
• Location and nature of the property
• Period for which it was held
• Date of transfer
• Sale consideration and stamp-duty value
• Cost and improvement expenditure
• Availability of an exemption

Scope of Income Taxable in India for an NRI

The total income of a non-resident generally includes income that:

• Is received or deemed to be received in India; or
• Accrues, arises or is deemed to accrue or arise in India.

Income arising through the transfer of a capital asset situated in India is deemed to accrue or arise in India. Consequently, capital gains from the sale of land, a building, an apartment or another immovable property situated in India are taxable in India even when:

• The seller resides outside India
• The sale agreement is signed outside India
• The buyer sends the money to an overseas account
• The seller does not remit the money into India
• The property was originally purchased using foreign currency

This treatment appears in sections 5 and 9 of both the Income-tax Act, 1961 and the Income-tax Act, 2025.

Receipt in India versus remittance to India

Income first received outside India is not normally treated as received again merely because the amount is subsequently transferred to India.

Similarly, transferring existing foreign savings into an Indian bank account does not by itself create taxable income. The source and point of first receipt must be examined.

Treatment of NRE, NRO and FCNR Accounts

The bank account used for receiving or holding the money does not determine whether the capital gain is taxable. It primarily affects banking, foreign-exchange and repatriation treatment.

NRE account

A Non-Resident External account is an Indian-rupee account maintained by an eligible person resident outside India. Funds in an NRE account are generally repatriable.

Interest on an NRE account is generally exempt from income tax when the account holder satisfies the applicable FEMA-based conditions for being a person resident outside India or otherwise qualifies under the statutory provision. Merely being non-resident under the Income-tax Act may not be sufficient if the FEMA conditions are not met.

Property sale proceeds cannot automatically be credited to an NRE account. The authorised dealer bank must examine the source of the original property investment and whether the proceeds qualify for repatriation.

NRO account

A Non-Resident Ordinary account is an Indian-rupee account generally used for income arising in India, such as:

• Rent
• Pension
• Dividends
• Interest
• Property sale proceeds
• Other eligible Indian receipts

Interest earned on an NRO account is taxable in India, subject to the applicable provisions.

Balances in an NRO account are not freely repatriable in the same manner as NRE balances. Current income and eligible capital balances may be remitted subject to RBI conditions, payment of applicable taxes and submission of documents to the authorised dealer bank.

FCNR account

A Foreign Currency Non-Resident account is a term-deposit account maintained in a permitted foreign currency.

Interest on an eligible FCNR deposit is generally exempt where the depositor is a non-resident or qualifies as not ordinarily resident under the relevant provision.

Property sale proceeds are not ordinarily deposited directly into an FCNR deposit merely because the property owner is an NRI. The funds must first satisfy the applicable credit and repatriation rules.

Account comparison

Is the Sale of Every Indian Property Taxable?

Capital gains normally arise when a capital asset is transferred. Land and buildings are generally capital assets.

However, rural agricultural land in India falling outside the prescribed urban limits is excluded from the definition of a capital asset. A genuine sale of qualifying rural agricultural land may therefore fall outside capital-gains taxation.

Urban agricultural land, residential property, commercial property, plots and other taxable immovable property remain within the capital-gains provisions. The classification should be verified using:

• Population criteria
• Distance from the relevant municipality or cantonment board
• Land records and actual use
• Applicable census and measurement rules

Short-Term or Long-Term Capital Gain

The tax treatment depends on how long the property was held.

The 24-month test applies to land, buildings and both together.

Inherited or gifted property

Where property is acquired through inheritance, gift or another specified mode:

• The cost to the previous owner is generally treated as the seller’s cost.
• The previous owner’s holding period is generally included when determining whether the property is short term or long term.
• Expenditure incurred by the previous owner on qualifying improvements may also be relevant.

Where the property was acquired before 1 April 2001, the taxpayer may generally use the prescribed fair market value as on 1 April 2001 instead of the historical cost, subject to the statutory valuation restrictions.

Tax Rate on the Sale of Property by an NRI

Short-term capital gain

Short-term capital gain from property is added to the NRI’s total income and taxed at the applicable normal rates.

The special rate applicable to certain listed equity transactions does not apply to an ordinary sale of immovable property.

Long-term capital gain for transfers on or after 23 July 2024

No indexation option for an NRI

A resident individual or resident HUF may, for qualifying land or buildings acquired before 23 July 2024, receive protection where tax under the new 12.5% method exceeds tax calculated under the earlier 20% indexed method.

This grandfathering protection is restricted to a resident individual or resident HUF. It is not available to an NRI.

Property transferred up to 22 July 2024

For an eligible long-term property transfer completed up to 22 July 2024, the earlier treatment of 20% with indexation generally applied.

Basic exemption adjustment

The provision permitting unused basic exemption to be adjusted against certain long-term capital gains is restricted to resident individuals and resident HUFs.

An NRI ordinarily cannot reduce property-related long-term capital gain taxed under the special provision by using an unabsorbed basic exemption limit.

How to Calculate Capital Gain

Eligible transfer expenses may include expenditure incurred wholly and exclusively in connection with the transfer, such as:

• Brokerage
• Legal documentation charges
• Advertising expenses
• Certain transfer-related professional charges

Personal expenses or amounts not supported by evidence should not be claimed.

The computation provision appears in section 48 of the Income-tax Act, 1961 and section 72 of the Income-tax Act, 2025.

Stamp-Duty Value and Deemed Sale Consideration

The actual price stated in the sale deed is not always accepted for capital-gains computation.

Where the stamp-duty value exceeds the declared sale consideration, the stamp-duty value may be treated as the full value of consideration under:

• Section 50C of the Income-tax Act, 1961
• Section 78 of the Income-tax Act, 2025

Where the stamp-duty value exceeds the permitted limit, the deemed consideration provisions may apply. The seller may be entitled to seek reference to a valuation officer where the statutory conditions are satisfied.

Where the agreement date and registration date are different, the stamp-duty value on the agreement date may be considered if the prescribed part of the consideration was received through an eligible banking or electronic mode on or before the agreement date.

Capital-Gains Exemptions Available to NRIs

The principal property-related capital-gains exemptions are not restricted only to Indian residents. An NRI may claim them when all statutory conditions are satisfied.

Section 54: Sale of a residential house

Section 54 of the 1961 Act, corresponding to section 82 of the 2025 Act, may apply where:

• The taxpayer is an individual or HUF
• A long-term residential house is transferred
• The capital gain is invested in a qualifying residential house in India

The new house must generally be:

• Purchased within one year before the transfer; or
• Purchased within two years after the transfer; or
• Constructed within three years after the transfer.

Where the capital gain does not exceed ₹2 crore, the taxpayer may exercise the once-in-a-lifetime option to invest in two residential houses in India, subject to the statutory conditions.

For the purpose of computing the exemption, the amount taken into account for investment in the new asset is capped at ₹10 crore.

Section 54EC: Investment in specified bonds

Section 54EC of the 1961 Act, corresponding to section 85 of the 2025 Act, may apply where long-term capital gain arises from the transfer of land, a building or both.

The capital gain must generally be invested:

• In notified specified bonds
• Within six months from the date of transfer
• Subject to the aggregate statutory limit of ₹50 lakh
• Subject to the applicable five-year lock-in and other conditions

Only the amount of capital gain invested qualifies for exemption.

Section 54F: Sale of a long-term asset other than a residential house

Section 54F of the 1961 Act, corresponding to section 86 of the 2025 Act, may apply where:

• A long-term capital asset other than a residential house is sold
• The seller is an individual or HUF
• The net consideration is invested in one qualifying residential house in India
• The ownership and transfer restrictions are satisfied

This provision may be relevant to the sale of a long-term plot of land or another qualifying asset.

Where the full net consideration is not invested, the exemption is generally proportionate. The statutory investment cap of ₹10 crore also applies.

Capital Gains Account Scheme

Where the amount intended for sections 54 or 54F is not utilised before the due date for filing the original return, the unutilised amount may need to be deposited in a Capital Gains Account Scheme account before that due date.

TDS When the Seller Is an NRI

TDS is one of the most important differences between a property sale by a resident and a property sale by an NRI.

Section 194-IA does not apply to an NRI seller

For an NRI seller, the buyer must apply:

• Section 195 of the Income-tax Act, 1961; or
• The corresponding non-resident payment provision in section 393 of the Income-tax Act, 2025.

The obligation generally arises at the time of payment or credit, whichever occurs earlier.

Is TDS deducted on the gain or the entire sale price?

The statutory provision refers to the sum chargeable to tax. However, a buyer should not independently accept the seller’s private capital-gain calculation and deduct tax only on that amount without following the prescribed determination or certificate procedure.

Where no lower-deduction or chargeable-sum determination is obtained, TDS may be deducted by the buyer on a substantially higher base, potentially resulting in tax being withheld in excess of the seller’s final liability.

Lower or nil TDS certificate

The NRI seller may apply to the Assessing Officer for a certificate authorising deduction at a lower rate or, where legally justified, no deduction.

The certificate mechanism appears in:

• Section 197 of the Income-tax Act, 1961
• Section 395 of the Income-tax Act, 2025

The application may require:

• Purchase deed
• Proposed sale agreement
• Cost and improvement documents
• Valuation report, where relevant
• Capital-gains calculation
• Evidence of proposed exemption
• PAN and residential-status information
• Earlier income-tax returns and tax records

Buyer’s compliance

For a payment governed by the 1961 Act, the buyer generally needs to:

• Obtain a TAN
• Deposit the TDS using the applicable challan
• File the non-resident TDS statement in Form 27Q
• Issue Form 16A to the seller

The simplified Form 26QB mechanism used for a resident property seller should not be used for an NRI seller.

For payments governed by the Income-tax Act, 2025, the new form-mapping framework lists Form 144 as the corresponding quarterly statement for specified payments to non-residents. The buyer should use the form and portal process applicable on the payment or credit date.

TDS is not the final tax

Tax deducted by the buyer is only a credit against the NRI seller’s final tax liability.

The seller must calculate the actual capital gain in the return and claim the available TDS credit. Where TDS exceeds the final liability, the excess may be claimed as a refund through the income-tax return, subject to processing and verification by the Income Tax Department.

Can the NRI Repatriate the Sale Proceeds?

Repatriation is governed by FEMA and RBI regulations, not only by the Income-tax Act.

An NRI or OCI may generally remit eligible property sale proceeds through an authorised dealer bank after satisfying the applicable conditions, including:

• Evidence of the original purchase
• Evidence of the source of funds used to acquire the property
• Sale deed and registration documents
• Proof of applicable tax payment or withholding
• Bank statements and inward-remittance documents
• FEMA declarations and bank forms
• Tax certification where required

Property purchased using foreign-exchange funds

Where the property was originally purchased using eligible inward remittance, NRE funds or FCNR funds, repatriation may be allowed subject to the relevant conditions and limits.

For residential property, the special repatriation route linked to the original foreign-exchange investment is generally restricted to two residential properties. Any balance may need to be considered under the general NRO remittance facility.

Property purchased using rupee funds

Where the property was purchased using local rupee funds or the sale proceeds are held in an NRO account, an eligible remittance of capital assets may generally be made up to USD 1 million per financial year, subject to:

• Applicable taxes having been paid
• Documentary evidence
• Satisfaction of the authorised dealer bank
• Applicable FEMA restrictions and approvals

The limit applies to the eligible remittance of NRO balances and sale proceeds of assets and is not a tax exemption.

Income-tax Return Filing by an NRI Seller

Which ITR form should be used?

An NRI individual will generally use:

• ITR-2: Where the individual has capital gains but no income from business or profession
• ITR-3: Where the individual also has income from business or profession

An NRI ordinarily cannot use ITR-1 merely because the total income is below a particular amount.

AY 2026-27 filing date

This date should be rechecked close to filing because the Government may issue an extension.

Double-taxation relief

A person who is tax resident in another country should also examine the applicable Double Taxation Avoidance Agreement.

Indian immovable-property gains generally remain taxable in India. The country of residence may provide a foreign-tax credit or another form of relief under its domestic law and the relevant treaty.

Where treaty relief is claimed in India, the applicable documentation may include a Tax Residency Certificate, Form 10F or the corresponding form under the new law, and other prescribed information.

Common Mistakes

Conclusion

Capital gains from the sale of property situated in India are generally taxable in India even when the owner is an NRI or OCI and the consideration is received outside India.

For a long-term property transferred after 22 July 2024, an NRI generally pays tax at 12.5% without indexation, subject to available exemptions. The buyer must follow the non-resident TDS provisions rather than the simplified 1% resident-property procedure.

The seller must also separately comply with FEMA rules governing NRO, NRE and FCNR accounts and repatriation. Reviewing the tax computation, TDS certificate, reinvestment plan and banking route before executing the transaction can prevent excessive withholding and remittance delays.