Comprehensive Advisory on NRI Taxation for Property Sale in India (After Budget 2024)

Introduction

Selling property in India as a Non-Resident Indian (NRI) involves specific tax implications, especially after the Union Budget 2024 introduced changes in capital gains taxation. Understanding the applicable tax rates, TDS (Tax Deducted at Source) requirements, and repatriation procedures is crucial for NRIs to ensure compliance and avoid penalties.

This advisory covers the taxation structure, TDS provisions, potential pitfalls, and tax-saving strategies for NRIs selling property in India.

 Taxation on Property Sale for NRIs

Short-Term vs. Long-Term Capital Gains

The taxation of capital gains depends on the holding period of the property:

  • Short-Term Capital Gains (STCG): If the property is held for 24 months or less, gains are taxed as per the NRI’s applicable income tax slab rates.
  • Long-Term Capital Gains (LTCG): If the property is held for more than 24 months, NRIs can choose from two taxation options:
    • 12.5% on gains without indexation benefits (New option as per Budget 2024).
    • 20% on gains with indexation benefits (Existing option).
  • NRIs can choose the option that results in the lowest tax liability.

TDS (Tax Deducted at Source) on NRI Property Sale

Unlike resident sellers, where the buyer deducts only 1% TDS, NRIs are subject to higher TDS rates:

  • LTCG TDS Rate: 12.50% (plus surcharge and cess) on the sale consideration.
  • STCG TDS Rate: 30% (plus surcharge and cess) on the sale consideration.

Key Points:

  • TDS is deducted on the entire sale value, not just the profit.
  • If the actual capital gain tax is lower, NRIs can apply for a Lower TDS Deduction Certificate (LDC) under Section 197.

The buyer is responsible for deducting TDS and filing TDS Return

 Implications of Not Deducting TDS at the Prescribed Rate

If the buyer fails to deduct the correct TDS, the NRI seller faces serious consequences:

  1. Tax Liability Still Exists – The seller is responsible for paying the correct tax.
  2. Interest on Shortfall – The seller may have to pay 1% per month on the outstanding tax amount.
  3. Repatriation Delays – Banks require proof of TDS deduction for repatriation; missing TDS can delay fund transfers as 15CB will not be issued by Chartered Accountant

To avoid these issues, the NRI should ensure that the buyer correctly deducts and deposits TDS with the government.

Repatriation of Sale Proceeds for NRIs

  1. Deposit sale proceeds into an NRO (Non-Resident Ordinary) account.
  2. Obtain a Form 15CB certificate from a Chartered Accountant.
  3. File Form 15CA online with the Income Tax Department.
  4. Submit required documents to the bank (sale deed, tax paid challans,15CA /15CB Certificate etc.).

Following these steps ensures smooth repatriation of funds to the NRI’s foreign bank account.

Tax Exemptions Available to NRIs on Capital Gains

NRIs can reduce their tax liability through various exemptions:

Section 54: Exemption available if LTCG is reinvested in another residential property in India within 2 years.

Section 54EC: Exemption available if LTCG is invested in specified capital gain bonds (NHAI, REC, etc.) within 6 months.

Important Considerations:

The new property purchased under Section 54 cannot be sold for 3 years.

Under Section 54EC, the maximum investment limit is ₹50 lakh.

Proper documentation simplifies legal and financial compliance during property transactions.

 Key Takeaways & Compliance Checklist for NRIs

 

✅ Identify whether the gain is Short-Term or Long-Term. ✅ Ensure the buyer deducts TDS at the correct rate.
✅ File Form 15CA & Form 15CB for repatriation. ✅ Explore tax-saving options like reinvestment or capital gain bonds.
✅ Apply for a Lower TDS Deduction Certificate (if applicable). ✅ Maintain proper documentation to avoid legal or tax disputes.

Conclusion

Selling property in India as an NRI involves multiple tax considerations, compliance requirements, and documentation. The Budget 2024 changes, particularly the 12.5% LTCG tax option, provide flexibility for NRIs in tax planning. However, ensuring proper TDS deduction, exploring tax exemptions, and following the correct repatriation process can help avoid unnecessary financial and legal troubles.For personalized tax planning and compliance assistance, NRIs should consult a tax expert or a chartered accountant to optimize their tax liability and ensure smooth property transactions in India.