I sold my Bangalore flat in 2019.
The buyer was ready. The price was agreed. Papers were signed. Then my CA called.
“Mani, the buyer needs to deduct 20% TDS before paying you.”
I did not know this. The buyer did not know this. We almost completed the transaction incorrectly.
That one phone call saved us both from serious trouble. The buyer would have faced penalties. I would have received a tax notice.
Selling property in India as an NRI is not like selling as a Resident. The rules are different. The TDS is higher. The compliance is stricter.
If you are a US NRI planning to sell property in India, read this before you sign anything. I will walk you through capital gains tax, TDS requirements, exemptions, and how to handle US taxes on the same sale.
Already familiar with basic NRI taxation? Our US NRI tax filing guide covers the fundamentals. For rental income from property you still own, see our rental income tax guide.
Short Term vs Long Term: The Holding Period Matters
First question. How long have you owned the property?
This determines everything. Tax rates. Exemptions available. Even how you calculate the gain.
| Holding Period | Classification | Tax Rate (from July 2024) |
|---|---|---|
| Less than 24 months | Short Term Capital Gain | Your income tax slab rate |
| 24 months or more | Long Term Capital Gain | 12.5% flat |
Before July 2024, long term capital gains on property were taxed at 20% with indexation benefit. The 2024 budget changed this to 12.5% without indexation.
What is indexation? It adjusts your purchase price for inflation. Higher purchase price means lower gain. Lower gain means lower tax.
The new rule removes this benefit but lowers the rate. Whether this helps or hurts you depends on when you bought and how much prices increased.
For properties bought before 2001, you can use fair market value as on April 1, 2001 as your cost basis. This helps if you inherited ancestral property.
Calculating Capital Gains: Step by Step
Let me show you the actual calculation.
The Formula:
Sale Price minus Cost of Acquisition minus Cost of Improvement minus Transfer Expenses equals Capital Gain
For long term gains under the old regime (properties sold before July 23, 2024), you would index the cost. For the new regime, you use actual cost.
Example: Selling Property Bought in 2015
Rajesh bought a flat in Pune for Rs 50 lakhs in 2015. He sells it in 2024 for Rs 1.2 crore. He spent Rs 5 lakhs on renovations. Brokerage and legal fees were Rs 2 lakhs.
| Item | Amount (Rs) |
|---|---|
| Sale Price | 1,20,00,000 |
| Less: Purchase Cost | 50,00,000 |
| Less: Improvement Cost | 5,00,000 |
| Less: Transfer Expenses | 2,00,000 |
| Capital Gain | 63,00,000 |
Under the new regime (12.5% flat rate): Tax = Rs 63,00,000 x 12.5% = Rs 7,87,500
Under the old regime (20% with indexation): Indexed Cost = Rs 50,00,000 x (363/254) = Rs 71,45,669 (Using CII of 363 for 2024-25 and 254 for 2015-16)
Indexed Gain = Rs 1,20,00,000 minus Rs 71,45,669 minus Rs 5,00,000 minus Rs 2,00,000 = Rs 41,54,331 Tax = Rs 41,54,331 x 20% = Rs 8,30,866
In this case, the new regime actually saves tax. But results vary based on purchase year and appreciation.
The government allows you to choose the more beneficial option for properties acquired before July 23, 2024. Calculate both ways.
TDS on Property Sale: The 20% Deduction
Here is where NRIs get hit hard.
When you sell property as an NRI, the buyer must deduct TDS before paying you. This is not optional. It is mandatory.
| Seller Status | TDS Rate on LTCG | TDS Rate on STCG |
|---|---|---|
| Resident Indian | 1% (if sale exceeds Rs 50 lakhs) | 1% (if sale exceeds Rs 50 lakhs) |
| NRI | 12.5% plus surcharge and cess | 30% plus surcharge and cess |
| NRI (old regime if chosen) | 20% plus surcharge and cess | 30% plus surcharge and cess |
See the difference? Residents face 1% TDS. NRIs face 12.5% to 30%.
The effective TDS rate for NRIs can reach 13% to 31% after adding surcharge and cess. On a Rs 1 crore sale, that is Rs 13 to 31 lakhs deducted upfront.
The buyer deposits this TDS using Form 27Q. They issue you Form 16A as proof of deduction. Keep this document. You need it for ITR filing and for US tax credit claims.
Lower Deduction Certificate: Your Money Saver
That 12.5% to 30% TDS is based on sale price. Not on actual gain.
If you bought the property recently or have exemptions available, your actual tax could be much lower. Sometimes zero.
Solution? Apply for a Lower Deduction Certificate under Section 197.
How it works:
- Calculate your estimated capital gain
- Apply for exemptions (Section 54, 54EC, 54F)
- Determine actual tax liability
- File Form 13 with your Assessing Officer
- Receive certificate specifying lower TDS rate
- Share with buyer before transaction
This certificate can reduce TDS to your actual liability. If you qualify for full exemption, TDS could be nil.
Apply at least 30 days before planned sale date. Processing takes time.
Without this certificate, you overpay TDS and wait 6 to 12 months for refund. Your money sits with the government interest free. Not ideal.
Exemptions That Can Save You Lakhs
India offers several exemptions on long term capital gains from property sale. Use them wisely.
| Exemption | Requirement | Maximum Benefit |
|---|---|---|
| Section 54 | Buy another residential property in India | Full gain exemption up to Rs 10 crore |
| Section 54EC | Invest in specified bonds | Rs 50 lakhs per financial year |
| Section 54F | Buy residential property (if sold asset was not a house) | Proportionate exemption |
Section 54: Buy Another House
Most popular exemption. Sell one house. Buy another. Pay no capital gains tax.
Rules:
- New property must be in India
- Purchase within 1 year before or 2 years after sale
- Or construct within 3 years after sale
- Cannot sell new property for 3 years
- Maximum exemption Rs 10 crore (from April 2023)
If new property costs less than capital gain, exemption is proportionate.
Example: Rs 50 lakh gain. You buy property worth Rs 30 lakhs. Exemption is Rs 30 lakhs. Tax applies on remaining Rs 20 lakhs.
Section 54EC: Invest in Bonds
Do not want to buy another property? Invest in specified bonds instead.
Eligible bonds:
- NHAI (National Highways Authority of India)
- REC (Rural Electrification Corporation)
Lock in period is 5 years. Maximum investment Rs 50 lakhs per financial year. If your gain exceeds Rs 50 lakhs, you cannot fully exempt through this route alone.
Invest within 6 months of sale date. Not 6 months from receiving payment. 6 months from actual sale date. This catches many people.
Section 54F: For Non Residential Property
Sold a plot or commercial property? Section 54F applies.
Rules are similar to Section 54 but for non residential assets. Full exemption if entire net consideration (not just gain) is invested in new residential property.
You should not own more than one residential property (other than the new one) on date of sale. Otherwise, exemption is denied.
For detailed investment planning after property sale, see our guide on investment options for returning NRIs.
Capital Gains Account Scheme: Buy Time
What if you want Section 54 exemption but have not found a new property yet?
Open a Capital Gains Account Scheme (CGAS) with a bank. Deposit the gain amount. You get 2 years (purchase) or 3 years (construction) to use the funds.
This protects your exemption while you search for property.
Rules:
- Open before ITR filing due date
- Use funds only for specified purpose
- If unused within time limit, gain becomes taxable in that year
Interest on CGAS deposits is taxable. The principal exemption remains intact if used correctly.
US Tax Implications: The Double Reporting
Sold property in India? The IRS wants to know.
As a US citizen or Green Card holder, you report worldwide income. Indian property sale creates capital gain. Report it on your US return.
| Country | Tax Event | How to Handle |
|---|---|---|
| India | Capital gains tax at 12.5% to 30% | Pay through TDS or advance tax |
| USA | Capital gains tax at 0% to 23.8% | Report on Schedule D, claim Foreign Tax Credit |
| Both | Potential double taxation | DTAA prevents this through credit method |
The DTAA between India and USA ensures you do not pay full tax twice.
Here is how it works:
- Pay Indian capital gains tax (through TDS)
- Report same gain on US return (Schedule D)
- Claim Foreign Tax Credit for Indian taxes paid (Form 1116)
- Pay only the difference to IRS, if any
Currency Conversion Matters
Calculate your US gain separately. Use exchange rate on purchase date for cost basis. Use exchange rate on sale date for proceeds.
Your gain in dollars may differ from gain in rupees. Currency fluctuation creates its own gain or loss.
Example:
- Bought for Rs 50 lakhs when rate was 65 INR/USD = $76,923
- Sold for Rs 1 crore when rate was 83 INR/USD = $120,482
- US cost basis: $76,923
- US proceeds: $120,482
- US capital gain: $43,559
This dollar gain is what you report to IRS. You claim credit for Indian taxes paid on this income.
Our guide on reporting Indian income to IRS covers Schedule D reporting in detail.
Repatriation: Getting Your Money Out of India
Sold the property. Paid the taxes. Now you want the money in your US account.
NRIs can repatriate sale proceeds. But there are limits and procedures.
| Account Type | Repatriation Allowed | Conditions |
|---|---|---|
| NRE Account | Yes, freely | Funds must be from legitimate NRI sources |
| NRO Account | Yes, up to $1 million per year | After tax clearance |
| FCNR Account | Yes, freely | Foreign currency deposits |
Property sale proceeds typically go to NRO account first. From there, you can repatriate.
Requirements for repatriation:
- Form 15CA and 15CB from Chartered Accountant
- Documentary evidence of property sale
- Proof of taxes paid (TDS certificate)
- Bank may ask for additional documents
The $1 million annual limit is usually sufficient for single property sales. For larger amounts, you may need RBI approval or split across years.
Form 15CA is an online declaration. Form 15CB is a CA certificate confirming tax compliance. Your bank will not process transfer without these.
For related information on international transfers, see our guide on money transfers from India to USA.
Real Example: Complete Tax Calculation
Let me walk through a complete scenario from our community.
The situation:
Anita (US citizen, NRI for tax purposes) sells her Hyderabad apartment in December 2024.
- Purchase price (2016): Rs 65 lakhs
- Sale price (2024): Rs 1.4 crore
- Registration and legal fees at purchase: Rs 3 lakhs
- Improvements made: Rs 8 lakhs
- Brokerage on sale: Rs 2.1 lakhs (1.5%)
Indian Tax Calculation (New Regime):
| Item | Amount (Rs) |
|---|---|
| Sale consideration | 1,40,00,000 |
| Less: Original cost | 65,00,000 |
| Less: Registration costs | 3,00,000 |
| Less: Improvements | 8,00,000 |
| Less: Brokerage | 2,10,000 |
| Long Term Capital Gain | 61,90,000 |
| Tax at 12.5% | 7,73,750 |
| Add: Surcharge (if applicable) | Variable |
| Add: Health and Education Cess (4%) | 30,950 |
| Approximate Total Tax | 8,05,000 |
If Anita claims Section 54EC exemption:
She invests Rs 50 lakhs in REC bonds within 6 months.
| Item | Amount (Rs) |
|---|---|
| Total LTCG | 61,90,000 |
| Less: Section 54EC exemption | 50,00,000 |
| Taxable LTCG | 11,90,000 |
| Tax at 12.5% | 1,48,750 |
| Add: Cess (4%) | 5,950 |
| Total Tax | 1,54,700 |
Anita saves over Rs 6.5 lakhs by using the exemption.
TDS deducted by buyer:
12.5% plus cess on Rs 1.4 crore = approximately Rs 18.2 lakhs
Anita’s actual liability is Rs 1.54 lakhs. She gets Rs 16.66 lakhs as refund when she files ITR.
This is exactly why Lower Deduction Certificate matters. If Anita had obtained it beforehand, only Rs 1.54 lakhs would have been deducted.
US Reporting:
Anita converts everything to USD. She reports the gain on Schedule D. She claims Foreign Tax Credit for Indian taxes paid. The credit may exceed US liability, creating carryforward.
Common Mistakes That Cost Money
Seven years of community calls have shown me every possible error.
Mistake 1: Buyer not deducting TDS
Many Indian buyers do not know about NRI TDS rules. They pay full amount. Then you both have problems. The buyer faces penalties. You face tax notice.
Fix: Educate your buyer. Have your CA explain the requirement. Make TDS deduction a condition in the sale agreement.
Mistake 2: Not applying for Lower Deduction Certificate
Overpaying TDS by lakhs. Waiting months for refund.
Fix: Apply for certificate before sale. Plan ahead.
Mistake 3: Missing Section 54EC deadline
The 6 month deadline is strict. Courts have denied exemption for delays of even one day.
Fix: Mark the deadline on your calendar. Invest early. Do not wait until last moment.
Mistake 4: Not maintaining proof of cost
Old purchase documents lost. Cannot prove original cost. Tax calculated on full sale price.
Fix: Keep all property documents. Scan and store digitally. Registration documents, improvement receipts, everything.
Mistake 5: Ignoring US reporting
Thinking Indian property sale is only India’s business.
Fix: Report on Schedule D. Claim Foreign Tax Credit. Stay compliant in both countries.
Mistake 6: Wrong holding period calculation
Thinking holding period starts from registration. It actually starts from date of possession or allotment in case of under construction property.
Fix: Verify your acquisition date. Check allotment letter for under construction properties.
Inherited Property: Special Rules
Did you inherit property from parents or grandparents? The rules are slightly different.
Holding period:
Your holding period includes the previous owner’s period. If your father held the property for 20 years, then you inherit it, your holding period is counted from when he bought it. Not from when you inherited.
Cost basis:
You use the original owner’s purchase price. Not the market value at inheritance.
If property was acquired before 2001, you can use fair market value as on April 1, 2001.
| Scenario | Cost Basis | Holding Period |
|---|---|---|
| Inherited property (bought after 2001) | Original owner’s cost | From original purchase date |
| Inherited property (bought before 2001) | FMV on April 1, 2001 | From original purchase date |
| Gifted property | Donor’s cost | From donor’s purchase date |
Inherited property often qualifies as long term even if you sell immediately after inheritance. The previous owner’s holding period counts.
For estate planning and inheritance matters, our community discussions in the WhatsApp group have detailed threads.
Timeline: When Things Happen
Here is a typical property sale timeline for NRIs.
| Stage | Timeframe | Key Actions |
|---|---|---|
| Pre sale | 30 to 60 days before | Apply for Lower Deduction Certificate |
| Sale agreement | Day 0 | Sign agreement, buyer deducts TDS |
| TDS deposit | Within 7 days | Buyer deposits TDS to government |
| Registration | Within 4 months | Complete sale registration |
| Form 16A | Within 15 days of quarter end | Buyer issues TDS certificate |
| Section 54EC investment | Within 6 months of sale | Invest in bonds if claiming exemption |
| ITR filing | By July 31 (usually) | File return, claim refund |
| US tax filing | By April 15 | Report on Schedule D, claim FTC |
| Repatriation | After tax clearance | Transfer to US via Form 15CA/CB |
Plan each step. Missing deadlines costs money.
Professional Help: Worth Every Rupee
I have done many things myself over the years. Property sale taxes is not one of them.
Get professional help if:
- Sale proceeds exceed Rs 50 lakhs
- You want to claim exemptions
- You need Lower Deduction Certificate
- Property was inherited or gifted
- There are multiple co owners
- You have any US tax complexities
A CA specializing in NRI taxation costs Rs 15,000 to Rs 50,000 for property sale compliance. Compare that to potential penalties, lost exemptions, or double taxation from errors.
Our financial advisors directory lists professionals experienced with NRI property matters.
Frequently Asked Questions
Q: Can I claim Section 54 exemption by buying property in the USA?
No. The new property must be in India. Foreign property does not qualify.
Q: What if the property is jointly owned with my spouse?
Capital gain is split based on ownership ratio. Each owner claims their portion. Each can claim separate exemptions.
Q: Is stamp duty included in cost of acquisition?
Yes. Stamp duty, registration charges, and legal fees at time of purchase are part of cost of acquisition. Keep receipts.
Q: Can I use capital gains to repay home loan?
No direct exemption for loan repayment. But if you claim Section 54 by buying new property, you can use existing property (bought on loan) for exemption if it meets timeline requirements.
Q: What if buyer refuses to deduct TDS?
Walk away. Find another buyer. Non compliance exposes both parties to penalties and scrutiny.
Q: How long should I keep documents after sale?
At least 7 years for Indian tax purposes. US has similar requirements. I recommend keeping permanently for property transactions.
Q: Can NRIs invest in Section 54EC bonds?
Yes. NRIs can purchase NHAI and REC bonds for capital gains exemption. The bonds are rupee denominated and held in India.
Quick Checklist Before Selling
Before you finalize any property sale:
- Verify your holding period (short term vs long term)
- Calculate estimated capital gain
- Identify applicable exemptions
- Apply for Lower Deduction Certificate
- Ensure buyer understands TDS requirements
- Arrange funds for Section 54EC if planning to invest
- Keep all purchase documents ready
- Inform your US CPA about upcoming sale
- Plan repatriation timeline
- Engage a CA for compliance
The Bottom Line
Selling property in India as a US NRI involves more steps than you expect. But it is manageable if you plan ahead.
Here is what matters:
- Holding period determines tax rate and exemptions
- TDS is deducted at 12.5% to 30% for NRIs
- Lower Deduction Certificate reduces upfront TDS
- Section 54 and 54EC can eliminate or reduce tax
- Report to IRS and claim Foreign Tax Credit
- Repatriation requires Form 15CA and 15CB
That phone call from my CA in 2019 saved me from a major compliance failure. I want this guide to be that phone call for you.
Plan ahead. Get professional help. Follow the process.
If you are thinking about selling property in India and want advice from others who have done it, join our WhatsApp community at https://backtoindia.com/groups. Over 20,000 NRIs helping each other with real, lived experience. It is free and volunteer run.
Property sale questions come up every week in the group. Real experiences. Real solutions. Real numbers.
Disclaimer: This article is for informational purposes only. Tax laws change frequently. The July 2024 budget made significant changes to capital gains taxation. Always consult qualified tax professionals in both India and the USA before making decisions about property sale.
Sources:
- Income Tax Department, India (Capital Gains): https://www.incometax.gov.in
- Section 54, 54EC, 54F of Income Tax Act: https://www.incometax.gov.in
- Finance Act 2024 (Capital Gains Amendments): https://www.indiabudget.gov.in
- Cost Inflation Index: https://www.incometax.gov.in/iec/foportal/help/cost-inflation-index
- Section 195 TDS on NRI Payments: https://www.incometax.gov.in
- Form 15CA/15CB Requirements: https://www.incometax.gov.in
- RBI Guidelines on Repatriation: https://www.rbi.org.in
- IRS Schedule D Instructions: https://www.irs.gov/instructions/i1040sd
- IRS Form 1116 (Foreign Tax Credit): https://www.irs.gov/forms-pubs/about-form-1116
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