How to Calculate Capital Gains When an NRI Sells Property in India
Holding period, cost computation, TDS on the sale, and the exemptions that can meaningfully reduce what you owe.
Selling Indian property as an NRI involves a materially different tax process than a resident sale — the buyer must deduct TDS on the sale itself, often at a much higher rate than most people expect, and getting the cost computation right can significantly change your tax bill.
Capital gains rules have been revised in recent years, so treat the mechanics below as the framework and confirm current rates and indexation treatment with a CA before filing — this is the guide's single most important caveat.
- Original purchase documents (sale deed, payment proof) to establish cost basis
- Records of any capital improvements made to the property
- PAN card
- A chartered accountant experienced in NRI capital gains (strongly recommended)
Determine your holding period
Property held for more than 24 months from purchase to sale qualifies as a long-term capital asset (LTCG); shorter holding periods are treated as short-term (STCG) and taxed differently. This single distinction drives most of what follows.
Establish your cost of acquisition
Start from the original purchase price plus stamp duty, registration, and any documented capital improvements (not routine repairs). How this cost is adjusted for inflation (indexation) depends on current rules at the time of sale — confirm the applicable treatment with a CA, as this has changed in recent budgets.
Compute the capital gain
Capital gain = sale price − selling expenses (brokerage, legal fees) − cost of acquisition (as adjusted) − cost of improvements (as adjusted). This is the figure capital gains tax is calculated on, not the raw sale price.
Understand TDS on the sale itself
Unlike a resident seller, the buyer must deduct TDS on an NRI seller's property sale under Section 195 — often at a materially higher effective rate than the eventual tax liability, because it's calculated on the full sale value in many cases, not just the gain.
Tip: You can apply for a Lower TDS certificate (Form 13) before the sale closes to align the deduction closer to your actual expected tax liability, improving cash flow at closing.
Check available exemptions
Section 54 allows exemption on long-term gains if reinvested in another residential property within specified timelines. Section 54EC allows exemption by investing gains (up to a capped amount) in specified capital gains bonds within 6 months of sale.
File your ITR to reconcile and claim any refund
Report the sale, computed gain, and TDS already deducted in your ITR. If the TDS deducted at sale exceeded your final computed liability (common if you've claimed an exemption), you'll receive the difference back as a refund.
Repatriate the net proceeds
Once tax is settled, net sale proceeds can be repatriated from your NRO account via the standard Form 15CA/15CB process, within the USD 1 million/year FEMA limit.
Common Mistakes to Avoid
Not applying for a Lower TDS certificate before closing, leaving a large amount tied up until refund
Missing the 6-month window for Section 54EC bond investment
Using outdated indexation assumptions — this area of law has changed and needs current confirmation
Forgetting that selling expenses and documented improvement costs are legitimately deductible from the gain
Frequently Asked Questions
How much TDS is deducted when an NRI sells property in India?
The rate and basis vary and can be materially higher than a resident seller's TDS, often applied to the full sale consideration in the absence of a lower-TDS certificate. Confirm the current rate with a CA before the transaction, and consider applying for a Form 13 lower-deduction certificate in advance.
Can I avoid capital gains tax entirely?
Not entirely avoid, but you can reduce or defer it — Section 54 (reinvesting in another residential property) and Section 54EC (capital gains bonds, within a capped amount) are the two primary legal exemption routes for long-term gains.
Does indexation still apply to property sales?
Indexation rules for property have been revised in recent budgets and the applicable treatment depends on when the property was acquired and sold. This is exactly the kind of detail to confirm with a CA at the time of your specific sale rather than relying on a general guide.
Can I repatriate the full sale proceeds abroad?
Yes, subject to tax being paid and the USD 1 million per financial year FEMA limit on NRO repatriation — larger amounts may require spreading across financial years or seeking RBI approval.
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