Capital gains tax is one of the most significant financial considerations for any NRI selling property in India. The rules changed with the Union Budget 2024 and apply to transactions in 2025–26. This is the current position as applicable in 2026.
What is Capital Gains Tax?
Capital gains tax is the tax levied on the profit (gain) you make when you sell a capital asset , which includes property. The gain is the difference between the sale price and the indexed cost of acquisition (for long-term assets).
Short-Term vs Long-Term Capital Gains
- Short-Term Capital Gain (STCG): If you sell the property within 24 months of purchase, the gain is short-term. STCG is taxed at your applicable income tax slab rate (can be up to 30% for high earners, plus surcharge and cess).
- Long-Term Capital Gain (LTCG): If you hold the property for more than 24 months before selling, the gain is long-term.
LTCG Tax Rate , Budget 2024 Change
The Union Budget 2024 made a significant change to LTCG tax on property:
- LTCG on property sold after July 23, 2024: taxed at 12.5% without indexation benefit
- Alternatively, for properties acquired before July 23, 2024: taxpayers may choose the older rate of 20% with indexation (whichever is more beneficial)
For NRIs, surcharge and cess are added to the applicable rate, making the effective LTCG rate approximately 14–23% depending on the gain amount.
TDS Obligation on the Buyer
When an NRI sells property in India, the buyer must deduct TDS before paying:
- LTCG: TDS at 12.5% (+ surcharge + cess) on the sale consideration
- STCG: TDS at 30% (+ surcharge + cess) on the sale consideration
- The buyer must deposit TDS using Form 26QB and issue Form 16A to the NRI
- Failure to deduct TDS makes the buyer liable for the tax amount
NRIs who feel the TDS rate is higher than their actual tax liability can apply for a Lower Deduction Certificate under Section 197 before the sale is completed. This can significantly reduce the TDS withheld.
Indexation , What It Means
Indexation adjusts the cost of acquisition for inflation using the Cost Inflation Index (CII) published by the government each year. A higher adjusted cost means a lower capital gain and lower tax. Under the new 12.5% regime (no indexation), it may or may not be more beneficial than 20% with indexation , it depends on how long you held the property and the inflation over that period. Calculate both before deciding.
Exemptions Available to NRIs
Section 54 , Reinvest in Residential Property: If you reinvest the LTCG in a new residential property in India, the capital gains are exempt (subject to conditions). You must purchase within 1 year before or 2 years after the sale, or construct within 3 years.
Section 54EC , Invest in Bonds: Invest capital gains (up to ₹50 lakhs) in NHAI or RECL bonds within 6 months of the sale. The bonds must be held for 5 years.
Section 54F , Sale of Non-Residential Property: If the property sold is not a residential house, and you invest the full sale consideration in a new residential property, the gain is exempt under Section 54F.
Repatriation After Paying Tax
After paying TDS and capital gains tax (and filing your Indian tax return), you can repatriate the net sale proceeds to your overseas account through your NRO account. You will need a CA certificate in Form 15CA/15CB to authorise the transfer. The annual repatriation limit is USD 1 million per financial year.
Get Professional Help
Capital gains tax for NRIs involves interaction between Indian income tax law, FEMA regulations, and potentially the double taxation avoidance treaty between India and your country of residence. Our NRI property advisory service connects you with CA and legal professionals who handle this end-to-end. Also see: how to sell ancestral property in Karnataka as an NRI.