Imagine you bought a flat in Bangalore in 2010 for Rs 30 lakh. You moved to Seattle a few years later. Life happened. Now, in 2026, you sell it for Rs 1.5 crore.
On paper, you have made a tidy profit. In reality, you are about to enter one of the most complicated tax situations an NRI can face.
The buyer will withhold 12.5% of the entire sale price as TDS before you see a single rupee. The government will want capital gains tax on the profit. Your country of residence might want a piece too. And if you do not plan ahead, you could end up paying lakhs more than you legally owe.
Capital gains tax on property is not difficult once you understand the structure. But the structure has layers, and the July 2024 Union Budget changed several of them. This guide walks through every layer: how your gain is calculated, what rate applies, which exemptions can reduce the bill, and the NRI-specific traps that catch people every year.
Tax rates and thresholds in this guide are current as of March 2026. The Finance Act may revise these annually. Always verify the latest rates on the Income Tax Department portal before acting.
Short-Term vs Long-Term: The 24-Month Line
The first question the tax department asks is simple: how long did you hold the property?
If you owned it for more than 24 months, it is a long-term capital asset. If 24 months or less, it is short-term.
This single distinction changes everything. The tax rate, the exemptions available, and even the TDS the buyer must deduct all depend on which side of the 24-month line you fall.
Long-term capital gains (LTCG): Taxed at a flat 12.5%, plus applicable surcharge and 4% health and education cess.
Short-term capital gains (STCG): Taxed at your applicable income tax slab rate, which can go up to 30%, plus surcharge and cess.
Think of it like a toll booth. Drive through the long-term lane, and the toll is fixed at 12.5%. Drive through the short-term lane, and the toll depends on your total income. For most NRIs selling urban property, the short-term lane is far more expensive.
When does the holding period start?
For property you purchased, it starts from the date of purchase (the date on the sale deed or allotment letter, not the date you moved in). For property acquired under construction, it starts from the date of allotment.
For inherited property, this is where it gets interesting. The holding period includes the time the previous owner held the property. If your mother bought a flat in 2008 and you inherited it in 2024, your holding period starts from 2008. That is 18 years of holding, firmly in long-term territory. Section 2(42A) of the Income Tax Act is explicit about this.
How the Capital Gain Is Calculated
The basic formula looks simple:
Capital Gain = Sale Price - Cost of Acquisition - Cost of Improvement - Transfer Expenses
But each component has rules.
Sale price is the actual sale consideration or the stamp duty value assessed by the state government, whichever is higher. This is the Section 50C rule, covered in detail in our circle rate and stamp duty guide: if you sell a property for Rs 80 lakh but the stamp duty value is Rs 95 lakh, the tax department will treat Rs 95 lakh as your sale price. There is a 10% tolerance band, so Section 50C only kicks in when the stamp duty value exceeds 110% of the declared sale price.
Cost of acquisition is what you paid for the property. For inherited property, it is the cost the previous owner paid (Section 49). If the previous owner acquired the property before 1 April 2001, you can choose to use the fair market value as on 1 April 2001 instead, which is usually higher and therefore more favourable.
Cost of improvement covers any capital expenditure on the property (renovation, construction of additional floors, structural changes). Routine maintenance and repairs do not count.
Transfer expenses include brokerage, legal fees, and stamp duty paid on the sale.
A Worked Example
Rajesh, an NRI in Dubai, sells a flat in Mumbai in January 2026 for Rs 2 crore. His father bought it in 2006 for Rs 25 lakh. Rajesh inherited it in 2020 after his father passed away.
- Sale price: Rs 2,00,00,000
- Cost of acquisition (father’s purchase price): Rs 25,00,000
- Cost of improvement (Rajesh renovated bathrooms and kitchen in 2021): Rs 5,00,000
- Brokerage (1%): Rs 2,00,000
- Long-term capital gain: Rs 1,68,00,000
Holding period: from 2006 (father’s purchase) to 2026 = 20 years. Long-term.
Tax at 12.5%: Rs 21,00,000. Add surcharge at 15% (since the gain exceeds Rs 1 crore): Rs 3,15,000. Add cess at 4%: Rs 96,600.
Total capital gains tax: Rs 25,11,600.
That is a significant number. But Rajesh has options. We will get to those.
The 2024 Budget Bombshell: What Changed
Before July 2024, the LTCG rate on property was 20%, but sellers could use indexation to adjust their purchase price for inflation. The Cost Inflation Index (CII) published by the CBDT let you inflate your purchase price in line with the general price level. If you bought in 2006 for Rs 25 lakh, indexation might inflate that cost to Rs 75 lakh by 2024, slashing your taxable gain dramatically.
The Union Budget of 23 July 2024 changed the equation. The rate dropped from 20% to 12.5%, but indexation was removed entirely for all transfers from that date forward.
Following public outcry, the government added a grandfathering clause. For properties acquired before 23 July 2024, resident taxpayers can compute their tax under both methods and pay whichever is lower:
| Method | Rate | Indexation | Available to |
|---|---|---|---|
| New regime | 12.5% | No | Everyone |
| Old regime | 20% | Yes | Residents only |
Here is the critical detail that most NRI tax articles gloss over: the choice between the two methods is available only to resident individuals and HUFs. NRIs must pay at the flat 12.5% rate without indexation, regardless of when they purchased the property. The second proviso to Section 112(1) that reinstated the dual computation option does not extend to non-residents.
Who wins, who loses?
If you bought property in the last 5 to 7 years, the 12.5% rate likely works in your favour. Inflation adjustment over a short period would not have reduced your gain by much.
If you have held property for 15 to 20 years, the removal of indexation hurts. Go back to Rajesh’s example. Under the old regime with indexation, his father’s Rs 25 lakh purchase price might have been indexed to around Rs 77 lakh, giving a taxable gain of roughly Rs 1.16 crore. At 20%, that is Rs 23.2 lakh. Under the new regime without indexation, his gain is Rs 1.68 crore at 12.5%, which is Rs 21 lakh before surcharge and cess. In Rajesh’s case, the new regime is actually slightly cheaper. But the margins are thin, and for properties held even longer or purchased at higher prices, the old regime could have been more favourable.
The practical takeaway for NRIs: run the numbers with your CA. And since the old regime option is not available to you, focus your energy on the exemptions that can reduce the gain itself.
Section 54: Reinvest in a Residential Property
This is the most commonly used exemption, and for good reason. It can wipe out your entire capital gains tax liability. For a complete walkthrough of how to execute it — including CGAS procedures, the Lower Deduction Certificate, and actual ITAT cases — see our dedicated Section 54 and 54EC guide.
How it works: If you sell a residential property and reinvest the capital gains in purchasing or constructing another residential property in India, the gains (up to Rs 10 crore) are exempt from tax.
The timelines:
- Purchase the new property within 1 year before or 2 years after the date of sale
- Or construct a new property within 3 years of the sale
- The new property must be in India (property outside India does not qualify)
The two-property exception: If your long-term capital gains do not exceed Rs 2 crore, you can claim the exemption for the purchase of up to 2 residential properties. This is a once-in-a-lifetime option. Once you use it, you cannot use it again.
The lock-in: You cannot sell the new property within 3 years of purchase. If you do, the exemption gets reversed and the capital gains become taxable in the year of the second sale.
What if you cannot reinvest immediately?
This is where the Capital Gains Account Scheme (CGAS) saves you. If you have not purchased or started construction before the income tax return filing deadline (31 July of the assessment year), deposit the capital gains in a Non-Resident Capital Gains Account Scheme (NRCGAS) at a designated bank. This keeps the exemption alive while you search for the right property.
The NRCGAS is essentially a parking spot for your money. It tells the tax department: “I intend to reinvest, I am not trying to avoid tax, I just need more time.” The money stays in the account (earning interest, which is taxable) until you withdraw it to purchase or construct the property.
If you do not use the deposited amount within the prescribed 2 or 3 years, it gets treated as long-term capital gains in the year the deadline expires, and tax becomes due.
A common and expensive mistake: NRIs often forget about the CGAS deposit requirement. They sell the property, plan to buy another one “next year,” and file their return without depositing the gains. By the time they realise, the exemption window has closed. The ITAT (Income Tax Appellate Tribunal) has taken a somewhat taxpayer-friendly view in recent cases, allowing the exemption where the gains were actually reinvested within the time limit even without a CGAS deposit. But do not rely on litigation going your way. Open the NRCGAS account before you file your return.
Section 54EC: The Bond Route
Not everyone wants to buy another property. Perhaps you already own a home abroad. Perhaps you do not want the hassle of managing a second property in India remotely. Section 54EC offers an alternative.
How it works: Invest your long-term capital gains (up to Rs 50 lakh) in specified bonds, and those gains are exempt from tax.
Eligible bonds (as of March 2026):
- REC (Rural Electrification Corporation)
- PFC (Power Finance Corporation)
- IRFC (Indian Railway Finance Corporation)
- HUDCO (Housing and Urban Development Corporation, added from April 2025)
- IREDA (Indian Renewable Energy Development Agency, notified from July 2025)
NHAI discontinued 54EC bond issuance in 2022.
Key conditions:
- Invest within 6 months of the date of sale. Not 6 months from the date of registration, not 6 months from receiving the payment. Six months from the date of transfer.
- Maximum investment: Rs 50 lakh. This cap applies across all specified bonds combined, not Rs 50 lakh per issuer.
- Lock-in period: 5 years. You cannot sell, pledge, or transfer the bonds during this period.
- Interest rate: Currently around 5.25% per annum. The interest is taxable as income from other sources.
The 6-month trap: This deadline is absolute. Unlike Section 54, there is no Capital Gains Account Scheme to extend the window. Miss the 6-month deadline by a single day, and the exemption is gone. Calendar it the moment you sign the sale deed.
Can you combine Section 54 and 54EC? Yes. If your capital gains are Rs 2 crore, you can invest Rs 50 lakh in 54EC bonds and reinvest the remaining Rs 1.5 crore in a residential property under Section 54. The exemptions are not mutually exclusive.
Section 54F: For Non-Residential Property Sellers
Section 54 applies when you sell a residential property. But what if you sell a plot of land, a commercial office, or a shop? That is where Section 54F comes in.
How it works: If you sell any long-term capital asset other than a residential house and invest the entire net sale consideration (not just the capital gains, but the full sale proceeds) in a new residential property in India, the capital gains are exempt.
Note the distinction. Section 54 requires reinvestment of the capital gains. Section 54F requires reinvestment of the entire sale consideration. If you sell a commercial property for Rs 1 crore and the capital gain is Rs 60 lakh, you need to invest the full Rs 1 crore in a new house, not just Rs 60 lakh.
Conditions:
- You must not own more than one residential property (apart from the new one) on the date of sale
- Purchase within 1 year before or 2 years after the sale, or construct within 3 years
- Do not sell the new property within 3 years
- Maximum exemption capped at Rs 10 crore of the net consideration
If you invest only a portion of the sale consideration, the exemption is proportionately reduced.
Capital Gains on Inherited Property: The Special Rules
Inherited property adds two wrinkles to the capital gains calculation, and both work in your favour.
First, the cost of acquisition. Under Section 49(1), when you inherit property, your cost of acquisition is the price the previous owner paid. Not the market value when you inherited it, not zero, but the actual historical cost. If the property was originally acquired before 1 April 2001, you have the option of using the fair market value as on that date, which is almost always higher.
Second, the holding period. As mentioned earlier, the holding period includes the time the previous owner held the property. This is critical because it almost always pushes inherited property into long-term territory, which means the lower 12.5% rate instead of slab rates up to 30%.
A common confusion: Some NRIs believe that inheriting property triggers a taxable event. It does not. India abolished the estate duty (inheritance tax) in 1985. You pay nothing when you inherit. Tax only arises when you sell. For a full walkthrough of the inheritance process, see our guide for NRIs who have inherited property in India.
The tricky scenario: inherited property that was originally gifted. If your father was gifted the property by his brother, and you then inherited it from your father, the cost of acquisition goes back to the original purchaser in the chain of transfers covered by Section 49(1). You might need to trace the cost back two or even three generations. Keep the original purchase documents safe.
NRI-Specific Traps: TDS, Lower Deduction Certificates, and Advance Tax
The capital gains calculation is the same for residents and NRIs. But the mechanics of how the tax gets collected are very different.
TDS at Source
When an NRI sells property, the buyer must deduct TDS under Section 195 on the entire sale consideration, not just the profit. For long-term gains, the TDS rate is 12.5% plus surcharge and cess (effective rate approximately 14.95%). For short-term gains, it can be up to 30% plus surcharge and cess.
On a Rs 2 crore sale, that is roughly Rs 30 lakh withheld upfront for long-term gains, even if your actual tax liability after exemptions might be Rs 5 lakh or even nil.
The Lower Deduction Certificate (Section 197)
This is the single most important tool for NRIs selling property in India. A Lower Deduction Certificate (LDC) allows the buyer to deduct TDS based on your actual capital gains tax liability rather than the full sale price.
If you are reinvesting under Section 54 and your net tax liability is zero, the Assessing Officer can authorise nil TDS. Apply using Form 13 on the TRACES portal at least 30 to 45 days before the expected sale date.
The documents you need: the purchase deed (or inheritance documents), proposed sale deed, capital gains computation, proof of reinvestment intent, last three years’ ITR acknowledgements, encumbrance certificate, PAN card, and passport. Keeping these organised before the sale process begins can save you weeks of back-and-forth. A platform like Assetly lets NRIs store and track all property documents digitally, so everything is ready when your CA or the Assessing Officer needs it.
Advance Tax Obligations
Even though TDS is deducted at source, NRIs may still have advance tax obligations if their total tax liability (after accounting for TDS) exceeds Rs 10,000 in a financial year. The advance tax schedule is:
| Due date | Minimum cumulative payment |
|---|---|
| 15 June | 15% of estimated tax |
| 15 September | 45% of estimated tax |
| 15 December | 75% of estimated tax |
| 15 March | 100% of estimated tax |
If you sell property mid-year and the TDS does not cover your full liability (for instance, because you also have rental income or other gains), you must pay the balance as advance tax. Failure to pay attracts interest under Section 234B (1% per month for shortfall in advance tax) and Section 234C (1% per month for deferment of advance tax instalments).
In practice, if TDS covers your entire liability and you plan to claim exemptions, this is less of a concern. But if you are selling short-term property where the gain is taxed at slab rates, or if you have multiple sources of Indian income, talk to your CA about advance tax before the sale closes.
DTAA: Paying Tax Only Once
Selling property in India while being tax-resident in another country creates a potential double taxation problem. India taxes the capital gain because the property is in India. Your country of residence might tax the same gain because you are a tax resident there.
The Double Taxation Avoidance Agreement (DTAA) between India and your country of residence prevents this. India has DTAAs with nearly 90 countries.
The general principle: India, as the source country, gets first right to tax capital gains on immovable property. Your country of residence then either exempts the income or gives you credit for the tax paid in India.
Country-specific highlights:
| Country | How it works | Key form/action |
|---|---|---|
| United States | US taxes worldwide income. Claim a Foreign Tax Credit for Indian taxes paid. If Indian tax exceeds the US tax on the same gain, carry forward the excess. | IRS Form 1116 |
| United Kingdom | Report the gain on your Self Assessment. UK CGT is 18% (basic rate) or 24% (higher rate). Indian tax credit usually covers most or all of the UK liability. | Self Assessment return |
| Canada | Report in Canadian dollars. Canada’s 50% inclusion rate means the effective rate is often lower than India’s, so the Indian credit may fully offset the Canadian liability. | Schedule 3 + Form T2209 |
| UAE and Singapore | Neither country levies capital gains tax on individuals. You pay tax only in India. No double taxation arises. | No action needed |
Critical requirement: Obtain a Tax Residency Certificate (TRC) from your country of residence. Without it, Indian tax authorities may not apply DTAA provisions, and your country’s authority may reject the Foreign Tax Credit claim. For a broader understanding of how money flows across borders when NRIs transact in Indian property, see our FEMA rules guide.
The Seven Mistakes That Cost NRIs the Most
1. Selling before 24 months. The difference between short-term and long-term taxation can be enormous. STCG is taxed at slab rates up to 30%. LTCG is taxed at 12.5%. If you are even a few months short of the 24-month mark, waiting can save you lakhs.
2. Not opening an NRCGAS account before the ITR deadline. If you plan to reinvest under Section 54 but have not found a property yet, deposit the gains in an NRCGAS account before 31 July. Otherwise, the exemption is gone, and no amount of explaining your intention will bring it back (unless you are prepared for years of litigation).
3. Missing the 54EC bond deadline. Six months. Not six months and a day. The deadline is rigid. Bond subscriptions can close early if the issuer’s allocation fills up. Apply well before the deadline, not on the last day.
4. Not applying for a Lower Deduction Certificate. Without an LDC, the buyer withholds TDS on the full sale price. You might overpay by Rs 5 to 10 lakh and wait 12 to 18 months for a refund. Apply under Section 197 at least 30 to 45 days before the sale.
5. Forgetting that Section 50C applies. If you sell below the stamp duty value by more than 10%, the tax department will deem the stamp duty value as your sale price. This catches NRIs who sell to family members at below-market rates.
6. Not filing an Indian income tax return. Even if TDS covers your entire liability, you must file a return to claim exemptions, get refunds, and complete the repatriation process through Form 15CA and 15CB. The deadline is 31 July of the assessment year.
7. Ignoring the pre-sale document check. Get a fresh encumbrance certificate before listing the property. India’s property dispute crisis means title issues surface at the worst possible moment. A clean title verification saves the sale from falling apart mid-transaction.
A Decision Flowchart
When you sell property as an NRI, the decisions flow in this order:
Step 1: Is this long-term (held over 24 months) or short-term?
Step 2: Calculate the capital gain: sale price minus cost of acquisition, improvement, and transfer expenses.
Step 3: Can you claim an exemption?
- Selling a residential property and buying another? Section 54.
- Selling a non-residential property and buying a house? Section 54F.
- Do not want to buy property? Section 54EC bonds (up to Rs 50 lakh).
- Large gain? Combine Section 54 and 54EC.
Step 4: Apply for a Lower Deduction Certificate (Form 13) to reduce TDS.
Step 5: If not reinvesting before the ITR deadline, open an NRCGAS account.
Step 6: File your Indian income tax return by 31 July.
Step 7: Obtain a TRC from your country of residence and claim DTAA credit.
Step 8: File Form 15CA/15CB and repatriate the proceeds.
Quick Reference: Capital Gains Tax Rates for NRIs (FY 2025-26)
| Type of gain | Rate | Indexation | Key exemptions |
|---|---|---|---|
| LTCG (property held > 24 months) | 12.5% + surcharge + cess | Not available | Section 54, 54EC, 54F |
| STCG (property held up to 24 months) | Slab rate (up to 30%) + surcharge + cess | Not applicable | None specific to property |
| Surcharge tier (total income) | Rate |
|---|---|
| Up to Rs 50 lakh | Nil |
| Rs 50 lakh to Rs 1 crore | 10% |
| Rs 1 crore to Rs 2 crore | 15% |
| Above Rs 2 crore | 15% (capped for LTCG) |
Assetly is a property document management platform that helps Indian property owners, especially NRIs, organise, verify, and track their property documents digitally. Learn more.
