NRI Capital Gains Tax on Indian Property Sale in 2026: LTCG, STCG & TDS

The Tax Framework for NRI Property Sales

When a Non-Resident Indian sells immovable property in India, two separate tax obligations arise simultaneously: the buyer must deduct TDS at source, and the NRI must compute and pay capital gains tax. Getting either wrong triggers interest and penalties. This guide covers the complete picture for sales in Financial Year 2025-26.

Short-Term vs Long-Term: The Holding Period Test

The classification of your gain depends entirely on how long you held the property:

Short-Term Capital Gain (STCG): Property held for 24 months or less. Taxed at your applicable income slab rate (20% or 30% for most NRIs, plus surcharge and cess).
Long-Term Capital Gain (LTCG): Property held for more than 24 months. Taxed at 12.5% flat (without indexation, post-Budget 2024 change) or 20% with indexation — you can choose whichever results in lower tax for properties purchased before July 23, 2024.

Budget 2024 Note: For properties purchased on or after July 23, 2024, the indexation benefit has been removed. LTCG is taxed at a flat 12.5% without any cost inflation index adjustment. For pre-July 2024 purchases, you have a one-time option to use 20% with indexation.

TDS: The Buyer's Obligation

Under Section 195, the buyer (resident or NRI) must deduct TDS before paying the seller:

STCG: TDS at 30% (plus 10% surcharge if gains exceed ₹50 lakh, plus 4% health and education cess)
LTCG: TDS at 12.5% (plus surcharge and cess)
Effective TDS on LTCG with surcharge: ~14.3% on gains above ₹50 lakh

TDS is deducted on the full sale consideration, not just the gain — unless the NRI obtains a lower deduction certificate (Form 13). This creates a significant cash flow problem: if your purchase price was ₹50 lakh and sale price is ₹90 lakh, TDS is calculated on ₹90 lakh even though your gain is only ₹40 lakh.

Form 13: Lower/Nil Deduction Certificate

To avoid over-deduction of TDS, apply for Form 13 from the jurisdictional Assessing Officer before the sale closes:

File the application online through the TRACES portal
Submit purchase deed, sale agreement, PAN, and computation of estimated gain
The AO issues a certificate authorizing TDS on actual gain (not full consideration)
Timeline: 30–45 days from application; plan ahead

Without Form 13, you'll overpay TDS and need to claim a refund through your ITR-2, which can take 6–12 months.

DTAA Relief on Capital Gains

Unlike interest income (where DTAA typically caps the tax rate), most India DTAAs give India the exclusive right to tax immovable property capital gains. This means DTAA generally does not reduce your Indian CGT on property. However:

You can claim a Foreign Tax Credit (FTC) in your country of residence for the Indian tax paid
File the FTC claim in your host country before the local filing deadline
For EU countries, this prevents economic double taxation even though both jurisdictions have the right to tax

Repatriation: Getting the Proceeds Abroad

After the sale completes and tax is settled:

Proceeds from the sale of property purchased with NRE funds: freely repatriable to your NRE account, no RBI approval needed
Proceeds from property inherited or purchased from NRO funds: subject to the USD 1 million per financial year cap, with Form 15CA (Part C) and Form 15CB (CA certificate) required above ₹5 lakh
Capital gains reinvested in specified bonds (Section 54EC) within 6 months of sale: exempt from LTCG up to ₹50 lakh per financial year

Section 54 Reinvestment Exemption

If you reinvest the long-term capital gain (not the full sale proceeds) in another residential property in India within 2 years (or construct within 3 years), the gain is exempt under Section 54. Key constraint: only one new property can be purchased, and it must be in India. NRIs cannot claim this exemption for property purchased abroad.

Use the Property Tracker on NRI Tools to track your property's appreciation, estimated gain on sale, and approximate LTCG liability.