Nri Purchase Property In India

Buying property in India as an NRI does not itself trigger tax, but selling it does, and the mechanics are different from a resident seller’s experience. The buyer is required to deduct tax at source before paying an NRI seller, which surprises many first-time sellers who expect to settle tax later through their own return. This guide covers how it actually works.

TDS under Section 195: the buyer’s obligation, not the seller’s choice

Under Section 195 of the Income Tax Act, a buyer purchasing property from an NRI seller is required to deduct tax at source before making payment, at the rate applicable to the seller’s capital gains, rather than a flat percentage of the sale price. This deduction happens at the time of payment, which means the NRI seller receives the sale proceeds net of this tax upfront, not after filing a return later.

Long-term versus short-term capital gains

How long the property was held determines whether the gain is treated as long-term or short-term, with long-term gains generally taxed at a lower flat rate and short-term gains taxed at the applicable income tax slab rate, which can run considerably higher. NEEDS VERIFICATION: confirm the current holding period threshold and exact rates applicable at the time of the transaction, since these have changed in recent budgets and should not be quoted from memory. A chartered accountant familiar with NRI taxation should confirm the applicable rate before the sale is structured.

Reducing the TDS deduction through a Lower Deduction Certificate

Where the actual tax liability is expected to be lower than the standard TDS deduction, an NRI seller can apply to the tax department for a Lower Deduction Certificate before the sale, allowing the buyer to deduct tax at a reduced rate rather than the seller having to wait for a refund after filing a return. This application takes time, so it should be initiated well before the sale is finalised, not at the last minute.

DTAA relief: narrower than many buyers assume

Double Taxation Avoidance Agreements generally do not exempt gains on Indian immovable property from Indian tax entirely, since India typically retains primary taxing rights over property situated within it. Depending on the specific treaty and the seller’s country of tax residence, DTAA provisions may still affect the applicable rate or allow relief against double taxation in the country of residence, which is worth exploring with a cross-border tax advisor rather than assumed to provide a full exemption.

Filing a tax return in India as an NRI seller

Even where TDS has already been deducted at the time of sale, an NRI seller is generally still required to file an Indian income tax return declaring the capital gains, since the TDS deducted is a withholding against the ultimate liability, not necessarily the final figure owed. Filing the return also opens the possibility of a refund where the TDS deducted exceeded the actual tax liability, which is common where a Lower Deduction Certificate was not obtained in advance.

Reinvestment exemptions worth knowing about

Indian tax law provides certain exemptions from capital gains tax where the sale proceeds are reinvested into another residential property or specified bonds within prescribed timeframes. NEEDS VERIFICATION: the current exemption provisions, timeframes, and monetary caps should be confirmed with a chartered accountant at the time of the transaction, since these change periodically through budget amendments. Whether reinvestment makes sense for your circumstances depends on your broader financial plans, not just the tax saving alone.

Coordinating Indian tax filings with your country of residence

Capital gains realised in India generally also need to be reported in your country of tax residence, and depending on the applicable DTAA, credit for Indian tax paid may be available against tax owed abroad to avoid double taxation. This coordination between Indian and foreign tax filings should be handled by advisors in both jurisdictions working together, since a mismatch between the two filings can attract scrutiny in either country.

Frequently asked questions

Who is responsible for deducting tax when an NRI sells property?

The buyer, under Section 195 of the Income Tax Act, is responsible for deducting tax at source before paying the NRI seller. This means the seller receives the sale proceeds net of tax at the time of the transaction, rather than paying the tax separately after the sale.

What is a Lower Deduction Certificate and why would an NRI apply for one?

It is a certificate issued by the tax department allowing the buyer to deduct TDS at a reduced rate, where the seller’s actual tax liability is expected to be lower than the standard deduction. Applying before the sale avoids overpayment upfront and a longer wait for a refund through the tax return process.

Does a DTAA exempt an NRI from capital gains tax on Indian property?

Generally no, full exemption is uncommon since India typically retains primary taxing rights over property situated within it. Depending on the specific treaty and country of residence, DTAA provisions may still affect the applicable rate or provide relief against double taxation, so this should be checked with a cross-border tax advisor.

Is the capital gains tax rate the same for long-term and short-term holdings?

No, long-term and short-term gains are generally taxed differently, with long-term gains typically attracting a lower flat rate. The specific holding period threshold and current rates should be confirmed with a chartered accountant at the time of sale, since these figures are revised periodically through the annual budget.

Do I still need to file an Indian tax return if TDS was already deducted?

Yes, generally. The TDS deducted is a withholding against the ultimate liability, not necessarily the final figure owed. Filing the return also opens the possibility of a refund where TDS deducted exceeded the actual tax liability, common where a Lower Deduction Certificate was not obtained beforehand.

Can I avoid capital gains tax by reinvesting the sale proceeds?

Certain exemptions exist for reinvestment into another residential property or specified bonds within prescribed timeframes, but the exact provisions, timeframes, and caps change periodically. Confirm the current rules with a chartered accountant at the time of your transaction rather than relying on outdated information.

Do I need to report Indian capital gains in my country of residence too?

Generally yes, and depending on the applicable DTAA, credit for Indian tax paid may be available against tax owed abroad to avoid double taxation. This coordination should be handled by advisors in both jurisdictions together, since a mismatch between filings can attract scrutiny in either country.

What records should I keep for tax purposes after selling property in India?

Keep the original purchase deed, the sale deed, TDS certificates, and any documentation of improvement costs that may offset the taxable gain. These records support both your Indian tax return and any reporting required in your country of residence, so retain them well beyond the immediate transaction.

Plan the Tax Position Before You List the Property

Tax on an NRI property sale is deducted before the money reaches you, not settled comfortably afterward. Understanding the TDS mechanics and applying for a Lower Deduction Certificate where relevant, well ahead of the sale, protects the actual proceeds you receive.

VIVS Legal works alongside tax advisors to structure NRI property sales, including Lower Deduction Certificate applications. Read more in our NRI legal services.

Written by Adv. Swanand Pandit, BLS, LL.B, LL.M, Advocate, High Court of Bombay, Director, VIVS Legal. Last updated 15 August 2026.