NRIs Selling Property in India: How to Report Capital Gains and TDS
- Rashmita Choudhary
- Sep 15
- 9 min read
Non-Resident Indians (NRIs) often face unique tax obligations in India, especially when it comes to capital gains from the sale of property or other assets. Understanding how capital gains tax works, the applicable rates, TDS requirements, and exemptions available is crucial to avoid unnecessary penalties and ensure smooth compliance. Filing Income Tax Returns (ITR) correctly as an NRI requires attention to detail, especially regarding the type of gains, documentation, and reporting requirements. Platforms like TaxBuddy can simplify this process, providing accurate calculations and guidance to file returns efficiently.
Table of Contents
Understanding Capital Gains Tax for NRIs
Capital gains tax applies to the profit earned from the sale of a capital asset, such as property, shares, or mutual funds. For NRIs, both Indian and foreign-sourced income can influence tax obligations, but capital gains from Indian assets are taxable in India. The tax depends on the type of asset sold, the holding period, and whether exemptions are available. NRIs must also comply with specific TDS provisions and reporting requirements under the Income Tax Act.
Long-Term vs Short-Term Capital Gains Explained
Capital gains are classified as long-term or short-term depending on the holding period of the asset. Real estate held for more than 24 months qualifies as long-term, while shares or equity-oriented mutual funds held for more than 12 months are considered long-term. Short-term gains arise from assets sold before completing the specified holding period. The distinction is crucial because tax rates and exemptions differ for long-term and short-term gains.
Current Tax Rates on Capital Gains for NRIs
For NRIs, long-term capital gains (LTCG) on property are taxed at 20% with indexation benefits, while short-term capital gains (STCG) are added to taxable income and taxed according to the applicable slab rate. Equity shares and mutual funds may attract a 10% LTCG tax above ₹1 lakh, without indexation. Accurate tax calculation ensures NRIs do not underpay or overpay, which could lead to penalties or delays in refunds.
TDS on Property Sale by NRIs: Buyer’s Responsibility
When an NRI sells property in India, the buyer is responsible for deducting TDS at 20% for long-term gains and the applicable slab rate for short-term gains before making the payment. This TDS acts as an advance tax, ensuring that the government receives the due tax on the transaction. Proper TDS deduction protects both buyer and seller from penalties.
How to Apply for Lower or Nil TDS Certificate
NRIs who expect their tax liability to be lower than the standard TDS can apply for a lower or nil TDS certificate from the Income Tax Department under Section 197. This involves submitting Form 13 along with income proof, expected capital gains calculation, and supporting documentation. Once approved, the buyer can deduct TDS at the reduced rate, improving cash flow for the seller.
Reporting Capital Gains and Filing ITR for NRIs
NRIs must report all capital gains on ITR forms 2 or 3 depending on the source and type of income. The filing process involves including TDS details, computing total taxable gains, claiming exemptions, and submitting supporting documents such as property sale deeds and bank statements. Accurate reporting ensures smooth compliance and timely refund processing.
Exemptions Available for NRIs on Capital Gains
Non-Resident Indians (NRIs) who earn capital gains in India have the opportunity to reduce their tax liability by claiming exemptions under certain provisions of the Income Tax Act, primarily Sections 54, 54EC, and 54F. These exemptions are designed to encourage reinvestment of capital gains in specified assets while providing tax relief.
Section 54 – Exemption on Sale of Residential Property Under Section 54, an NRI can claim exemption from long-term capital gains (LTCG) tax if the proceeds from the sale of a residential property are reinvested in purchasing or constructing another residential property in India. The reinvestment must be made within a prescribed period—generally, within two years from the date of sale for purchase or within three years for construction of a new property. The exemption is available only if the new property is held for a minimum period and the gains are fully reinvested. This ensures that the capital remains invested in productive assets while reducing tax liability.
Section 54EC – Investment in Specified Bonds NRIs can also save on capital gains tax under Section 54EC by reinvesting the gains in certain notified bonds, such as those issued by the National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC). The investment must be made within six months of the property sale, and there is a maximum limit of ₹50 lakh per financial year. These bonds have a lock-in period, usually five years, ensuring that the reinvested capital continues to generate long-term value while availing tax benefits.
Section 54F – Exemption on Capital Gains from Non-Residential Property Section 54F allows NRIs to claim exemption on LTCG arising from the sale of any long-term capital asset other than a residential house, provided the proceeds are invested in a residential property in India. The exemption is proportional to the amount reinvested in the new property relative to the total sale proceeds. This provision encourages NRIs to channel capital gains into the Indian real estate market while enjoying tax relief.
By utilizing these exemptions, NRIs can significantly reduce their capital gains tax liability, provided they comply with the reinvestment timelines, asset eligibility, and holding period requirements. Careful planning and timely investment under these sections allow NRIs to make their capital gains productive while ensuring compliance with Indian tax laws.
Common Mistakes NRIs Make While Reporting Capital Gains
Non-Resident Indians (NRIs) are often exposed to specific challenges when reporting capital gains in India due to differences in tax treatment, currency conversions, and compliance requirements. One of the most frequent errors is misclassifying capital gains. NRIs sometimes confuse short-term and long-term gains, which are taxed differently. Short-term capital gains on listed securities are taxed at 15%, while long-term gains may qualify for lower tax rates, often after considering exemptions like Section 54, 54EC, or 54F. Misclassification can result in paying higher taxes than necessary or triggering scrutiny from the Income Tax Department.
Another common mistake is ignoring indexation benefits for long-term capital assets. Indexation allows adjustment of the asset’s purchase price to account for inflation, reducing taxable gains. NRIs who fail to apply indexation often end up paying more tax than required.
Not reporting TDS (Tax Deducted at Source) is also a significant oversight. For NRIs, capital gains arising from the sale of securities, property, or mutual funds often attract TDS at rates ranging from 15% to 30%, depending on the asset type. Failing to report TDS in the ITR can lead to mismatches, delayed refunds, and interest penalties.
Lastly, missing the filing deadline is a common issue. With the due date for FY 2024-25 extended to September 15, 2025, NRIs still need to be cautious. Late filing may attract penalties under Section 234F and delay refund processing.
To avoid these pitfalls, NRIs should ensure accurate reporting of all capital gains, apply eligible exemptions, verify TDS credits, and use the latest ITR forms and utilities provided by the Income Tax Department. Proper planning, careful documentation, and timely filing can prevent penalties, interest, and delays in refunds, ensuring smooth compliance with Indian tax laws.
Benefits of Using TaxBuddy for NRI Property Sale Filing
Filing income tax returns for the sale of property can be complex for Non-Resident Indians (NRIs) due to additional requirements such as calculating capital gains, claiming exemptions under various sections like 54 and 54EC, and correctly integrating TDS (Tax Deducted at Source) details. TaxBuddy simplifies this entire process with a fully streamlined platform designed specifically to cater to NRI taxpayers.
One of the major advantages of using TaxBuddy is its ability to accurately calculate capital gains, whether short-term or long-term, based on the cost of acquisition, indexed cost, and sale price. The platform also guides NRIs on exemptions they may be eligible for, helping reduce tax liability legally and efficiently. Step-by-step guidance ensures that even users unfamiliar with Indian tax laws can complete filing without confusion, minimizing the risk of errors that could trigger notices or penalties from the Income Tax Department.
Another key benefit is integration with TDS data. TaxBuddy automatically matches TDS deducted on the property sale with the taxpayer’s return, reducing manual reconciliation and avoiding mismatches that often delay refunds or attract scrutiny. NRIs can complete the filing from anywhere in the world, providing a seamless, fully online experience without the need to visit India physically.
Additionally, the platform provides real-time error checking, ensuring that all mandatory fields are filled, calculations are precise, and ITR forms are ready for e-submission. This not only saves time but also offers peace of mind, knowing that the return is accurate and compliant with the latest regulations. With TaxBuddy, NRIs can confidently file their ITR for property sales, avoid penalties, and maximize eligible exemptions, all through a secure and user-friendly interface.
Practical Example of Capital Gains and TDS Calculation
Consider an NRI selling a property for ₹80 lakh, originally purchased for ₹50 lakh. Indexed cost of acquisition: ₹60 lakh. LTCG: ₹20 lakh. Tax at 20%: ₹4 lakh. Buyer deducts TDS of ₹4 lakh at the time of payment. If the seller invests ₹20 lakh in a residential property under Section 54, the LTCG becomes exempt, reducing tax liability to zero.
Conclusion
Navigating capital gains tax for NRIs requires careful planning, accurate reporting, and timely filing. Using platforms like TaxBuddy ensures error-free calculations, proper exemption claims, and smooth ITR filing for property sales. For anyone looking for assistance in tax filing, I highly recommend you download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy provides both self-filing and expert-assisted plans. Self-filing is ideal for NRIs with straightforward income sources who want control over the process, while expert-assisted plans are perfect for those with complex filings, such as multiple properties, capital gains, or foreign income. Each plan ensures accuracy, automated calculations, and seamless submission.
Q2. Which is the best site to file ITR as an NRI? For NRIs, platforms like TaxBuddy are highly recommended. TaxBuddy simplifies filing, provides AI-driven calculations, ensures TDS reconciliation, and supports both self-filing and expert assistance. It also allows NRIs to file returns from abroad without the need to visit India.
Q3. Where to file an income tax return for capital gains on property? Income from capital gains on property should be reported under Schedule CG of the ITR form applicable to NRIs (ITR-2 or ITR-3, depending on income type). Using platforms like TaxBuddy ensures correct categorisation, TDS credit application, and integration with the Income Tax Department e-filing portal.
Q4. How is long-term capital gains calculated for NRIs? Long-term capital gains (LTCG) are calculated by deducting the indexed cost of acquisition and improvement from the sale value of the property. For NRIs, LTCG from property sales in India is taxable at 20% plus applicable surcharge and cess, after applying exemptions like Section 54, 54EC, or 54F if eligible.
Q5. What is the TDS rate for property sold by an NRI? For NRIs, TDS on property sales is 20% for long-term capital gains (property held for over 24 months) and 30% for short-term capital gains (property held less than 24 months). TaxBuddy automatically calculates TDS, generates forms, and ensures correct filing under Section 195.
Q6. Can NRIs claim exemptions under Section 54, 54EC, or 54F? Yes. NRIs can claim exemptions if they invest capital gains in specified residential property (Section 54), bonds under Section 54EC, or purchase/construction of a new property (Section 54F). TaxBuddy helps apply these exemptions correctly, reducing taxable capital gains.
Q7. How to apply for a lower or nil TDS certificate? NRIs can apply to the Assessing Officer (AO) using Form 13 to request lower or nil TDS if the actual tax liability is lower than the prescribed TDS rate. TaxBuddy guides NRIs through documentation and filing, ensuring the certificate is processed efficiently.
Q8. What are the deadlines for filing ITR as an NRI? For FY 2024-25 (AY 2025-26), NRIs without audit requirements must file by September 15, 2025. If the return is late, belated filing is allowed until December 31, 2025, with penalties and interest applicable. TaxBuddy notifies users about deadlines to avoid delays.
Q9. How can NRIs track their tax refunds? NRIs can track refunds through the Income Tax Department e-filing portal using PAN and assessment year. TaxBuddy also provides a dashboard to monitor refunds, TDS credits, and any pending actions to ensure smooth processing.
Q10. What common mistakes should NRIs avoid while filing ITR? Common mistakes include mismatched TDS credits, incorrect property details, missing exemptions, or using the wrong ITR form. TaxBuddy minimises errors by pre-filling data, reconciling TDS, and validating income sources before submission.
Q11. Does TaxBuddy provide support for TDS reconciliation? Yes. TaxBuddy automatically reconciles TDS statements, identifies discrepancies, and guides NRIs to correct mismatches, ensuring that refunds are processed without delays.
Q12. Can capital gains from multiple properties be combined for filing ITR? Yes, NRIs must aggregate gains from all properties in the same financial year. TaxBuddy simplifies this by calculating total capital gains, applying exemptions where applicable, and ensuring the correct tax is filed in one consolidated return.
