The tax and the deduction are two different problems
A sale of Indian property by a non-resident produces two numbers that are routinely conflated: the tax actually due on the gain, and the amount the buyer is obliged to withhold and pay to the Indian government at completion.
For a resident seller those two sit in roughly the same territory. For a non-resident they do not, and the gap between them is often the largest single sum in the transaction. Money withheld in excess of the real liability is not lost, but it is locked up until a return of income is filed and processed — well over a year after completion. Everything useful you can do about that happens beforehand.
Short term, long term, and where the line falls
The dividing line for immovable property is twenty-four months. Under the Income-tax Act 2025, an asset held for not more than twenty-four months immediately preceding the date of transfer is a short-term capital asset; the twelve-month rule applies to listed securities and similar instruments, not to land or buildings.
Falling on the wrong side is expensive. A short-term gain has no special rate — it is added to your total income and taxed at ordinary slab rates, which for a substantial gain means the top slab plus surcharge and cess. A long-term gain on the same property is taxed at the flat rate of 12.5 per cent under the long-term capital gains provision of the 2025 Act, successor to section 112 of the 1961 Act.
Two adjustments sit on top of that headline figure. Surcharge applies according to income level, but for this category of gain the Finance Act 2026 caps it at 15 per cent, and health and education cess of 4 per cent then applies to the aggregate of tax and surcharge. The effective long-term rate therefore runs from 13 per cent to 14.95 per cent — a narrow band, and far more predictable than the slab exposure on a short-term sale.
Where the property was inherited, the previous owner's period of holding is generally taken into account, so an inherited flat is rarely short term in practice.
How the gain itself is computed
The mechanism is subtraction, in a fixed order. From the full value of the consideration you deduct expenditure incurred wholly and exclusively in connection with the transfer, then the cost of acquisition, then the cost of any improvement.
Three points about that computation cause most of the arguments.
The first is that the consideration may not be the price in the contract. Where the stated consideration for land or a building is less than the stamp duty value, the stamp duty value is substituted — subject to a safe harbour where the stamp duty value does not exceed 110 per cent of the actual price, in which case the actual price stands. Circle rates that have drifted above real market values can therefore create a taxable gain larger than the money you received.
The second is what counts as cost. Brokerage, legal fees and transfer charges are deductible; improvement expenditure is deductible, repairs and maintenance are not. The distinction is evidential as much as legal, and unreceipted cash spending on a renovation twenty years ago is, in practice, not cost at all.
The third concerns older property. Where the asset was acquired before 1 April 2001, you may substitute the fair market value as at 1 April 2001 for actual cost, at your option — capped, for land or building, at the stamp duty value as on that date where one is available.
Indexation: who still gets it, and who does not
Indexation of cost for land and building was withdrawn generally with effect from 23 July 2024, alongside the move to the flat 12.5 per cent rate. A transitional rule survived: for property acquired before that date, the seller compares the flat-rate charge against a computation at 20 per cent using indexed cost, and any excess over the lower figure is ignored.
That transitional rule is drafted so that it applies to an individual or Hindu undivided family, being a resident. A non-resident seller is outside it. You compute the gain on historic cost, apply the flat rate, and there is no indexed alternative to fall back on however long you have owned the property. That is why the substituted 1 April 2001 value, where it is available, is worth establishing properly with a registered valuer rather than estimating.
Why the buyer's deduction is so much larger than a resident's
The disparity is structural rather than punitive, and understanding why it exists is what makes it manageable.
When a resident sells property for more than fifty lakh rupees, the buyer deducts 1 per cent of the consideration or the stamp duty value, whichever is higher — a reporting mechanism dressed up as a tax. Nobody imagines 1 per cent of the price approximates the tax on the gain.
A payment to a non-resident falls under a different entry in the withholding table: the general obligation, carried into the 2025 Act from section 195 of the 1961 Act, requiring any person paying a non-resident any sum chargeable to tax to deduct at the rates in force. There is no monetary threshold at all.
That obligation is expressed by reference to the sum chargeable, which is the gain, not the price. But the buyer cannot compute your gain — they hold none of your acquisition documents, improvement receipts or valuation — and if they under-deduct they can be treated as in default for the shortfall plus interest. So they deduct on the gross consideration at the capital gains rate: roughly 13 to 15 per cent of the entire sale price on a long-term sale, against a real liability that may be a small fraction of it where your cost base is high.
Until 30 September 2026 the buyer must also hold a Tax Deduction and Collection Account Number and report the deduction on the prescribed quarterly statement — a real obstacle, because an individual buying one flat has no other reason to obtain one.
The lower-deduction certificate
The remedy the legislation provides is a certificate from the assessing officer authorising deduction at a lower rate, or at nil, applied for electronically on the prescribed form under the certificate provision of the 2025 Act — the successor to section 197 and Form 13 under the old law.
It is prospective. The certificate authorises the payer to deduct less from payments made after it is issued, and has no effect on tax already withheld and remitted. One that arrives the week after completion is worth nothing to that transaction.
It is evidence-driven. The officer is being asked to accept a computation of your gain, so the application stands or falls on the acquisition deed, the chain of title, improvement invoices, the valuation where you rely on 1 April 2001 value, your PAN and prior returns. Assembling that after a completion date is agreed is the wrong order of operations.
There is a parallel route on the payer's side: the buyer may apply to the assessing officer for a determination of the appropriate proportion of the sum that is chargeable. Where a buyer is reluctant to rely on your certificate, pointing them at their own statutory remedy sometimes unblocks a stalled negotiation.
Reinvestment reliefs that reduce the gain
Non-residents are not excluded from the principal rollover reliefs, though the conditions are exacting and each now carries a monetary ceiling.
Reinvesting the gain from a residential house into another residential house in India defers the charge, subject to a cap of ten crore rupees on the relief. A parallel relief covers reinvestment of the proceeds of other long-term assets into a residential house, with the same ceiling. Both impose conditions on the timing of purchase or construction and on retaining the new property.
The third route is bonds. Where the gain arises on land or a building, investing it within six months of the transfer in specified bonds — those issued by the National Highways Authority of India, the Rural Electrification Corporation or others notified for the purpose, redeemable after five years — takes the invested gain out of charge, subject to a limit of fifty lakh rupees. Two traps recur: the six-month window runs from the transfer rather than from when the money reaches you, and transferring the bonds or borrowing against them within five years revives the exempted gain in that later year.
None of these reliefs removes the buyer's obligation to withhold. They reduce the gain, which is what a lower-deduction certificate exists to reflect — so the certificate application and the reinvestment plan need to be built together.
Getting the money out of India
Tax and exchange control are separate systems, and clearing one does not clear the other.
Under the Reserve Bank's framework for acquisition and transfer of immovable property, sale proceeds may be repatriated where the property was acquired in accordance with the foreign exchange law in force at the time and paid for in foreign exchange received through banking channels or out of an FCNR(B) or NRE account. For residential property that facility is restricted to not more than two such properties, and what leaves on this route is essentially the foreign exchange originally brought in.
Everything else — property bought with rupee funds, property inherited, and the gain above the original foreign exchange cost — is credited to an NRO account and leaves under the remittance-of-assets route, which permits up to one million US dollars per financial year out of NRO balances and sale proceeds of assets. That ceiling is per financial year rather than per transaction, so a large sale can take more than one year to move in full.
The remittance runs through your authorised dealer bank against the prescribed declaration and, where the payment is taxable and exceeds five lakh rupees in the tax year, an accountant's certificate — the forms that replaced Forms 15CA and 15CB on 1 April 2026. The numbering changed; the substance did not. Our guide to repatriation from India covers the process end to end, and NRE, NRO and FCNR accounts explains why the account the proceeds land in matters so much.
What changes from 1 October 2026
One procedural change is worth planning around if your sale falls near that date. The Finance Act 2026 removes the requirement for a resident individual or Hindu undivided family buyer to obtain a Tax Deduction and Collection Account Number when deducting on a purchase of immovable property from a non-resident, allowing the deduction to be reported against the buyer's PAN instead.
Read it for what it is. It removes friction on the buyer's side, which is not nothing. It does not change the rate, the base on which the deduction is computed, or the tax you owe, and the case for a lower-deduction certificate is exactly as strong afterwards as before.
Where you let the property before selling, the withholding mechanics on rent follow similar logic and are covered in letting Indian property as an NRI. Where the country you now live in also taxes the gain, DTAA relief and the Tax Residency Certificate deals with the credit side.
Compliance caveat
This guide describes the general mechanism of capital gains on Indian immovable property and the withholding obligations attaching to a payment to a non-resident, under the Income-tax Act 2025 as amended by the Finance Act 2026, together with the exchange control framework administered by the Reserve Bank of India. It does not address agricultural land, plantation property or farmhouses, which are subject to separate rules; property held through a company, trust or partnership; joint ownership and the apportionment of consideration between co-owners; capital losses and their set-off; or the treatment of the gain in the country where you are resident. Rates, thresholds and section references change with each Finance Act, and the position stated here is the one applying to tax year 2026-27. This is a simplified educational guide, not tax advice. Global Investments is not authorised by the Financial Conduct Authority or by the Securities and Exchange Board of India, and serves clients internationally. Confirm your position with a qualified Indian tax adviser and your authorised dealer bank before contracting or completing.
How Global Investments can help
The expensive mistakes on an NRI property sale are almost all timing mistakes: the certificate applied for after exchange, the 2001 valuation commissioned after completion, the bond reinvestment missed because the six months ran from the transfer rather than from receipt of funds, the repatriation found to need two financial years only once the money sits in an NRO account. Our advisers work with clients selling Indian property to sequence those steps properly — establishing the cost base and the documents that support it, modelling the gain and the withholding side by side so the gap is visible early, coordinating with Indian tax counsel on the lower-deduction application, and mapping the repatriation route against the account the proceeds will land in. Where the country you now live in also has a claim on the gain, we look at both sides together rather than at the Indian number alone. You can get in touch to discuss a sale in prospect.
Frequently asked questions
How long must I hold Indian property before the gain is long term?
More than twenty-four months. Under the definition of a short-term capital asset in the Income-tax Act 2025, an asset held for not more than twenty-four months immediately preceding the date of transfer is short term, and immovable property is not in the categories reduced to twelve months. The clock runs from acquisition to transfer, so a sale at twenty-three months is taxed at your slab rates while the same sale a few weeks later falls under the long-term rate. Where the property was inherited, the previous owner's period of holding is generally taken into account.
Do NRIs get indexation on a long-term property gain?
No, not on a current sale. Indexation for land and building was withdrawn generally with effect from 23 July 2024, and the transitional rule that lets a seller compare the flat rate against twenty per cent with indexation is drafted so that it applies only to an individual or Hindu undivided family who is resident. A non-resident seller therefore computes the gain on historic cost and pays the flat long-term rate. The one substitute available to everyone is the option to use fair market value as at 1 April 2001 for property acquired before that date.
Why does the buyer deduct so much more from an NRI than from a resident?
Because two entirely different provisions apply. A resident sale above the fifty lakh threshold attracts a one per cent deduction on the consideration. A payment to a non-resident falls instead under the general obligation to withhold on any sum chargeable to tax, at the rates in force, with no monetary threshold at all. The buyer cannot compute your gain and will not risk under-deducting, so in practice the withholding is applied to the gross sale price at the capital gains rate rather than to the profit element.
Can I stop the buyer over-deducting rather than reclaiming later?
Yes, and it is the single most valuable step in the transaction. The Income-tax Act 2025 provides a certificate route through which the assessing officer authorises deduction at a lower rate or at nil, applied for electronically on the prescribed form. The payer has a parallel route to ask the officer to determine what proportion of the sum is actually chargeable. Both are prospective only, so a certificate obtained after completion does nothing for tax already withheld and paid over.
What happens if I never file an Indian return after the sale?
The withheld tax stays with the government. Deduction at source is a payment on account, not a final settlement, and the only mechanism for recovering the difference between what was withheld on the gross price and what is actually due on the gain is a return of income claiming the excess as a refund. There is no automatic reconciliation, no notification, and no route that operates outside the return. A PAN is required, and refunds are paid into an Indian bank account.
How much of the sale proceeds can I take out of India?
There are two routes and they stack. Where the property was bought with foreign exchange remitted through banking channels or with funds from an NRE or FCNR(B) account, the amount originally paid in foreign exchange may be repatriated, and for residential property that facility is limited to two such properties. Anything beyond that, including property bought with rupee funds or inherited, goes into an NRO account and out under the annual remittance-of-assets limit of one million US dollars per financial year.
Does a double tax treaty reduce the Indian tax on the sale?
Almost never. Gains on immovable property are taxable in the country where the property sits under the standard treaty pattern, and several of India's treaties go further by leaving capital gains entirely to each country's domestic law. The treaty's real function here lies on the other side of the transaction, because it governs how the country where you now live gives credit for the Indian tax you have paid, which is why the timing of the two tax years and the evidence of Indian tax paid matter a great deal.
This guide is general information only and does not constitute financial, legal or tax advice. Global Investments is not authorised by the Financial Conduct Authority or by the Securities and Exchange Board of India. Indian tax and exchange control rules change and individual circumstances vary. Always seek advice from a qualified adviser in the relevant jurisdiction before acting.