NRI Property Sale in India 2026: TDS, Capital Gains, Lower Deduction Certificate & Repatriation Guide

Selling property in India while living abroad can trigger several tax and foreign-exchange questions at the same time: how much tax applies, what the buyer must withhold, whether the seller can obtain a lower-deduction certificate, which documents are required, and how the sale proceeds can eventually be repatriated overseas. For NRIs, OCIs and other non-resident owners, these issues should be planned before the sale agreement is signed rather than after the buyer has already deducted tax.

This guide explains the current position for 2026, including the transition to the Income-tax Act, 2025 from 1 April 2026. It is designed as a practical transaction checklist rather than a substitute for advice on a specific sale.

1. Why NRI property sales require advance tax planning

A resident buyer purchasing Indian immovable property from a non-resident seller cannot treat the transaction in the same way as a normal resident-to-resident purchase. The seller's residential status, period of holding, cost base, improvement expenses, exemptions, surcharge, cess, treaty position and withholding certificate can all affect the amount that should ultimately be withheld and the seller's final tax liability.

The most expensive mistake is often leaving the withholding discussion until the registration date. If excess tax is deducted, the seller may have to wait for return filing and refund processing. A pre-transaction computation can identify whether a lower or nil withholding certificate is commercially worthwhile.

2. Long-term versus short-term capital gains on Indian property

The Income Tax Department's current non-resident guidance states that immovable property held for more than 24 months is treated as a long-term capital asset. Property held for 24 months or less is treated as short-term for this purpose.

For transfers on or after 23 July 2024, the Department's NRI FAQ states a 12.5% rate for long-term capital gains on immovable property, subject to applicable surcharge and health and education cess. Short-term gains are generally taxed at the applicable rate for the non-resident taxpayer. The correct computation still depends on the facts of the transaction, including cost, eligible expenditure and any available exemption.

3. TDS when an NRI sells property in India

The buyer has a withholding obligation when making a taxable payment to a non-resident seller. The Income Tax Department's guidance historically referred to section 195 of the Income-tax Act, 1961 for these transactions. From 1 April 2026, the Income-tax Act, 2025 governs withholding events occurring under the new regime, while the Department has separately issued transition guidance for certificates and compliance.

It is important not to confuse the capital-gains tax rate with a simplistic percentage of the gross sale price. The amount ultimately chargeable to tax may be significantly lower than the consideration because capital gains are computed after considering the statutory cost base and other permitted adjustments. This is why lower-deduction planning can be important in high-value NRI property transactions.

4. Lower or nil withholding certificate under the Income-tax Act, 2025

A major practical tool for NRI sellers is the lower or nil withholding certificate. The Income Tax Department confirms that the corresponding provision under the Income-tax Act, 2025 is section 395(1). The payee may apply where estimated total income justifies deduction at a lower rate or no deduction.

For tax year 2026-27, the Department states that the application is to be made in Form 128. The Assessing Officer may issue a certificate specifying the permitted withholding rate and validity period. The application process is expected to be available through TRACES or the e-filing portal, similar to the earlier process.

The transition rule is also important: an eligible lower/nil certificate issued under section 197 of the 1961 Act for projected receivables of tax year 2026-27 can remain valid for payments or credits on or after 1 April 2026, subject to the terms of the certificate.

5. When a lower-deduction certificate can materially improve cash flow

Consider a property bought many years ago where the taxable capital gain is only a fraction of the gross sale consideration. If the buyer deducts tax without considering the seller's actual estimated income, the cash blocked through withholding can be far greater than the seller's eventual liability. A properly supported lower-deduction application can help align withholding more closely with the expected tax outcome.

The application should normally be prepared well before completion. The tax authority may require the sale agreement or draft agreement, purchase documents, cost evidence, improvement records, prior returns, PAN details, residential-status information and a capital-gain computation.

6. Documents an NRI seller should organize before the sale

A clean documentation file usually includes the original purchase deed or allotment letter, payment proof, index or ownership records, improvement invoices, brokerage and transfer-expense evidence, PAN, passport and overseas address proof, tax-residency details where relevant, prior Indian tax returns, the proposed sale agreement and a working capital-gains computation.

If the property came through inheritance or gift, the historical cost and holding-period analysis may require documents relating to the previous owner. These files can become difficult to reconstruct after the transaction, so they should be collected early.

7. DTAA: can a tax treaty eliminate Indian tax on Indian property?

Most Indian tax treaties preserve India's right to tax gains from immovable property situated in India. A DTAA may still be relevant for relief from double taxation in the country where the NRI is tax resident, but treaty analysis should not be used to assume that an Indian property sale automatically becomes tax-free in India.

NRIs who are taxable on the same gain overseas should retain Indian tax-payment and return-filing evidence so that foreign tax credit or treaty relief can be examined in their country of residence.

8. Repatriating the sale proceeds outside India

Tax and FEMA compliance are separate. Paying Indian income tax does not by itself establish that the entire sale consideration can be remitted abroad immediately. The mode from which the property was originally acquired, the account into which sale proceeds are received, and the applicable FEMA route matter.

RBI rules have historically permitted repatriation of eligible sale proceeds of property acquired in accordance with FEMA, subject to conditions. For property purchased out of rupee funds, the NRO-account route and the USD 1 million financial-year facility have been important in practice, subject to the applicable documentation and authorized-dealer bank checks. Because FEMA directions and banking documentation can change, the AD bank's current checklist should be confirmed before the sale is completed.

9. A practical NRI property-sale workflow

Step 1: Confirm your Indian residential status for the relevant tax year. Step 2: Determine the period of holding and prepare a capital-gains computation. Step 3: Review possible exemptions and treaty implications. Step 4: Estimate the buyer's withholding exposure. Step 5: If gross withholding is likely to materially exceed the expected liability, consider applying for a lower/nil certificate well in advance. Step 6: Coordinate the certificate, PAN and withholding instructions with the buyer before registration. Step 7: Retain proof of tax deduction and payment. Step 8: File the appropriate Indian return and reconcile the transaction. Step 9: Complete FEMA and authorized-dealer documentation before repatriating funds.

10. Common mistakes NRIs should avoid

Common errors include using resident-property TDS rules for a non-resident seller; assuming 12.5% is automatically the exact amount to deduct from the gross sale price; applying for a lower-deduction certificate too late; overlooking surcharge and cess; failing to preserve old purchase and improvement records; ignoring tax in the country of residence; and treating income-tax compliance as if it automatically completes FEMA repatriation compliance.

11. Frequently asked questions

Is NRI property sale always taxed at 12.5%?

No. The 12.5% figure is relevant to specified long-term capital gains under current guidance, but the actual tax outcome depends on the nature of the asset, holding period, taxable gain, applicable surcharge and cess, exemptions and other facts.

Can the buyer deduct less tax if the NRI seller's actual gain is small?

A buyer should not simply choose a lower rate informally. The NRI seller can consider applying for a lower or nil withholding certificate under section 395(1) of the Income-tax Act, 2025 where the estimated total income justifies it.

Which form is used for the lower withholding application in 2026-27?

The Income Tax Department's transition FAQ states that Form 128 is prescribed for tax year 2026-27 under the new Act.

Does a DTAA prevent India from taxing Indian real estate?

Usually not. Treaties commonly allow the country where the immovable property is situated to tax the gain. The treaty can still matter for double-tax relief in the country of residence.

Can sale proceeds be sent directly overseas?

Not automatically. The FEMA route depends on how the property was acquired and how the proceeds are held. The authorized-dealer bank will normally require supporting tax and FEMA documents.

12. Key takeaway

For an NRI, the best time to plan a property sale is before execution of the final agreement. The tax computation, buyer withholding, lower-deduction application and repatriation route should be treated as one connected transaction plan. Doing this early can reduce avoidable cash blockage, documentation disputes and post-sale compliance work.

How PGT & Associates can help

PGT & Associates can assist NRIs, OCIs and overseas investors with Indian capital-gains computations, withholding analysis, lower/nil certificate applications, return filing, transaction documentation and coordination of tax compliance with FEMA/repatriation requirements. Advice should always be tailored to the seller's facts, country of residence and transaction documents.

For professional assistance, contact PGT & Associates through www.pgtandassociates.com.

Related reading

NRI Tax Guide 2026: https://www.pgtandassociates.com/post/nri-tax-guide-2026-india-income-tax-dtaa-property-capital-gains

NRI Gift Tax and FEMA Guide 2026: https://www.pgtandassociates.com/post/nri-gift-tax-india-2026-fema-property-remittance-rules

Official references

Income Tax Department — TDS on sale of immovable property by a non-resident: https://www.incometaxindia.gov.in/w/what-is-the-applicable-tds-rate-when-a-non-resident-sells-immovable-property-in-india-

Income Tax Department — lower/nil withholding certificate under the Income-tax Act, 2025: https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/income-tax-forms

Income Tax Department — taxation of non-residents: https://www.incometaxindia.gov.in/Pages/tax-services/taxation-of-non-resident.aspx

Reserve Bank of India — FEMA notifications and directions: https://www.rbi.org.in/

Disclaimer: This article is for general informational purposes only and does not constitute legal, tax or investment advice. Rates, forms, procedures and FEMA conditions should be checked against the law and official guidance applicable on the transaction date.