This article, “Capital Gains Tax on Indian Property for NRIs: A Complete Guide (2025),” provides Non-Resident Indians (NRIs) with a comprehensive understanding of the current tax rates, rules for calculating short-term and long-term gains, mandatory TDS provisions, and available tax exemptions on the sale of Indian property.
Table of Contents
I. Introduction
II. What is Capital Gains Tax on Property?
III. Short-Term vs. Long-Term Capital Gains for NRIs
IV. TDS on Sale of Property by NRIs
V. Exemptions Available Under the Income Tax Act
VI. Double Taxation Avoidance Agreement (DTAA) for NRIs
VII. How to Calculate Capital Gains Tax for NRIs
VIII. Repatriation of Sale Proceeds
IX. Practical Tips to Reduce Tax Liability
X. Conclusion
XI. FAQs on Capital Gains Tax for NRIs (2025)
Introduction
For many Non-Resident Indians (NRIs), owning property in India is both an emotional and financial investment. Whether it’s an inherited home, a purchased apartment, or a commercial space, selling real estate in India comes with a big question: How much capital gains tax will I pay? The Indian Income Tax Act treats NRIs differently compared to residents, especially when it comes to TDS on property sales, repatriation of money abroad, and claiming exemptions.
This complete 2025 guide breaks down everything you need to know—short-term vs. long-term capital gains, exemptions under the Income Tax Act, DTAA benefits, and repatriation rules—so that you can plan your property sale wisely and legally reduce your tax burden.
What is Capital Gains Tax on Property?
Capital gains tax is the tax levied on the profit you earn when selling a property at a price higher than what you originally paid. For NRIs, these gains are always taxable in India, irrespective of their country of residence.
There are two types of capital gains:
- Short-Term Capital Gains (STCG): When a property is sold within 24 months of purchase.
- Long-Term Capital Gains (LTCG): When a property is sold after 24 months of purchase.
Understanding this classification is essential because the tax rate, indexation benefit, and TDS obligations differ significantly between STCG and LTCG for NRIs.
Short-Term vs. Long-Term Capital Gains for NRIs
The holding period is the deciding factor in capital gains tax liability for NRIs.
| Aspect | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) |
|---|---|---|
| Holding Period | Less than 24 months | 24 months or more |
| Tax Rate | Taxed as per applicable income tax slab rates of the NRI | Taxed at 20% with indexation benefit |
| Indexation Benefit | Not available | Available – purchase price adjusted for inflation |
| Example | Bought in 2023 and sold in 2025 → gain is short-term. If NRI falls in 30% slab, taxed accordingly. | Bought in 2015 for ₹50 lakhs and sold in 2025 for ₹1.2 crore → taxable gain reduced significantly after indexation. |
| Common Scenario for NRIs | Applies mostly to recently purchased properties | Applies to ancestral or long-held properties (most common for NRIs) |
TDS on Sale of Property by NRIs
Unlike resident Indians, NRIs face Tax Deducted at Source (TDS) obligations directly at the time of sale.
- For short-term gains, TDS is deducted at 30% (plus surcharge and cess) depending on income level.
- For long-term gains, TDS is deducted at 20% with indexation (plus surcharge and cess).
- The buyer is legally responsible for deducting and depositing this TDS with the Indian tax authorities.
💡 Common mistake: Many buyers wrongly deduct just 1% TDS (the rate applicable to residents). For NRIs, the TDS rate is much higher. This often causes disputes or delayed payments.
👉 NRIs can apply to the Income Tax Department for a lower or nil TDS certificate if they are eligible for exemptions, preventing excess tax deduction at the time of sale.
Exemptions Available Under the Income Tax Act
The Income Tax Act provides NRIs with multiple exemptions to reduce or eliminate capital gains tax:
- Section 54 – Reinvestment in Residential Property
- You can claim an exemption if you reinvest the long-term capital gains in buying or constructing another residential property in India.
- You must make the purchase within 2 years (or complete the construction within 3 years) of the sale.
- The rules allow only one residential property for this purpose.
- Section 54EC – Investment in Bonds
- Exemption by investing up to ₹50 lakhs of capital gains in NHAI or REC bonds within 6 months of sale.
- Bonds have a lock-in period of 5 years.
- Section 54F – Sale of Non-Residential Property
- Applicable if you reinvest the entire sale proceeds (not just gains) into a residential property.
👉 Tip: Keep documentation and timelines in check, as missing deadlines can cost NRIs exemption benefits.
Double Taxation Avoidance Agreement (DTAA) for NRIs
Many NRIs worry about paying tax twice—once in India and again in their country of residence. This is where DTAA (Double Taxation Avoidance Agreement) comes in.
- India has DTAA with over 80 countries including the US, UK, Canada, UAE, Australia, and Singapore.
- Under DTAA, tax paid in India can be claimed as a credit in your resident country, reducing overall liability.
- Example: If an NRI in the US sells property in India and pays LTCG tax, they can claim a foreign tax credit when filing US taxes.
💡 Always retain Form 16A (TDS certificate) and the tax challan to claim DTAA benefits abroad.
For a deeper dive, read our article “DTAA Explained: Avoid Double Tax – Complete Guide (2025)”.
How to Calculate Capital Gains Tax for NRIs
Here’s a step-by-step process:
- Sale Price – Actual selling price of the property.
- Indexed Cost of Acquisition – Purchase price adjusted using the Cost Inflation Index (CII).
- Indexed Cost of Improvement – Renovation, construction, or repair costs (if any).
- Net Capital Gain = Sale Price – (Indexed Cost + Expenses like brokerage, stamp duty).
- Apply the applicable tax rate:
- Slab rates for STCG.
- 20% with indexation for LTCG.
Example:
- Purchase price (2015): ₹40 lakhs
- Indexed cost (2025): ₹70 lakhs
- Sale price (2025): ₹1.2 crore
- Net capital gain = ₹50 lakhs
- LTCG tax = ₹10 lakhs (20% of ₹50 lakhs, plus cess/surcharge).
Repatriation of Sale Proceeds
After paying capital gains tax, NRIs may want to transfer funds abroad. This falls under FEMA rules (see our FEMA guide for more details).
- Sale proceeds must first be deposited into an NRO account. Read in depth about NRO account in our guide.
- After taxes, NRIs can transfer up to USD 1 million per financial year from NRO to NRE or overseas bank accounts.
- Documents required: CA certificate (Form 15CB) and submission of Form 15CA online.
👉 Planning repatriation in advance helps avoid unnecessary delays in moving money abroad.
Practical Tips to Reduce Tax Liability
- Apply for a lower TDS certificate before the sale to avoid excess deductions.
- Keep all bills for renovations and improvements to claim as indexed costs.
- Use exemptions under Section 54/54EC/54F to reinvest gains tax-efficiently.
- Plan timing of sale—holding a property just a few months longer can shift it from STCG to LTCG, reducing tax drastically.
Conclusion
Selling property in India as an NRI may seem complicated, but understanding capital gains tax rules, TDS obligations, exemptions, and repatriation guidelines can make the process smooth and tax-efficient. With proper planning—and by leveraging provisions like Section 54 exemptions and DTAA relief—you can minimize your tax outflow while staying compliant with Indian laws.
If you’re planning an NRI property sale in 2025, consult a qualified tax advisor to ensure maximum savings and a hassle-free transfer of funds abroad.
FAQs on Capital Gains Tax for NRIs (2025)
1. Do NRIs have to pay capital gains tax in India when selling property?
Yes. Any property sale in India by an NRI is taxable under the Income Tax Act. Capital gains tax applies whether the property was inherited, purchased, or gifted.
2. What is the TDS rate on property sale by NRIs in 2025?
- The payer deducts TDS on long-term capital gains at 20% (plus surcharge and cess) and provides an indexation benefit.
- The payer deducts TDS on short-term gains according to the NRI’s income tax slab rate, which can go up to 30%.
3. Can NRIs claim exemption on capital gains tax in India?
Yes. NRIs can claim exemptions under:
- Section 54 (reinvesting gains into another residential property),
- Section 54EC (investing up to ₹50 lakh in NHAI/REC bonds), and
- Section 54F (reinvesting sale proceeds in a residential property).
4. Is TDS refundable for NRIs if exemptions are claimed?
Yes. If excess TDS is deducted, NRIs can file an income tax return in India and claim a refund. Alternatively, they can apply in advance for a lower/nil TDS certificate from the Income Tax Department to avoid over-deduction.
5. How can NRIs repatriate property sale proceeds abroad?
Sale proceeds must first be deposited into an NRO account. After paying all taxes, NRIs can repatriate up to USD 1 million per financial year under FEMA rules, by submitting Form 15CA/15CB and necessary CA certificates.
6. Will NRIs be taxed twice on property sale income in India and abroad?
No, provided their country has a DTAA (Double Taxation Avoidance Agreement) with India. Taxes paid in India can be claimed as a credit in the NRI’s country of residence.
7. Can NRIs avoid capital gains tax completely?
Yes, but only if exemptions under Section 54/54EC/54F are fully utilized. Otherwise, capital gains tax is mandatory.
Disclaimer: This article is for informational purposes only. Regulations can change, and individual situations may vary. Always verify details with your bank or consult a qualified financial advisor before making decisions.
