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NRI Property Sale in India: How to Save TDS Legally and Maximise Capital Gains

Introduction

When a Non-Resident Indian (NRI) sells property in India, the tax implications are quite different from those faced by resident Indians. A significant aspect that often surprises NRIs is the high rate of TDS (Tax Deducted at Source) applicable on property sales. Many sellers lose lakhs of rupees simply because they are unaware of the correct tax planning strategies.

This guide explains how NRIs can save TDS legally when selling property in India, how the latest Budget 2024-25 rules have changed things, and how Alliance Tax Experts helped an NRI client save nearly ₹15 lakhs through professional tax planning.

Understanding the Tax Rules for NRIs Selling Property

An NRI who owns property in India is subject to tax on the capital gains when they sell it. The capital gain is either short-term or long-term, depending on how long the property was held:

·        If held for less than 24 months: Short-Term Capital Gain (STCG)

·        If held for 24 months or more: Long-Term Capital Gain (LTCG)

For LTCG, NRIs were earlier allowed to claim indexation benefit to adjust the cost of acquisition against inflation. However, this has changed in Budget 2024-25.

Capital Gains Tax: What NRIs Need to Know

Capital gains for NRIs are calculated based on the difference between the sale price and the cost of acquisition of the property.

Key points:

·        For long-term gains: Tax is charged at 12.5% flat rate without indexation (as per the new rule).

·        Indexation benefit has been removed for NRIs from FY 2024-25 onward.

·        Any reinvestment in new residential property can qualify for exemption under Section 54.

This makes proper calculation and planning essential before executing the sale agreement.

TDS Rules under Section 195: The Buyer’s Responsibility

As per Section 195 of the Income Tax Act, the buyer of an NRI’s property must deduct TDS on the total sale consideration, not just the capital gain portion.

For Long-Term Capital Gains:

That means if you sell a property for ₹85 lakhs, the buyer is legally bound to deduct ₹19.45 lakhs as TDS — even if your actual tax liability is much lower.

Why TDS is So High Without Planning

This happens because the buyer is not required to compute your capital gains or exemptions. The law assumes the highest possible tax burden and deducts TDS on gross sale value.

This creates a major cash flow issue for NRIs. You receive much less money upfront, and then wait for over a year to claim a refund while filing your ITR.

This is where Form 13 – Lower/Nil TDS Certificate becomes extremely important.

What Changed in Budget 2024-25: No More Indexation for NRIs

Earlier, NRIs could reduce their tax liability using indexation, which adjusts the property’s purchase price for inflation. This reduced the taxable capital gain significantly.

But from FY 2024–25 onwards, NRIs are no longer eligible for this benefit. They are now taxed at a flat 12.5% rate on the capital gain, with no inflation adjustment.

Implication:

·        NRIs now pay higher actual tax, unless exemptions (like under Section 54) are used.

·        TDS of 22.88% still applies unless a lower deduction certificate is obtained in advance.

Case Study: How Our NRI Client Saved ₹15 Lakhs in TDS

One of our NRI clients recently sold a residential flat in India for ₹85 Lakhs. Based on the sale value, the buyer was legally bound to deduct 22.88% TDS, which equals ₹19.45 Lakhs.

What we did:

·        Computed the client’s actual capital gain of ₹58 Lakhs

·        Applied for Form 13 with the Income Tax Department

·        Received approval for 5% TDS deduction on sale value

Result:

·        Only ₹4.25 Lakhs was deducted by the buyer

·        Client received ₹15.2 Lakhs more in-hand

·        Will reinvest capital gain under Section 54 to claim full exemption

·        The 5% TDS will be refunded after filing ITR next year

This is a perfect example of how advance tax planning and professional guidance can lead to massive savings for NRIs.

Step-by-Step: How to Apply for Lower TDS Deduction (Form 13)

Here’s how NRIs can apply for reduced TDS:

1.     Prepare Capital Gain Computation
Use sale deed, purchase deed, and expenses like brokerage to arrive at capital gains.

2.     Login to TRACES or Income Tax Portal
Use your PAN login to access Form 13 under “e-File → Income Tax Forms.”

3.     Attach Supporting Documents
Include sale agreement, cost documents, bank statements, and reinvestment plans if any.

4.     Submit Form and Track Status
Processing time is usually 15–30 days.

5.     Share the Approved Certificate with Buyer
Buyer is then legally permitted to deduct TDS at the lower rate.

This process must be initiated before executing the sale deed.

Section 54: How to Save Tax by Reinvesting Capital Gains

Under Section 54, NRIs can claim exemption on LTCG if:

·        They buy a new residential property in India within 1 year before or 2 years after the sale

·        Or construct a new home within 3 years

The exemption is equal to the amount reinvested. This is the most effective way to reduce or even eliminate your tax liability.

Example:

·        LTCG = ₹58 Lakhs

·        New property purchased = ₹60 Lakhs

·        Net tax payable = ₹0

This must be disclosed in ITR filing to get a refund of any TDS deducted.

Common Mistakes NRIs Make While Selling Property

1.     Assuming buyer will deduct TDS only on capital gains – In reality, it’s on sale price.

2.     Delaying application for Form 13 – Can result in excess TDS deduction.

3.     Ignoring Section 54 planning – Missed opportunity for full exemption.

4.     Not consulting a tax expert – Leads to costly errors and delays.

5.     Failure to repatriate funds properly – Can lead to compliance issues with FEMA/RBI.

Avoiding these mistakes can make a huge difference in your post-sale experience and tax outcome.

Checklist for NRIs Planning to Sell Property in India

·        PAN Card linked with Aadhaar

·        TAN & PAN of buyer

·        Agreement to Sell or Sale Deed

·        Cost of acquisition and improvement records

·        Capital gain computation sheet

·        Form 13 application (preferably 30 days in advance)

·        Plan for reinvestment (if eligible under Section 54)

·        Power of Attorney (if operating through representative)

·        Indian bank account (preferably NRO) for refund

Final Advice from Alliance Tax Experts

Selling property in India as an NRI comes with tax challenges — but also planning opportunities.

Key takeaways:

·        TDS is deducted at 22.88% unless Form 13 is submitted

·        No indexation benefit after Budget 2024–25

·        Flat 12.5% LTCG tax can be reduced using Section 54

·        With proper documentation and professional help, you can legally save lakhs in TDS and maximize your returns 

Get Expert Help from Alliance Tax Experts

If you’re an NRI planning to sell your Indian property, don’t risk overpaying tax or getting stuck in refund delays. Let our experienced team at Alliance Tax Experts help you:

·        Plan your capital gains

·        Apply for Lower/Nil TDS Certificate

·        Reinvest smartly under Section 54

·        File your ITR and claim refunds smoothly

Contact us today: 9769201316
Visit: www.alltaxfin.com

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