NRI Taxation · July 29, 2026 · 7 min read

Selling property in India as an NRI: why tax is withheld on the whole sale price

A client sold a flat in Bengaluru last year for one and a half crore rupees. He had bought it in 2010 for thirty lakhs. He expected the buyer to deduct one percent of the sale value, the way it works for resident sellers, and to receive close to one crore forty eight lakhs into his account. What actually reached him was around one crore thirty one lakhs. Nearly nineteen lakhs had been withheld before he saw a single rupee. Nothing had gone wrong. The rule had simply worked exactly as it is written, and he had not known what it said.

This is the single most expensive surprise in NRI property transactions, and it comes from a distinction most sellers never learn about until the money lands short. When a resident Indian sells property, the buyer deducts one percent of the sale consideration, and only when the value crosses fifty lakh rupees. When a non-resident sells, an entirely different provision applies. The buyer must deduct tax at the rate at which the income is taxable in the seller's hands, the deduction is calculated on the full sale consideration rather than on the profit, and there is no minimum value below which the obligation disappears. A twenty five lakh rupee flat triggers it just as a five crore rupee house does.

The rate depends on how long the property was held. Where the holding period runs beyond twenty four months, the gain is long term and the applicable rate is twelve and a half percent without indexation, increased by the relevant surcharge and by health and education cess. Where the property was held for twenty four months or less, the gain is short term and tax applies at the seller's slab rates, which for most sellers means a materially higher deduction. It is worth noting that the long term rate was reduced from twenty percent with indexation to twelve and a half percent without indexation for transfers made on or after 23 July 2024, so older articles describing a flat twenty percent are describing a regime that no longer applies.

Return to the Bengaluru example and the arithmetic becomes clear. Twelve and a half percent of the full one and a half crore sale value is eighteen lakh seventy five thousand rupees, before surcharge and cess. The seller's actual gain was eighty lakhs, not one and a half crores, and his real tax liability was considerably smaller than the amount withheld. The excess was not lost. It was simply locked with the government until he filed a return and claimed a refund, which took the better part of a year. For someone who had sold the flat precisely because he needed the money for a purchase abroad, that delay was the entire problem.

There is a remedy, and it is the reason this article is worth reading before a sale rather than after one. A non-resident seller can apply to the assessing officer for a certificate authorising deduction at a lower rate, or at nil, computed on the actual capital gain rather than on the gross consideration. The application is made in the prescribed form and must be granted before the transaction completes. Once the buyer has deducted and deposited at the default rate, the certificate cannot be applied retrospectively, and the only route left is the refund route. The application takes time to process, so it belongs at the start of a sale process, alongside the decision to sell, and not in the fortnight before registration.

The compliance burden here falls on the buyer, which creates its own friction. The buyer has to deposit the deducted amount and report it in the quarterly statement applicable to payments made to non-residents, which is a different form from the one used for resident property transactions. Historically this required the buyer to obtain a tax deduction account number, a step many individual buyers found onerous enough to walk away from an otherwise sound purchase. From 1 October 2026 a resident individual or Hindu undivided family buying from a non-resident can deposit using their permanent account number through a challan cum statement instead of obtaining a separate deduction account number. This is procedural relief only. The rates, the holding period rules and the buyer's legal responsibility to deduct correctly are all unchanged, and company and firm buyers continue to need the deduction account number. Sellers should understand this because a buyer's reluctance to handle the paperwork is a real reason NRI listings fall through, and a seller who can explain the process calmly removes an obstacle to their own sale.

The exemptions available to resident sellers are available here too, under the same eligibility conditions. Reinvestment of the gain into another residential property, or into specified bonds within the prescribed window, can reduce or eliminate the liability, and the relief for gains from assets other than a residential house applies as well. These are not automatic. Each carries its own timing rules, its own holding requirements on the new asset, and its own consequences if the new asset is sold too soon. Where an exemption is intended, it should be built into the lower deduction application rather than claimed for the first time at the return filing stage.

Getting the money out of India is a separate question from the tax on it, governed by exchange control rather than by tax law. Sale proceeds from residential property can be repatriated for up to two such properties, subject to the overall annual limit that applies to remittances from a non-resident ordinary account, and the original investment must be traceable to foreign funds or to a non-resident external or foreign currency account. A seller who has satisfied every tax obligation can still find the remittance held up because the source of the original purchase money was never documented. That documentation is far easier to assemble while the property is still owned than during the sale.

One further point on references. The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the 1961 Act, consolidating and renumbering its provisions. The substantive rules described here have not changed, but the section numbers that appear in older guidance, in software, and in professional correspondence are in transition, and the older law continues to govern periods before April 2026. If you are reading a note that cites a familiar section number, check which Act it belongs to and which period it is describing before relying on it.

The pattern in all of this is that the expensive part of an NRI property sale is not the tax. The tax, correctly computed, is usually reasonable. The expensive part is the gap between what is withheld and what is owed, and the months during which that gap sits with the government rather than with you. That gap is almost entirely controllable, and it is controlled by decisions made before the sale agreement is signed rather than after.

If you are working through this alongside your broader picture, the related questions of moving money out of India, how tax at source works across your other India investments and whether your country of residence will tax the same gain again are all worth reading together, because a property sale rarely sits on its own.

Rahul Rajgopal · SEBI Registered Investment Adviser · INA000021933 · BASL 2446
Registration granted by SEBI and membership of BASL do not guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Content is for educational purposes only and does not constitute personalised investment advice. This is not legal or tax advice. Tax provisions change and their application depends on individual circumstances. Please consult a qualified tax professional before acting.