2026Capital Gains Tax on NRI Property Sale: How to Calculate and Reduce It.

When an NRI sells property in India, the buyer withholds TDS on the sale before any money reaches the seller. TDS affects your cash flow, while capital gains tax determines your final liability. These are two separate numbers, and confusing them is the single biggest reason NRIs feel blindsided at closing. For NRIs navigating property sales, NRI Services can help clarify the tax implications upfront. One legal update worth knowing: from April 1, 2026, the Income-tax Act, 2025 replaced the 1961 Act, and Section 195 is now numbered Section 393(2). The rates and rules are unchanged, but this blog uses current terminology. 

What Is Capital Gains Tax on an NRI Property Sale?

Capital gains tax is the tax owed on the profit made from selling a property, and it applies to NRIs on the same basis as resident Indian sellers.

The gain isn’t simply sale price minus purchase price. The actual formula is:

Capital Gain = Sale Price − (Cost of Acquisition + Cost of Improvement + Transfer Expenses)

• Cost of Acquisition: what you originally paid for the property
• Cost of Improvement: documented renovation, construction, or structural additions made after purchase
• Transfer Expenses: brokerage, legal fees, and other costs directly tied to executing the sale

Every rupee spent on improvement or transfer that you can document reduces your taxable gain. Undocumented costs cannot be claimed.

What Is the Difference Between LTCG and STCG?

LTCG applies when a property is held for more than 24 months, taxed at 12.5% without indexation. STCG applies when a property is held for 24 months or less, taxed at the seller’s applicable income tax slab rate, which can go up to 30%.

Worked example: An NRI bought a property in 2015 for ₹80 lakh, spent ₹5 lakh on documented renovation, and sold it in 2026 for ₹1.6 crore through a broker charging ₹2 lakh commission.

How Is Surcharge and Cess Added to Capital Gains Tax?

Surcharge on capital gains under the relevant sections is capped at a maximum of 15%, regardless of income level, and a 4% health and education cess applies on top of tax plus surcharge.

• Total income up to ₹50 lakh: no surcharge
• Total income ₹50 lakh–₹1 crore: 10% surcharge
• Total income above ₹1 crore: 15% surcharge (capped here for capital gains, even though surcharge on other income types can go higher)
• 4% cess: applies on the tax-plus-surcharge amount in every case

Continuing the example above: if this NRI’s total Indian income exceeds ₹1 crore, the ₹9,12,500 tax attracts a 15% surcharge (₹1,36,875) plus 4% cess on the total, bringing the effective liability to roughly ₹10,91,750.

How Much TDS Is Deducted on an NRI Property Sale?

The buyer deducts TDS on the full sale value unless the seller obtains a lower deduction certificate. This means TDS in the example above would be calculated on the full ₹1.6 crore sale price, not the ₹73 lakh actual gain, unless a Section 197 certificate is in place before the sale.

*Unless a lower TDS certificate is obtained beforehand

Unlike Section 194-IA for resident sellers, which applies only above ₹50 lakh, there is no minimum sale value threshold for NRI sellers. A missing or invalid PAN can push TDS even higher, since Section 206AA allows a rate of 20% or more when PAN isn’t quoted correctly always confirm your PAN is valid and linked before the transaction.

What Happens If the Buyer Deducts TDS Incorrectly?

If the buyer under-deducts or uses the wrong TDS rate, the seller is not penalized for the buyer’s error, but resolving it can delay the seller’s refund and requires correcting documentation before filing the return.

Buyers unfamiliar with NRI transactions sometimes apply the resident 1% rate under Section 194-IA instead of the correct NRI rate under Section 393(2) (formerly 195), or fail to obtain a TAN. This creates a mismatch between what was actually deducted and what should have been a gap the NRI seller typically has to flag and correct through their own filing, since the buyer’s compliance failure becomes the seller’s documentation problem.

What Is a Lower TDS Certificate?

A Lower TDS Certificate is permission issued by the Income Tax Department allowing the buyer to deduct tax at a reduced rate, based on the seller’s actual capital gain rather than the full sale price.

Getting one requires filing Form 13 with supporting capital gains computation before the sale closes; a certificate applied for after the transaction is complete has no effect on that sale.

Which Exemptions Reduce Capital Gains Tax for NRIs?

Three provisions can reduce or eliminate LTCG tax, and the right one depends on what kind of asset was sold and what the seller plans to do with the proceeds.

Section 54F for NRI is often overlooked because most Section 54 discussions assume a residential property was sold but NRIs selling land, a commercial unit, or shares need Section 54F instead, since Section 54 doesn’t apply to those asset types.

What If There’s a Capital Loss Instead of a Gain?

A long-term capital loss can be set off only against long-term capital gains, and any unabsorbed loss can be carried forward for eight assessment years.

Short-term capital loss can be set off against both short-term and long-term capital gains in the same year, with the same eight-year carry-forward rule for any unused balance. This matters for NRIs holding multiple Indian assets, since a loss on one sale can directly reduce the tax owed on a gain from another.

Which ITR Form Should an NRI File, and by When?

NRIs with capital gains income file ITR-2, not ITR-1 (which NRIs cannot use regardless of income level), and ITR-3 only if there’s additional business or professional income involved.

The standard due date for non-audit cases is July 31 following the end of the financial year, though this is periodically extended to confirm the current deadline for the relevant assessment year before filing. Filing is fully online and doesn’t require being physically present in India.

What’s Changed Under the Income-tax Act, 2025?

TDS rates, the 24-month holding-period test, and the buyer’s deduction obligation are unchanged under the new Act. Only the section numbering Section 195 to Section 393(2) and certain filing forms have changed.

One relief takes effect October 1, 2026: individual and HUF buyers will be able to deduct and deposit TDS using PAN instead of a TAN, a procedural simplification for the buyer only.

How Much Can an NRI Repatriate After Selling Property?

Repatriation from an NRO account is capped at USD 1 million per financial year, after all applicable Indian taxes have been paid.

• The limit is per person, per financial year not per property or per transaction
• It applies irrespective of how many properties are sold in that year
• Amounts above the cap require RBI approval through an authorized dealer bank, or can be repatriated across multiple financial years instead
• If the property was originally purchased using NRE or FCNR funds, the original invested amount may qualify for separate, fuller repatriation distinct from the USD 1 million NRO cap

How Does the India-Japan DTAA Affect NRI Property Sale Tax?

The India-Japan DTAA prevents the same capital gain from being taxed twice, by allowing a Japan-based NRI to claim a foreign tax credit in Japan for tax already paid in India on that gain.

What Documents Does Repatriation to Japan Actually Require?

Repatriation requires a Chartered Accountant certificate (Form 15CB) and an online declaration by the remitter (Form 15CA), submitted before an authorized dealer bank in India processes the transfer.

• Form 15CB: CA-certified computation confirming taxes paid on the capital gain
• Form 15CA: filed online on the income tax e-filing portal, citing the 15CB
• Supporting documents: registered sale deed, TDS certificate (Form 16A) or Lower TDS Certificate proof, and ITR copy for the year of sale
• On the Japan side, the receiving bank applies its own KYC and reporting checks on incoming international transfers, particularly for larger sums

How Do NRIs Sell Property in India Without Traveling?

A Power of Attorney (PoA) allows a trusted representative in India to execute the sale sign documents, register the sale deed, and coordinate with the buyer on the NRI’s behalf, without requiring the NRI to be physically present.

The PoA needs to be properly drafted, typically notarized or apostilled in the NRI’s country of residence (relevant for Japan-based sellers), and registered where required under Indian property law before it can be used for a transaction of this kind.

Quick Checklist Before You Sell

• Confirm your exact holding period (LTCG vs STCG) and gather documentation for acquisition cost, improvement cost, and transfer expenses
• Apply for a lower/nil TDS certificate before the sale closes
• Choose the correct exemption Section 54 (residential property sold, reinvest in property), Section 54EC (any asset, invest in bonds), or Section 54F (non-residential asset sold, reinvest in one residential property)
• Check whether a prior capital loss can be set off against this year’s gain
• Confirm your buyer is deducting TDS under the correct section and rate
• Prepare Form 15CA/15CB in advance, and confirm your USD 1 million repatriation position for the year
• If Japan-based, set up your PoA with proper notarization and confirm your DTAA credit claim process ahead of time
• File ITR-2 by the applicable due date, regardless of whether TDS was already deducted correctly

Where KNM India Fits In

Every issue above the correct gain calculation, choosing between three exemption sections, TDS deducted incorrectly, repatriation limits, PoA execution is solvable when it’s structured before the sale, not fixed after.

At KNM India we manage this end-to-end: computing the accurate capital gain with all eligible deductions, filing the lower TDS certificate before closing, matching the right exemption section to the asset type and reinvestment plan, and handling Form 15CA/15CB, PoA drafting, and DTAA credit guidance for repatriation. These NRI Taxation Services India help NRIs manage capital gains, TDS, exemptions, repatriation, and related tax compliance from one place. For Japan-based NRIs, KNM India has a physical Tokyo office alongside India, so the entire process runs without requiring travel, and without relying on a purely remote India-based advisor. We also support clients with pre incorporation services for those planning to establish a business presence in India. 

If you’re planning to sell property in India, reach out to KNM India before you list it.

Talk to KNM India About Your India Entry → Contact Us

FAQs

How much TDS is deducted when an NRI sells property in India?
TDS is deducted on the full sale consideration at 12.5% for long-term gains (over 24 months) or at slab rates for short-term gains (24 months or less), unless a lower TDS certificate is obtained beforehand.

Can an NRI claim Section 54 exemption on property sale?
Yes, NRIs can claim Section 54 exemption on the same terms as resident sellers, by reinvesting the sale proceeds into another residential property in India within the prescribed timeline.

How does an NRI get a lower TDS certificate?
An NRI applies for a lower or nil deduction certificate under Section 197 by filing Form 13 with the Income Tax Department before the sale closes, so the buyer deducts TDS only on the actual gain rather than the full sale price.

Is capital gains tax different for NRIs after the Income-tax Act, 2025?
No, the tax rates and holding-period rules remain the same; only the section numbering (Section 195 is now Section 393(2)) and certain filing procedures have changed.

Does the India-Japan DTAA help avoid double taxation on property sale gains?
Yes, the India-Japan DTAA allows a Japan-based NRI to claim a foreign tax credit in Japan for the tax already paid in India on the same capital gain, preventing double taxation.

How does an NRI repatriate property sale proceeds from India to Japan?
Repatriation requires Form 15CA, and typically Form 15CB certified by a chartered accountant, submitted to the Indian bank before remittance, along with meeting the receiving Japanese bank’s own KYC and reporting requirements for the incoming transfer.