Property sale implications for NRI

- In case of inheritance of the property, cost of acquisition in the hands of previous owner is considered as cost in the hands of legal heirs. In the same manner, for determination of holding period in the hands of legal heirs, the date of holding of an asset by a previous owner is considered. In case of intestate succession, the assets are distributed equally among the legal heirs.

1. Buyer is liable to deduct TDS u/s 195. Buyer is required to obtain TAN, deposit tax, file TDS return and provide TDS certificate. Seller is required to file ITR in the succeeding year to the year of transaction of sale

2. TDS rate is 13% excluding surcharge. To save tax, you can avail the benefit of section u/s 54, 54EC

3. Submit Form 15CB, 15CA and A2 with the banker

4. NRO account

5. Tax compliances are same

6. Not advisable

Seller can obtain lower TDS deduction certificate by filing an online application with the AO

For short deduction of TDS, buyer would be liable to pay interest on short deduction of TDS, penalty

For detailed discussion you may opt for phone consultation

Hi,

1. An NRI - LTCG income on sale of residential property will taxed at 12.5% + Surcharge (as applicable) + 4% cess. [ Sec 112(1)(c) - IT Act ]

2. TDS on LTCG on sale of property = 10.4 % [Sec 195 read with Finance Act (2) 2024].

3. If you have paid taxes in India, you can transfer your capital gain income from inheritance to NRO Account. From NRO Account you can repatriate outside India to the extent for USD 1 million per FY. [ FEM (Deposit) Regulations, 2016]

4.You can receive the proceeds directly to NRO Account.

5. Holding the funds in India will not attract any tax liabilities. You can utilize the money in NRO Account for further investment in shares / immovable properties / any other local disbursements as long as it is generally allowed by RBI. Any income generated from these investments shall be taxed accordingly.

6. The FEM (Deposit) Regulations, 2016 provide a list of accounts an NR can maintain in India. They are NRE / FCNR(B) / NRO / International Credit Cards / SNRR / Escrow / Margin Accounts.

Holding accounts other than mentioned above are not permitted by FEMA.

Penalties for non - compliance -

     a. 3 times the amount involved; or 

     b. Rs.2 lacs if no amount involved, and 

     c. where the penalty is continuing in nature, Rs. 5000 for every day of contravention.

In the mentioned hypothetical scenario, if the value of property is above 50 lacs, buyer will have to pay TDS quoting your PAN no as a resident. The TDS payment and sales transaction will be processed.

However, as a NRI you are not permitted to hold local savings account. 

Further, transfer of funds from local savings account to NRO account does not fall in the permitted credits list of NRO Accounts. 

Penalty of non-compliance under the act will be the same as mentioned above. However, this is a general penalty clause and not a specific clause.

In the given situation, the non-compliance is limited to use of savings account by NRI. There is no actual transfer of funds from / to outside India. Further, transfer of immovable property that was received in inheritance, by an NRI  is permissible under FEMA laws. Further, the NRI is permitted to repatriate the said income.

Prima facie, it looks like an honest mistake of a NRI who did not have proper knowledge of FEMA provisions. The NRI may plead the same.

In such a hypothetical situation, it is suggested that the NRI voluntarily reach out to his Bankers and take their guidance on how to proceed. He should request them to convert the Savings bank into NRO Account. 

As per my experience the bankers will also understand the case and guide the NRI to  convert the Accounts.

1. LTCG Tax Options

For inherited property (held >2 years), you have two options:

• 20% with indexation: Use your parents' cost of acquisition, adjusted for inflation.

• 10% without indexation: Applicable only if you choose not to claim indexation benefit (less common, more for listed securities).

For most real estate sales, 20% with indexation is tax-efficient.

2. TDS

• Buyer must deduct TDS @ 20% (plus surcharge & cess) under Sec 195.

• Apply for Form 13 (online) to get lower/nil TDS certificate.

• Or claim refund by filing ITR later.

3. Repatriation to UK

• Allowed up to USD 1 million/year/person from NRO a/c.

• Requires Form 15CA/CB, inheritance proof, and tax documents.

4. NRO vs Resident Account

• Use NRO account only.

• Using resident a/c as NRI is a FEMA violation.

5. Retaining Funds in India

• Funds can stay in NRO a/c.

• Interest taxed at 30% (DTAA benefits may reduce this).

6. Treated as Resident – Risks

• FEMA & tax violations if misclassified.

• TDS wrongly applied; buyer may face penalties.

• Repatriation blocked or delayed.

Correction

• Convert to NRO, inform buyer, revise TDS if needed.

• Voluntary correction can avoid penalties.

For detailed, personalized advice, consider a phone consultancy. Hope you find the information helpful. You are free to contact me for further discussion. If you could spare two minutes of your time to write a review, it would be greatly appreciated and bring immense happiness to read it. Thank you. Shubham Goyal.

If you showcase yourself as a resident it is incorrect disclosure and although you might not have any implication but the buyer might be charged with interest etc for lower tax deduction.

Tax rate normally would be 12.5%+cess+surcharge.

Also while filing return of income you need to disclose your correct residential status or your global income might be taxed.

Hope you find the above answer helpful if yes feel free to reach out to me for phone consultation.

Thanks.

Since the property is inherited:

• The cost of acquisition is taken as the cost to your parents, with indexation benefit from the year of acquisition.

• If the property is held for more than 24 months, the capital gains will be treated as long-term and taxed at 20% (with indexation).

• Exemptions under Section 54 (investment in another residential property in India) or Section 54EC (investment in capital gains bonds) may be claimed.

• Under Section 195, the buyer must deduct TDS at 20% on LTCG, plus applicable surcharge and cess (may go up to ~23.92%).

• However, in most cases, buyers deduct TDS on the entire sale value (not just the capital gain), unless you obtain a Lower or Nil TDS Certificate from the Income Tax Department.

• Steps to Reduce TDS:

  1. File an application in Form 13 to your jurisdictional Assessing Officer (International Taxation) via TRACES portal.

  2. Based on the cost, indexation, and deductions, a certificate for lower deduction will be issued.

  3. Share this certificate with the buyer to ensure reduced TDS is applied.

  
  

• As an NRI, you can repatriate up to USD 1 million per financial year (per person) from sale proceeds of inherited assets under FEMA rules.

  - Conditions & Documents:

  • Sale proceeds must be credited to your NRO account.

  • Obtain a CA Certificate in Form 15CB and file Form 15CA online.

  • Provide:

    • Documentary evidence of inheritance (Will/legal heir certificate)

    • Copy of sale deed

    • Proof of tax paid or Form 13 certificate

    • Your PAN and buyer’s PAN

  
  

  Bank will process the remittance based on these documents.

• You must receive proceeds in your NRO account.

• Resident accounts cannot be used legally by NRIs under FEMA.

• Using a resident account may attract penalties or investigations, especially during future audits or repatriation.

• You may retain funds in your NRO account, or invest them in:

  • NRO Fixed Deposits (interest taxable @ 30% for NRIs)

  • Mutual funds (subject to taxation under applicable sections)

  • Indian real estate or other assets

  However:

  • Interest is taxable in India, and must be disclosed in your Indian ITR.

    • FEMA prohibits an NRI from holding or operating resident savings accounts and using them for property transactions.

    • Misreporting your residential status can result in:

      • Penalties up to 3x the amount involved

      • Confiscation of funds and prosecution in severe cases

        There are no specific penalties for keeping funds in India, but avoid transferring to resident accounts.

         

        If the transaction is treated as if you're a resident Indian, the following risks arise:

        1. Violations under FEMA and IT Act

        
        

         

  • You may not be allowed to repatriate funds freely if you are not shown as NRI in the sale. You may lose the ability to file Form 15CA/CB correctly. You may also not get access to DTAA or TDS reliefs.

     

    Yes the error can be corrected — but subject to conditions:

    • File a revised TDS return (if applicable) by buyer

    • File a declaration of residential status correction with AO and FEMA cell of RBI

    • Maintain records of all transactions and file a correct ITR as an NRI

    This can avoid penalties if done proactively.

We can assist you with the following steps :

• Get property valuation + capital gain computation with indexation.

• Apply for Lower TDS Certificate (Form 13) with us.

• Use an NRO account for receiving proceeds, and file Form 15CA/15CB for repatriation.

• File tax return in India for the year of sale.

• Maintain documentary evidence of inheritance and residential status.

Thanks
Damini