Knowledge Centre

Last Updated on: March 12, 2026

When an NRI (Non-Resident Indian) sells property in India, the transaction is governed by some of the most stringent tax laws in the country. At Finstreet, we simplify these complexities so you can focus on the sale, not the paperwork.

1. The Residency Test

Under Section 6 of the Act (as of 2026), You are a Non-Resident if you meet all applicable "Failure" criteria below:

A. The Basic Failure (For most people)

• You were in India for less than 182 days in the current year; AND
• You were in India for less than 60 days in the current year (or, if you were here for 60-181 days, you were in India for less than 365 days total over the previous 4 years).

B. The "Indian Citizen/PIO" Failure (The 182-Day Rule)

If you are an Indian Citizen or PIO visiting India (and your Indian income is ₹15 Lakh or less), the 60-day rule doesn't apply to you. You are a Non-Resident simply if:

Your total stay is less than 182 days.

C. The "High Income NRI" Failure (The 120-Day Rule)

If you are an Indian Citizen or PIO with Indian income over ₹15 Lakh, the threshold is stricter. You are a Non-Resident only if:

• Your total stay is less than 120 days; OR
• Your total stay in the previous 4 years was less than 365 days.

D. The "Deemed Resident" Check [Section 6(1A)]

Even if you stay 0 days in India, you are a Non-Resident only if:

• Your Indian income is ₹15 Lakh or less; OR
• You are paying tax in another country (like the USA or UK) as a resident there.

Why it matters: Buyers who incorrectly treat an NRI as a resident (deducting only 1% TDS) are personally liable for the tax shortfall and a 100% penalty.

2. TAN Registration (Mandatory for Buyers)

Unlike resident transactions, the buyer must have a Tax Deduction Account Number (TAN)**.

• Rule: You cannot use your PAN to deduct tax from an NRI.
• Action: Apply for a TAN using Form 49B as soon as the agreement is signed.

** From October 1, 2026 onwards, NO TAN REQUIRED. Resident individuals/HUFs can now use their PAN to deduct and deposit TDS, similar to resident-to-resident sales (Section 194-IA).

Finstreet Warning: If you are closing a deal before October 2026, do not skip the TAN application. Failure to use a TAN when required carries a flat penalty of ₹10,000 plus interest on the tax amount.

3. Taxation

Taxation is calculated only on your Profit (Sale Price minus Cost of Acquisition).

Long-Term Capital Gains (LTCG)

Property held for > 24 months.

• Flat Rate: 12.5% (on the total gain).
• Indexation: Strictly Not Available for NRIs, even for properties bought before 2024.

Short-Term Capital Gains (STCG)

Property held for ≤ 24 months.

• Rate: Taxed at the NRI’s applicable slab rate. For most high-value transactions, this effectively settles at 30% of the profit.

4. Tax Deducted at Source (TDS)

• TDS is the amount the buyer is legally required to withhold from the payment and deposit with the government. The buyer may be:

·  Individuals (Resident or Non-Resident)

·  HUF (Hindu Undivided Family)

·  Partnership Firms & LLPs

·  Companies (Indian or Foreign)

·  Trusts and Societies

• Unless you have a specific certificate, the buyer must deduct TDS on the TOTAL SALE CONSIDERATION, not the profit.

5. Bridging the Gap

There is often a massive gap between the TDS (14.95% of total price) and your Actual Tax (12.5% of profit).

Example:  Sale Price: ₹2 Crore | Profit: ₹20 Lakh.

• TDS (without certificate): ₹29.9 Lakh (The buyer takes this from you).
• Actual Tax Owed: ₹2.5 Lakh (12.5% of ₹20L).
• The Loss: ₹27.4 Lakh of your money is stuck with the Govt. until you file a refund.

The Finstreet Solution: Lower TDS Certificate (Form 13)

As the best tax consultant for NRIs, Finstreet assists you in applying for a Lower Deduction Certificate (Form 13). When the Tax Officer issues this, the buyer is authorized to deduct TDS only on the profit (₹2.5 Lakh) instead of the total price. This ensures you receive your full sale proceeds immediately.

6. Double Taxation Relief

Under Section 90(2) of the Income Tax Act, when India has entered into a Double Taxation Avoidance Agreement (DTAA) with another country, the NRI seller has a powerful legal advantage:

• The provisions of the Income Tax Act shall apply only to the extent they are more beneficial to the assessee. If the DTAA provides a lower tax rate or better relief than the Indian domestic law, the NRI can choose the DTAA rate
• While domestic rates (like 12.5%) must be increased by surcharges and a 4% Education Cess, these are generally not added to rates specified under a DTAA, often resulting in a lower final tax outgo.
• To claim any relief under a treaty, the NRI must obtain a Tax Residency Certificate (TRC) from the Government of the country where they reside. Without a valid TRC and the prescribed Form 10F, the buyer cannot apply treaty benefits and must deduct tax at the higher domestic rates.

7. TDS Returns and Certificates

Under Section 195, depositing the tax is only half the job. The buyer must also "report" it.

Form 27Q: This is a quarterly statement the buyer files to tell the Government: "I bought a property from an NRI, here is their PAN, and here is the tax I deducted."

• 2026 Shift: For sales after October 1, 2026, individual buyers are no longer forced into this quarterly cycle. They can use a one-time PAN-based challan-cum-statement (similar to Form 26QB used for residents), which acts as both the payment and the return.

Form 16A: Once the return is processed, the buyer must give the seller Form 16A.

• Why it matters to the seller: This is his proof of tax paid. He needs this form to claim a refund or to show the bank for repatriation.

8. Repartriation

To move the post TDS sales proceeds to your foreign bank account, Finstreet manages the final compliance:

1. Form 15CB: A CA certificate confirming all taxes are settled.
2. Form 15CA: An online declaration by the NRI.
3. Bank Requirement: Authorized Dealers (Banks) are prohibited from processing the wire transfer without these forms.
4. Non-Compliance Penalty: ₹1,00,000 under Section 271-I for missing or wrong filings.

9. Consequences of Non-Compliance

The Income Tax Department is much stricter with NRI sales than resident sales because the seller is leaving the country.

• Penalty for Non-Deduction (Section 271C):  If the buyer fails to deduct the whole or any part of the tax (for example, by incorrectly treating an NRI as a resident), they are liable to pay a penalty equal to the amount of tax which the person failed to deduct. Effective April 1, 2025, this penalty is imposed directly by the Assessing Officer (AO), making enforcement faster than in previous years.
• Interest for Delayed Payment (Section 201):  Buyers are charged 1% interest per month for a delay in deduction and 1.5% interest per month for a delay in depositing the deducted tax with the government.
• Late Filing Fees (Section 234E): Failure to file the required TDS returns on time results in a late fee of ₹200 per day.
• Expense Disallowance (Section 40(a)(i)): For business buyers, the entire cost of the property purchase will be disallowed as an expense until the TDS is paid, leading to a much higher tax liability for the buyer.

Why Choose Finstreet?

The 2026 tax landscape is complex. A single error in counting your days in India or a missing Tax Residency Certificate can lead to 100% penalties or years of litigation with the Income Tax Department.

We don't just give advice; we take the weight of compliance off your shoulders so you can focus on your next big move abroad.