Introduction
Rahul, an NRI living in London, recently decided to sell his two‑bedroom flat in Hyderabad. As the sale process unfolded, he discovered that understanding Indian tax rules—capital gains, indexation, TDS, penalties and exemptions—felt like learning a new language. If you’re an NRI about to part with your Indian property, you need more than mere definitions; you need a step‑by‑step roadmap that turns complexity into confidence. This post walks you through every stage, from classifying your asset to repatriating the net proceeds, with real‑world numbers and smart planning tips.

1. Property Classification: Setting the Stage

Before diving into tax mechanics, it helps to place your property on the right tier. This anchors expectations around stamp duties, legal costs and even negotiation tactics.

Category

Sale Value Range

Typical Examples

Budget

Up to ₹50 lakh

Small 1BHK in tier‑2 cities

Mid‑Range

₹50 lakh – ₹1 crore

2–3BHK flats in fast‑growing suburbs

Premium

₹1 crore – ₹5 crore

Villas or high‑end apartments in metros

Luxury/High‑Value

Above ₹5 crore

Luxury villas, penthouses

Recognizing your property’s bracket guides you on likely stamp duties (5–7%), legal fees (1–2%) and even buyer profiles. Once you know whether you’re in “budget” or “luxury,” you can plan tax strategies accordingly.

2. Short‑Term vs. Long‑Term Capital Gains

Every profit from selling property is a capital gain, but the tax treatment hinges on the holding period.

Short‑Term Capital Gains (STCG)

• Holding Period: ≤ 2 years
  
  
• Tax Rate: Flat 30% + 4% cess + applicable surcharge
  
  
• Indexation: Not available—tax is on the entire profit
  
  

Example:

• Bought for ₹30 lakh in 2022
  
  
• Sold for ₹45 lakh in 2024
  
  
• Profit: ₹15 lakh
  
  
• Tax: 30% of ₹15 lakh = ₹4.5 lakh (plus cess and surcharge)
  
  

Long‑Term Capital Gains (LTCG)

• Holding Period: > 2 years
  
  
• Tax Rate: Flat 20% + 4% cess + applicable surcharge
  
  
• Indexation: ✅ Available — Adjusts the purchase price for inflation using Cost Inflation Index (CII), reducing taxable gains.
  
  

Example:

• Bought for ₹30 lakh in 2018
  
  
• Sold for ₹60 lakh in 2024
  
  
• CII in 2018–19 = 280
  
  
• CII in 2023–24 = 348
  
  

Indexed Cost of Acquisition = ₹30,00,000 × (348 ÷ 280) = ₹37,28,571
Taxable Profit = ₹60,00,000 − ₹37,28,571 = ₹22,71,429
Tax @ 20% = ₹4,54,286
Cess @ 4% = ₹18,171
Total Tax Payable = ₹4,72,457

✅ Indexation benefit shrinks your taxable gain from ₹30 lakh profit (without indexation) to just ₹22.71 lakh. That’s ₹7.29 lakh of tax-free profit, thanks to inflation adjustment!

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Why No Indexation?
Indexation adjusts purchase cost for inflation, but for STCG the law taxes your full paper gain—so always aim to hold beyond two years if possible.

3. Indexation: Turning Time into Tax Savings

Hold a property beyond two years and you qualify for Long‑Term Capital Gains (LTCG) at 20% post‑indexation. Indexation applies the Government’s Cost Inflation Index (CII) to your purchase price, shrinking your taxable gain.

Financial Year

CII

2018–19 (Purchase)

280

2023–24 (Sale)

348

Indexed Cost Formula:

Indexed Cost=Original Cost×CIISale YearCIIPurchase Year\text{Indexed Cost} = \text{Original Cost} \times \frac{\text{CII}_{\text{Sale Year}}}{\text{CII}_{\text{Purchase Year}}}

Worked Example:

• Original cost (2018): ₹30 lakh
  
  
• Sale price (2023): ₹48 lakh
  
  
• Indexed cost = 30 lakh × (348 / 280) = ₹37.29 lakh
  
  
• Taxable Gain = 48 lakh – 37.29 lakh = ₹10.71 lakh
  
  
• LTCG Tax = 20% of 10.71 lakh = ₹2.14 lakh (vs. ₹3.6 lakh without indexation)
  
  

Key Benefits of Indexation:

1. Lowers Tax Bill: Shrinks your gain base.
   
   
2. Beats Inflation: Reflects real profit, not paper gain.
   
   
3. Rewards Patience: Encourages holding for over two years.
   
   

4. TDS on Property Sales: Managing Upfront Deductions

When an NRI sells Indian property, the buyer must deduct TDS under Section 195 before releasing your money.

Gain Type

TDS Rate on Sale Value

Plus Surcharge & 4% Cess

STCG

30%

Yes

LTCG

20%

Yes

Why TDS Often Exceeds Your Actual Liability

• It applies to the entire sale proceeds, not just net gain.
  
  
• Surcharge is added at 10–37% depending on total income.
  
  
• You can recover excess TDS by filing your ITR and claiming a refund.
  
  

5. Consequences of Non‑Deducting TDS

Failing to deduct or deposit TDS on time can trigger serious penalties under the Income Tax Act:

a. Penalty under Section 201(1A)

• Interest for Late Deduction: 1% per month (or part) from due date to deduction date.
  
  
• Interest for Late Payment: 1.5% per month (or part) from deduction to deposit date.
  
  

b. Disallowance of Expenses (Section 40(a)(i)/(ia))

• Domestic Payments: 30% of the expense disallowed if TDS not deducted.
  
  
• Payments to Non‑Residents: Entire expense disallowed if TDS not deducted.
  
  

c. Penalty for Late Filing of TDS Returns

• Late Filing Fee: ₹200 per day, up to the total TDS amount.
  
  
• Section 271H Penalty: ₹10,000 to ₹1,00,000 for incorrect or non‑filing.
  
  
• Prosecution Risk: Non‑deposit can lead to imprisonment (3 months–7 years) plus fine.
  
  

Including these checks in your process ensures you avoid extra costs and headaches down the line.

6. Surcharge & Cess: The Extras on Top

Beyond the base rate, high‑income NRIs face surcharge. Cess is flat 4% on the total tax.

Total Income (Incl. Gains)

Surcharge on LTCG

Surcharge on STCG

Up to ₹50 lakh

Nil

Nil

₹50 lakh – ₹1 crore

10%

10%

₹1 crore – ₹2 crore

15%

15%

₹2 crore – ₹5 crore

15% (LTCG) / 25% (STCG)

Same brackets

Above ₹5 crore

15% (LTCG) / 37% (STCG)

Same brackets

Remember: cess of 4% applies on top of tax + surcharge.

7. Exemptions: How to Save on LTCG

Even if you hold property long enough, you can eliminate or reduce LTCG tax by reinvesting under various sections.

Section 54 – Residential House Reinvestment

• What: Reinvest gains in one residential property in India
  
  
• When: Buy within 1 year before OR 2 years after sale; or construct within 3 years
  
  
• Limit: Exemption up to capital gains; new property must not be sold within 3 years
  
  

Section 54EC – Capital Gain Bonds

• What: Invest in NHAI, REC, PFC or IRFC bonds
  
  
• When: Within 6 months of sale
  
  
• Limit: ₹50 lakh per financial year; bonds lock‑in for 5 years
  
  

Section 54F – Any Capital Asset → Residential House

• What: Sell any non‑house asset and invest entire sale proceeds in one residential house
  
  
• When: Same timeframes as Section 54
  
  
• Note: Proportional exemption if you invest less than full sale proceeds
  
  

Section 54B – Agricultural Land

• What: Sell agricultural land used for ≥ 2 years and reinvest in new agricultural land
  
  
• When: Buy within 2 years of sale; lock‑in for 3 years
  
  

8. Repatriation: Bringing Money Home

Once your sale proceeds land in your NRO account, you’ll need Form 15CA (self‑declaration) and Form 15CB (CA certification) to remit funds abroad.

1. Form 15CA – Classifies the payment; mandatory if remittance > ₹5 lakh or taxable under Section 195.
   
   
2. Form 15CB – CA certificate confirming correct TDS deduction; needed for Part C of 15CA.
   
   
3. Bank Process – Submit both forms; your bank may also ask for proof of tax payment or refund claim.
   
   
4. Repatriation Limit – Up to $1 million per financial year, net of taxes.
   
   

9. Case Study: Mr. Arun’s Villa Sale

Arun, an NRI in Australia, sold a Hyderabad villa for ₹80 lakh. He’d bought it five years earlier for ₹35 lakh.

Detail

Value

Purchase Price (2018–19)

₹35 lakh

CII (2018–19)

280

Sale Price (2023–24)

₹80 lakh

CII (2023–24)

348

Indexed Cost

35 lakh × 348/280 = ₹43.5 lakh

LTCG

80 lakh – 43.5 lakh = ₹36.5 lakh

20% Tax on LTCG

₹7.3 lakh

TDS Deducted

₹7.3 lakh

With Reinvestment

• Arun invested ₹36.5 lakh under Section 54; his entire LTCG became tax‑exempt.
  
  
• He claimed back the ₹7.3 lakh TDS via his ITR.
  
  
• Repatriated ₹80 lakh (minus minimal bank charges).
  
  

Without Reinvestment

• He paid ₹7.3 lakh tax, netting ₹72.7 lakh in his NRO.
  
  
• Repatriated that amount after Form 15CA/CB.
  
  

10. Key Takeaways for NRIs

• Plan Holding Period: Aim for >2 years to unlock indexation.
  
  
• Avoid TDS Penalties: Deduct and deposit TDS on time to escape interest, disallowance and prosecution risks.
  
  
• Use Exemptions: Section 54/54EC/54F/54B can erase or shrink LTCG.
  
  
• Mind the Surcharge: Keep overall income under key thresholds if possible.
  
  
• Streamline Repatriation: Secure Forms 15CA/CB and know your $1 million limit.
  
  

With clarity on classification, gains calculation, penalties, exemptions and repatriation, you can turn an intimidating tax maze into a clear path—so you keep more of your hard‑earned money and sleep better at night.

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