NRI Capital Gains Tax on Selling Property in India

How much of the sale price will actually reach me?

That's the question almost every NRI asks the moment a buyer agrees to a price for their flat, house, or plot back in India. On paper, the sale looks straightforward — agree a value, sign the deed, receive the money. In practice, an NRI seller runs into two separate calculations that resident sellers rarely worry about in the same way: how much capital gains tax is actually owed on the profit, and how much TDS (tax deducted at source) the buyer will withhold before the money is even released.

These two numbers are often very different, and the gap between them is where most of the confusion — and the anxiety — comes from. A seller might expect a tax bill of a few lakh rupees based on their actual profit, only to watch a buyer withhold a number that looks two or three times larger. Neither number is wrong; they're just answering different questions. This article walks through both calculations properly, shows a real worked comparison, and explains where an NRI seller can legitimately bring the numbers back in line before or after the sale closes.

The core fact to hold onto from the outset: capital gains tax is based on your profit (sale price minus cost, minus allowed deductions). TDS under Section 195 is usually withheld on the entire sale consideration, because the buyer has no reliable way to independently verify your cost basis. Understanding this split is the single biggest step toward a stress-free sale.

Short-term vs long-term: the 24-month line

Indian tax law splits capital gains into two buckets depending on how long the property was held before sale:

• Short-term capital gains (STCG): the property was held for 24 months or less. The gain is added to the seller's total income and taxed at their applicable slab rate — there is no special concessional rate.
• Long-term capital gains (LTCG): the property was held for more than 24 months. This is where the special capital gains rates apply, and where most NRI property sales fall, since Indian property purchased by the diaspora is typically held for years, not months.

For most NRIs selling a flat or house bought a decade or more ago, LTCG is the relevant regime — and that's the focus of the rest of this article.

The 2026 LTCG regime for NRIs: step by step

According to ClearTax's 2026 guidance on TDS for NRI property sellers, the current long-term capital gains structure works like this:

1. Compute the gain. Sale price, minus the cost of acquisition, minus documented cost of improvement, minus transfer expenses (brokerage, legal fees, stamp costs directly tied to the sale).
2. Apply the LTCG rate. For most NRI sellers today, gains are taxed at 12.5% without indexation — the newer, simplified regime.
3. Add surcharge and cess. A 4% health and education cess applies on the tax amount, and surcharge kicks in above certain income thresholds. At the base band, this brings the effective rate to roughly 14.95%, per ClearTax; it rises further for sellers who fall into higher surcharge slabs on large transaction values.
4. Reconcile against Section 195 TDS. The buyer will have withheld TDS on the full sale consideration (not just the gain) under Section 195. The seller's actual LTCG liability — the number from steps 1–3 — is almost always lower than what was withheld. The difference is recovered either by filing an income tax return and claiming a refund, or by applying in advance for a Section 197 lower/nil-TDS certificate so less is withheld at source in the first place.

There is also a legacy option: certain pre-July-2024 acquisitions of land or buildings can, in specific cases, still use the older 20% with indexation basis if it turns out more favourable — but for the general NRI seller in 2026, the 12.5% no-indexation route is the headline rule to plan around. This is a nuanced area where the "better" option depends on your specific purchase date, cost basis, and inflation-adjusted numbers, so this is worth confirming with a licensed CA rather than assuming either regime blindly.

12.5% no-indexation vs 20% indexed — a worked comparison

Here's how the two regimes can play out on the same underlying transaction, illustrating why the comparison matters:

The exact indexed cost depends on the Cost Inflation Index for the relevant years and is illustrative here — the point is structural: indexation reduces the taxable gain by adjusting the cost base for inflation, while the no-indexation route applies a lower rate to a larger, un-adjusted gain. Depending on how long ago the property was bought and how much prices have moved since, either regime can come out ahead. This is exactly the kind of calculation worth running properly rather than guessing, and it's a natural fit for a structured financial planning walkthrough before you sign anything.

Where this hits differently for NRIs specifically

A few things make the NRI version of this story distinct from a resident seller's experience:

• TDS is deducted on the full consideration, not the gain, under Section 195 — resident sellers instead face a flat 1% TDS under Section 194-IA on transactions above ₹50 lakh, which is a fraction of what an NRI seller typically sees withheld.
• The withheld amount can be substantial in absolute terms. On a ₹1.5 crore sale, TDS withheld at source (even before adjusting to the seller's actual gain-based liability) can run into double-digit lakhs, creating a real short-term cash flow gap.
• Repatriation matters. Net sale proceeds, after tax, typically route into an NRO account, and there are separate RBI/FEMA considerations for moving funds abroad — a distinct topic from the tax calculation itself, but one that shapes the seller's overall timeline.
• Documentation from abroad is harder to produce on short notice. Original purchase deeds, improvement bills, and payment records may be sitting in a relative's almirah in India rather than in the seller's own filing system overseas.

A real-world scenario: selling a Pune flat bought in 2016

Consider an NRI based in Dubai who bought a 2BHK flat in Pune's Hinjewadi area in 2016 for ₹55 lakh, and is now selling it in 2026 for ₹1.1 crore.

• Holding period: 10 years — comfortably long-term.
• Gain (no indexation basis): ₹1.1 crore − ₹55 lakh − documented improvement costs (say ₹4 lakh for a kitchen renovation with proper invoices) − transfer expenses (₹2 lakh brokerage and legal) = approximately ₹49 lakh taxable gain.
• Tax at 12.5%: ₹6.125 lakh, plus cess, bringing the effective liability to roughly ₹6.4–6.5 lakh depending on surcharge applicability.
• TDS withheld by the buyer under Section 195: calculated on the full ₹1.1 crore sale value at the applicable rate — a number that will be dramatically higher than the ₹6.4 lakh actual liability.

In this scenario, the seller has two realistic paths: let the higher TDS get withheld and claim the difference back as a refund when filing the year's income tax return, or apply in advance for a Section 197 certificate to bring the withholding down closer to the real liability, avoiding the wait for a refund. Most NRIs who plan ahead — rather than discovering this at the registration desk — choose the Section 197 route.

Reducing the taxable gain legitimately

Before assuming the gain is fixed, check whether any of these apply:

• Cost of improvement. Renovations, structural additions, or fittings with proper invoices in the seller's name can be added to the cost base, reducing the gain. Verbal claims without paperwork generally won't hold up.
• Transfer expenses. Brokerage, legal fees, and any expense directly incurred to enable the sale are deductible from the sale value before computing gain.
• Section 54 reinvestment. Per the Income Tax Department's guidance on Section 54, if the seller reinvests the long-term capital gain into another residential property within the prescribed timelines, the gain can be exempted up to the reinvestment amount, subject to the scheme's caps and conditions.
• Section 54EC bonds. A separate reinvestment route into specified capital-gains bonds can also reduce or defer the taxable gain, within statutory limits.

Each of these routes has specific timelines and paperwork requirements, and getting the sequencing wrong (for example, reinvesting after the deadline) can forfeit the benefit entirely — another reason to plan the sale timeline with a CA before, not after, the registration.

Pro tips

1. Start collecting the original purchase deed and improvement invoices months before listing the property, not after a buyer is found — documents held abroad take time to retrieve.
2. Apply for a Section 197 lower-TDS certificate early if the gap between TDS-on-full-value and actual gain-based tax looks large; the certificate process itself takes time.
3. Don't confuse the TDS deducted with your final tax liability — they are computed on different bases and reconciled only when you file your return.
4. Model both the 12.5% and legacy indexed options where eligibility genuinely allows a choice, since the better answer depends on your specific cost basis and holding period.
5. Keep a clear expense trail for anything you want to deduct as a transfer or improvement expense — bank transfers and named invoices, not cash receipts.

Common mistakes to avoid

• Assuming TDS equals your final tax bill. It almost never does for NRI sellers, because it's computed on full consideration, not gain.
• No documentary proof of cost basis or improvements. Without it, the tax authority may not allow deductions the seller genuinely believes they're entitled to.
• Missing the Section 54/54EC reinvestment windows by assuming there's no rush, then filing late.
• Treating this as a DIY tax return exercise for a large-value, cross-border transaction where a filing error can be expensive to unwind.
• Not accounting for the surcharge bands on high-value sales, which can meaningfully move the effective rate above the 12.5% headline figure.

How DrawMagic fits into this decision

DrawMagic doesn't file your taxes or act as your CA — it's a software and information platform that helps you organise and plan around a decision like this. Before you finalise a sale price or sign anything, DrawMagic's financial planning tools can help you model realistic net proceeds after both capital gains tax and Section 195 TDS, so the number in your head matches what will actually land in your account. The property tax calculator is useful for keeping recurring municipal property tax separate in your mind from the one-time capital gains event — the two are often conflated by first-time NRI sellers. And because cost-basis proof is the single biggest lever for reducing your taxable gain, the buyer resources hub is a good place to organise purchase deeds and improvement invoices well ahead of a sale. If a question doesn't have a clear answer in your research, DrawMagic's help section is the right first stop before you escalate to a licensed CA.

A value note

None of this replaces a licensed chartered accountant, especially given how much the right answer depends on your specific purchase date, income level, and treaty position if you're a tax resident elsewhere. What this article — and DrawMagic's planning tools — can do is make sure you walk into that CA conversation with the right questions already framed and your documents already organised, rather than discovering the gaps for the first time under deadline pressure.

Key Takeaways

• NRI property sales held more than 24 months are taxed as long-term capital gains, typically at 12.5% without indexation in the 2026 regime, per ClearTax.
• Effective tax including cess is roughly ~14.95% at the base band, rising with surcharge on larger transactions.
• Section 195 TDS is withheld on the full sale consideration, not the actual gain — expect the withheld amount to look much larger than your real tax liability.
• A Section 197 lower-TDS certificate, applied for in advance, can bring withholding closer to your actual liability instead of waiting for a refund.
• Cost of improvement (with invoices) and transfer expenses reduce your taxable gain — but only with proper documentation.
• Section 54 and Section 54EC reinvestment routes can exempt or defer part of the gain if timelines are met.
• Some pre-July-2024 acquisitions may still be eligible for the older 20%-with-indexation basis — worth comparing, not assuming.
• Always confirm the specific numbers with a licensed CA before finalising a sale — this article is informational, not tax advice.
• Use DrawMagic's financial planning tools to model net proceeds realistically, and the buyers hub to organise your cost-basis documents early.

FAQ

Does TDS mean I've already paid my full tax? No. Section 195 TDS is withheld on the full sale value as a safeguard, not a final computation of your liability. You reconcile the difference when you file your income tax return, or reduce it in advance with a Section 197 certificate.

Can I use the 20% indexed rate if it works out cheaper for me? In specific cases involving pre-July-2024 acquisitions of land or buildings, the older indexed option may still apply — but this depends on eligibility rules that a CA should confirm for your exact situation.

What happens if I don't have the original purchase deed? You'll need to reconstruct proof of your cost basis through other means (registered sale deed copies from the sub-registrar, bank records of the original payment), which takes time — start early if documents are missing.