Selling Indian property as an NRI & US taxpayer: key rules
If you’re an NRI selling property in India while also being a US tax resident, you’re dealing with a mix of Indian tax rules, US tax implications, and foreign exchange regulations. This guide breaks it all down for you, covering everything you need to know – legally, financially, and practically – to sell property in India while staying on the right side of US tax laws.
This article is brought to you by Taxes for Expats (TFX) – a top-rated tax firm serving US citizens, residents, and anyone with US tax obligations, both at home and abroad. Are you a non-resident Indian selling property in India and unsure how it affects your US taxes? We’re here to assist you – learn more about our tax services or contact us.
What kind of property can you sell in India?
As an NRI (non-resident Indian) or OCI (overseas citizens of India), you're allowed to sell most types of real estate in India, including self-purchased or inherited residential and commercial property, and inherited agricultural land, though the latter with several restrictions.
In all cases, documentation must be thorough and up to date. You’ll need legal proof of ownership, a proper title deed, and clearances from municipal or local authorities before initiating a sale.
Taxation on property sale for NRIs
Capital gains: short-term and long-term
If the property is sold within 24 months of acquisition, the gain is categorized as short-term and taxed according to your income tax bracket in India. If held for more than 24 months, it is considered long-term.
- For properties sold on or after July 23, 2024, long-term capital gains tax apply at a rate 12.5% (without indexation).
- If the property was acquired before July 23, 2024: Taxpayers can choose between 20% with indexation (old regime), or 12.5% without indexation (new regime).
TDS obligations and payment process
- The buyer must deduct TDS before making payment to the NRI seller.
- Long-term capital gains: TDS is 12.5% plus surcharge and cess for transfers after July 23, 2024.
- Short-term capital gains: TDS is 30% plus surcharge and cess.
TDS is deducted on the total sale proceeds, not just the capital gains. This can result in higher deductions than your actual tax liability. NRIs may apply for a lower or nil deduction certificate under Section 197. If granted, TDS will be deducted only on the capital gain, not the entire sale amount. If excess TDS is deducted, you can claim a refund by filing an income tax return with supporting documents.
How to reduce tax burden when selling property in India
The Indian tax code allows for exemptions on capital gains if the sale proceeds are reinvested within certain timelines and under specific conditions. Combining these exemptions effectively can yield complete or significant tax relief.
Section 54: Reinvestment in residential property
Section 54 applies when a long-term capital gain is earned from the sale of a residential property. To claim the exemption, the seller must reinvest the capital gain in another residential property located in India within two years of sale or construct a new house within three years. You can also purchase the new home up to one year before the sale. Exemption is capped at ₹10 crore (effective from AY 2024-25).
This option is widely used by NRIs who plan to return to India or maintain an investment base in the country. However, the exemption is limited to one property and must be used within the prescribed timeline.
Section 54F: Broader asset sales
Section 54F allows exemption from long-term capital gains on the sale of any capital asset, provided the entire net sale consideration is reinvested in a single residential property in India. Partial investment results in proportionate exemption. Exemption is capped at ₹10 crore (effective from AY 2024-25).
Unlike Section 54, which applies only to residential properties, Section 54F covers sales of plots, commercial spaces, or other non-residential properties. But it still requires investment into a residential property to qualify.
Section 54EC: Bonds exemption
If reinvestment in property is not desirable, another route is investing in government-specified capital gain bonds under Section 54EC. You can invest up to ₹50 lakh in NHAI or REC bonds within six months from the sale date. These bonds have a lock-in period of five years and are considered low-risk.
Repatriation of sale proceeds abroad
After taxes are paid, you may want to transfer the remaining sale proceeds back to their country of residence. The Reserve Bank of India (RBI) governs such transactions through the FEMA (Foreign Exchange Management Act).
NRIs can repatriate up to $1 million per financial year from India, including proceeds from the sale of property. This limit applies on a per-person basis and requires adherence to specific compliance steps. For properties purchased with NRE/FCNR funds, repatriation is limited to the sale proceeds of a maximum of two residential properties.
The property must have been acquired in accordance with foreign exchange regulations at the time of purchase. If the property was purchased using funds from an NRE account, sale proceeds can be directly credited back to an NRE account for repatriation. Otherwise, they must first be deposited into an NRO account.
Sale proceeds from agricultural land, plantation property, or farmhouses cannot be repatriated abroad – they must remain in India.
Documents required for NRI property sale
To ensure a smooth transaction, collect and organize the following legal and tax documents:
- sale deed and title deed
- PAN card (mandatory for property transactions)
- passport and OCI/PIO card (if applicable)
- encumbrance certificate and municipal approvals
- Power of Attorney (if the sale is conducted remotely)
Repatriation paperwork:
- tax computation and TDS certificates
- Forms 15CA (self-declaration of tax compliance) and 15CB (issued by a Chartered Accountant confirming tax liability)
- details of repatriation account (NRO/NRE)
Keep all documentation organized, as both banks and the RBI may request additional information before approving repatriation.
US tax implications in relation to foreign property
As a US person (citizen, green card holder, or resident alien), you're required to report all your worldwide income, including profits from the property sale in India.
Capital gains from the property sale must be reported on your US tax return. Use Schedule D (Form 1040) and Form 8949 to detail the transaction. All amounts must be reported in USD using IRS-approved exchange rates for the relevant transaction dates.
You may also need to report the sale under FBAR (FinCEN Form 114) if the account receiving proceeds exceeds $10,000, or Form 8938 (FATCA) if total foreign assets surpass certain thresholds. Find detailed FATCA filing requirements in this article: Do you need to file FATCA? Guide to reporting foreign financial assets and exemptions.
The India–US tax treaty can offer significant relief for American taxpayers and US citizens selling property in India, but the benefits aren’t automatic. You’ll need to file specific forms to claim them. Consult tax professionals who understand India–US tax agreements and cross-border property sales.
Selling property in India? Unsure about US tax implications? Talk to tax professionals
Selling property in India as an NRI or OCI with tax obligations in the US, involves a complex interplay of Indian and US tax laws since you must align reporting with both jurisdictions. Failure to do so can lead to audits and fines.
Taxes for Expats can guide you through the process, make sure you know exactly what needs to be filed and when, and handle all the US tax forms for you – so you can stay fully compliant with the IRS, stress-free.
