US citizen selling property in India as an NRI: Step-by-step checklist
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 covers everything you need to know – legally, financially, and practically – to sell property in India while staying on the right side of US tax laws.
Quick answers
- Can I sell? Yes – NRIs/OCIs can sell residential and commercial property under RBI rules.
- Who can I sell to? Often, a resident, in many cases, another NRI/OCI, is also allowed for residential/commercial.
- Is tax withheld? Yes – the buyer must withhold under India’s TDS rules for payments to non-residents.
- Can I repatriate? Often yes – up to USD 1 million per financial year (Apr–Mar) from NRO balances/sale proceeds, after tax steps.
- What does the US want reported? The gain on Form 8949/Schedule D, plus account reporting where required (FBAR/Form 8938).
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 is subject to 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.
- Inherited property edge cases – inheritance papers can affect how the holding period is counted, and banks often ask for mutation or succession papers before sending money abroad.
- Sale to a resident vs NRI/PIO – who you can sell to can depend on the property type and how it was acquired.
When RBI approval might matter – if the buyer or property type falls outside the standard permissions for NRI/OCI transactions, RBI approval may be needed before the sale can move forward.
Also read. Tax guide for Americans living in India
Taxation on property sale for NRIs
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.
Capital gains: short-term and long-term
In India, the holding period depends on the date of transfer. For land or building, holding the property for more than 24 months is generally long-term (it was 36 months for transfers before July 23, 2024).
- From the 2024 reforms, a 12.5% LTCG rate without indexation was introduced for certain assets, and the treatment for immovable property became a major point of change; in some cases there has been an old vs new’ rate approach depending on acquisition/transfer conditions, so confirm which regime applies before computing tax.
- Indexation availability depends on the specific rule set that applies to your transfer (date + conditions) and can be fact-dependent. Don’t assume no indexation’ or indexation allowed’ without checking which regime applies.
Example: Bought for 60,00,000 INR, sold for 90,00,000 INR, selling costs 2,00,000 INR – gain 28,00,000 INR – LTCG base 28,00,000 INR (then tax applies at the rate tied to the transfer date).
TDS obligations and payment process
For a non-resident seller, the buyer must deduct tax at source before paying the sale amount. This is part of India’s withholding rules for payments to non-residents, and the buyer needs a TAN to deduct and deposit TDS.
How much is withheld depends on whether the gain is long-term or short-term and the rates in force. In practice, long-term gains for transfers on or after July 23, 2024, are commonly worked from the 12.5% long-term rate described by the Income Tax Department, plus surcharge and cess where applicable.
Short-term gains do not get the long-term rate. They are taxed under different rules, so withholding can feel high, especially when the buyer withholds on the full sale price instead of only on the gain.
Because TDS is often deducted from the full sale proceeds in real life, the cash you receive at closing can be much lower than expected. That is the big pinch point in an NRI property sale in India.
What happens in practice?
- Buyer deducts TDS and deposits it using their TAN
- Buyer files the quarterly TDS statement (often referenced as Form 27Q for non-resident payments)
- Buyer issues you a TDS certificate (Form 16A) through TRACES
- You file an Indian return, claim the TDS credit, and request a refund if excess was withheld
Lower or NIL withholding (Section 197): When withholding on the full sale price is likely to be more than the real tax due, a lower or nil withholding certificate can reduce the deduction rate.
Common penalty risk for the buyer: late or incorrect TDS statements can trigger a per-day fee and may also trigger a separate penalty for statement failures. That is why buyers often push for conservative withholding and clean filings.
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 the sale or construct a new house within three years. You can also purchase the new home up to one year before the sale.
The timing window is:
- buy up to 1 year before the transfer, or
- buy within 2 years after the transfer, or
- build within 3 years after the transfer
From Assessment Year 2024–25, the maximum exemption is limited the cost of the new asset above 10 crore is ignored when computing the exemption.
NOTE! 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 can apply when you sell a long-term asset that is not a residential house and reinvest the net consideration into a residential house property in India. Full investment can support full exemption; partial investment usually means partial relief. The timing windows follow the same structure: 1 year before, 2 years after, and 3 years to construct.
The 10 crore cost cap is also shown in the Income Tax Department’s exemptions chart.
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 in a residential property to qualify.
Section 54EC: Bonds exemption
Section 54EC is the bonds option. You invest the gain in notified long-term specified bonds within 6 months of the transfer. The cap is 50 lakh, and the rules are designed to lock the investment in for the required period (commonly described as 5 years for notified bonds).
This route can fit when buying another home is not the plan, but the timeline is strict six months can pass quickly after the sale deed is signed.
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).
For many NRIs, the standard path is repatriation from NRO balances under the $1 million per financial year (April–March) facility. This can include sale proceeds of assets, subject to bank review and required tax documents.
Another rule matters when the property was bought using foreign exchange through normal banking channels, often linked with NRE/FCNR sources. In that case, repatriation of sale proceeds is allowed to the extent of the original foreign exchange paid, and the RBI limits this to not more than two such residential properties. Amounts outside that route may need to move through NRO and use the USD 1 million framework.
Banks also care where the sale money lands:
- When credit to NRE/FCNR is allowed, repatriation is usually simpler
- Otherwise, proceeds often land in NRO first, and remittance moves forward with the bank’s required CA paperwork and undertakings
NOTE! Sale proceeds from agricultural land, plantation property, or farmhouses cannot be repatriated abroad – they must remain in India.
Documents required for NRI property sale
A smooth sale usually comes from one organized file that covers title, tax, buyer withholding, and bank compliance. This list highlights what often gets requested at registration, for TDS credit matching, and during repatriation reviews.
Core sale and identity
- sale deed and title deed
- PAN (used for the property deal and TDS credit matching)
- passport and OCI/PIO card (if applicable)
Property and ownership support
- encumbrance certificate and municipal approvals
- property tax receipts and basic local clearances
- inherited ownership papers – mutation, succession certificate/probate, or settlement documents, when relevant
Buyer withholding and certificates
- buyer TAN details (needed for TDS compliance)
- Form 16A (TDS certificate) issued through TRACES
Repatriation paperwork
- CA certificate and undertaking used for remittance under the USD 1 million facility
- bank KYC and account details (NRO/NRE), plus the bank’s remittance forms
Power of Attorney (if selling remotely): Executed POA, with notarization/attestation and any local registration steps required by the registering office and the bank.
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.
Where the sale is reported
- Form 8949 lists the sale details
- Schedule D (Form 1040) totals it up
- The math must be in USD, not rupees
Currency conversion
The IRS expects US dollars on the return. In general, it points to using the spot exchange rate on the date amounts are received, paid, or accrued, depending on the situation. For a sale, that usually means using appropriate exchange rates for the purchase side and the sale side of the gain calculation.
Extra reporting that often follows the sale
- FBAR (FinCEN Form 114) can be required when foreign accounts total more than $10,000 at any time during the year
- Form 8938 can also apply when specified foreign financial assets exceed thresholds (higher thresholds can apply for taxpayers living abroad)
Treaty relief
The India–US treaty does not remove US filing for citizens (the saving clause). It also supports India taxing gains tied to immovable property. In real filings, relief is often handled through the Foreign Tax Credit rules when the Indian tax qualifies as a creditable foreign income tax.
US citizens selling property in India report works best when the TDS paperwork is complete, and the US foreign tax credit matches the Indian tax year payments.
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.
