Selling a property in India can be a complex endeavor for Non-Resident Indians (NRIs), especially with the significant tax reforms introduced in the recent Union Budgets. If you have inherited a property from your parents and are looking to sell, understanding the tax implications is crucial to avoid having large sums of your money blocked with the Income Tax Department.

In this guide, we break down the current tax landscape, the role of TDS, and how to optimize your cash flow.

 

1. The New Tax Regime: 12.5% Long-Term Capital Gains (LTCG)

The Finance (No. 2) Act, 2024, brought a paradigm shift in real estate taxation. For any property transfer occurring after July 23, 2024, the following rules apply:

• • The New Rate: The base LTCG tax rate is now 12.5% (down from 20%).

• • The Indexation Trap: While the rate is lower, the benefit of indexation (adjusting the purchase price for inflation) has been removed for NRIs.

• • No Option for Indexation: Unlike Resident Indians, who may choose between “20% with indexation” and “12.5% without indexation” for older properties, NRIs must use the 12.5% rate without indexation.

For an inherited property, your “Cost of Acquisition” is what your parents originally paid for the property. Without indexation, the taxable profit is simply the difference between today’s sale price and that historical purchase price.

2. TDS on NRI Property Sales: The 14.95% Rule

When a Resident Indian buys property from an NRI, they are governed by Section 195 of the Income Tax Act.

Unlike transactions between two residents (where TDS is 1%), the buyer of an NRI-owned property must deduct tax at the full applicable rate on the total sale consideration, not just the profit.

• • The Effective TDS Rate: 12.5% (Base) + 15% (Surcharge for deals between ₹1 Cr – ₹2 Cr) + 4% (Cess) = 14.95%.

• • Example: On a sale of ₹1.10 Crore, the buyer is technically required to deduct approx. ₹16.44 Lakhs as TDS.

3. The “Stuck Money” Problem: Why You Need an LDC

This is where many NRIs face a liquidity crisis. If the buyer deducts the full 14.95% on the total sale value, but your actual tax on the profit is much lower, your money gets stuck.

The Refund Timeline:

If you sell your property in FY 2026-27, you can only file for a refund in July 2027. It often takes until late 2027 or early 2028 for the refund to reach your bank account.

The Solution: Lower Deduction Certificate (LDC)

By applying for an LDC (Form 13) before the sale, the Income Tax Department verifies your actual profit and issues a certificate allowing the buyer to deduct a much lower percentage (often as low as 3-4% of the sale value).

Case Study Comparison:

• • Sale Price: ₹1.10 Crore

• • Original Cost: ₹85 Lakhs

• • Actual Profit: ₹25 Lakhs

• • TDS without LDC: ₹16.44 Lakhs (Deducted from your payment)

• • TDS with LDC: ~₹3.73 Lakhs (Based on actual profit)

• • Liquidity Gained: ₹12.71 Lakhs stays in your pocket immediately.

4. Simplified Compliance: Budget 2026 Updates

The Budget 2026 has introduced significant reliefs to simplify the “paperwork headache” for individual buyers:

• • PAN-based TDS: Previously, buyers had to obtain a TAN (Tax Account Number) and file complex quarterly returns (Form 27Q). Moving forward, individual buyers can now deduct and deposit TDS using just their PAN via a simplified online portal.

• • Repatriation: To move the sale proceeds from your NRO account to your foreign account, you still require Form 15CA/15CB (CA certification) and Form A2.

5. Conclusion: Strategy is Key

If you are an NRI selling property in India:

1. 1. Locate the Purchase Deed: You need the original document from when your parents bought the property.
   2. Calculate the Profit: Know your actual tax liability before the deal begins.
   3. Apply for LDC Early: Start the process at least 4-6 weeks before you expect your main payment to avoid having your funds locked for years.

At Husain A. Shujai and Associates, we specialize in NRI taxation and FEMA compliance. If you are planning a property transaction, contact us for an end-to-end tax optimization strategy.