NRI Property Tax in India: Navigating the 12.5% Capital Gains Rule

The Direct Answer

For Non-Resident Indians (NRIs) selling property in India, the Long-Term Capital Gains (LTCG) tax rate has been slashed to a flat 12.5% for sales made on or after July 23, 2024. However, this comes with a major catch: the indexation benefit has been completely removed for NRIs. Furthermore, on a long-term gain buyers must deduct TDS of 13.00% to 14.95%, and unless the Assessing Officer issues a Lower Deduction Certificate, they generally deduct it on the whole amount paid, because their route to anything less is an application to the Assessing Officer.

Tax rates, sections, forms and FEMA limits checked on 2 November 2026 against the Income-tax Act, 2025, Finance Act, 2026 and RBI's remittance directions. General information, not tax advice: confirm your case with a CA.

Understanding the "12.5% vs 20% with Indexation" Confusion

The July 2024 budget introduced a massive shift in how Indian real estate is taxed. For years, NRIs relied on the 20% LTCG rate, which included the powerful benefit of indexation—the ability to adjust your original purchase price for inflation before calculating the taxable profit.

As of the current rules impacting 2026 transactions:

1. The New Rate: LTCG on property held for more than 24 months is taxed at a flat 12.5% (plus surcharge and cess).
2. The Missing Benefit: NRIs cannot claim indexation. You simply subtract your actual purchase price from the sale price to determine the capital gain.
3. No Choice for NRIs: The option to compare with 20% with indexation (land or building acquired before 23 July 2024) is for resident individuals and HUFs only. NRIs do not have this option. You must use the 12.5% rate.

Who Wins and Who Loses?

• The Winners (Recent Buyers): If you bought a property in the last 2 to 5 years that has appreciated rapidly (like pre-discovery plots in Dholera), the 12.5% rate without indexation is often mathematically better. The inflation adjustment over a short period wouldn't have saved you much anyway.
• The Losers (Long-Term Holders): If you are selling an ancestral property or an asset held for 10-15+ years, losing indexation means your taxable base is much larger. Even at the lower 12.5% rate, your total tax outgo might be higher than under the old 20% regime.

Short-Term Capital Gains (STCG)

If you hold the property for 24 months or less, the gains are deemed Short-Term. Exactly 24 months is still short term.

• Tax Rate: These are taxed according to your applicable income tax slab in India, which can be up to 30% plus surcharge and cess.

The TDS Trap: 13% to 14.95%, Generally on the Whole Amount Paid

This is the biggest cash-flow shock for NRIs. When an NRI sells property, the buyer is legally obligated to deduct Tax Deducted at Source (TDS).

• For LTCG: The TDS rate is 12.5% plus surcharge plus 4% cess: 13.00% on an amount up to ₹50 Lakhs, 14.30% above ₹50 Lakhs and up to ₹1 Crore, and 14.95% above ₹1 Crore. The band follows the amount subject to deduction, not your total income. Unless the Assessing Officer issues a certificate, buyers generally deduct on the whole amount paid, not just the profit margin.
• For STCG: The TDS rate jumps to 30% (plus surcharge and cess).

If you are selling a property for ₹2 Crore, the buyer might withhold ₹29.9 Lakhs upfront as TDS: 12.5% of ₹2 Crore is ₹25 Lakhs, the 15% surcharge adds ₹3.75 Lakhs, and the 4% cess on ₹28.75 Lakhs adds ₹1.15 Lakhs, which comes to 14.95%. Whatever exceeds your actual tax is locked with the Income Tax Department until you file your returns and claim a refund.

You may still see 20% quoted. That was the LTCG rate for transfers before 23 July 2024. Today it matters only if the seller has no valid PAN: TDS is then at least 20%, unless a non-resident seller gives the buyer their name, e-mail, contact number, foreign address, tax residency certificate where issued, and foreign TIN (Rule 217 of the Income-tax Rules, 2026).

How to Escape the High TDS

Do not accept a blind deduction on your full sale value if your actual profit is small.

You can apply for a Lower Deduction Certificate under Section 395 of the Income-tax Act, 2025 (old Section 197), using Form 128 (old Form 13), from the Assessing Officer. Apply early enough to have it before the buyer's first payment, including any advance at agreement. The officer forms a view of your total income and estimated tax, so show your exact acquisition costs and planned reinvestments. They can then issue a certificate instructing the buyer to deduct at a lower rate or not at all. There is no standard rate: it depends on your actual computed tax. The certificate changes the amount withheld, not your final tax, and you need a PAN to get one. For sales on or before 31 March 2026, the 1961 Act applies: Section 195 for TDS and Form 13 for the certificate.

3 Ways NRIs Can Legally Save on Capital Gains Tax

Just because the rate is 12.5% doesn't mean you have to pay it. You can shield your profits using these sections. They reduce your final tax, but they don't themselves reduce the buyer's TDS: relief at source needs a Section 395 certificate.

1. Section 82 (old Section 54): Reinvest in Residential Property

If you sell a residential property, you can reinvest the capital gain amount into purchasing another residential house in India.

• You have 1 year before the sale or 2 years after the sale to buy a ready property, or 3 years to construct one.
• If you haven't bought the property by the tax filing deadline, deposit the funds into a Capital Gains Account Scheme (CGAS).

2. Section 86 (old Section 54F): Sell a Plot or Commercial Property, Buy a House

If you sell any other long-term capital asset (like commercial property or land), you can claim exemption under Section 86 by reinvesting the net sale consideration (the entire sale amount minus expenses) into a residential house in India. This isn't available if you already own more than one other residential house on the date of sale, or buy another within one year or build another within three years of the sale.

3. Section 85 (old Section 54EC): Capital Gains Bonds

You can invest up to ₹50 Lakhs of your capital gains into specified government-backed bonds (like NHAI or REC).

• The investment must be made within 6 months of the property sale.
• There is a strict 5-year lock-in period. The interest earned is taxable, but your capital is secure, and you save the 12.5% tax upfront.

Frequently Asked Questions

Do NRIs have the option to choose between 12.5% and 20% tax rates for property sales?

No. For sales occurring on or after July 23, 2024, NRIs are subjected to the flat 12.5% rate without indexation for long-term capital gains on immovable property.

How long does an NRI need to hold a property for it to be considered Long-Term?

An NRI must hold the immovable property for more than 24 months from the date of acquisition for the gains to qualify as Long-Term Capital Gains.

Can I repatriate the sale money immediately?

You can repatriate up to USD 1 Million per financial year out of your NRO account. However, you must first ensure all taxes are paid (or exempted). Your bank will ask for the tax paperwork it needs: usually Form 145 (old Form 15CA), plus a CA's Form 146 (old Form 15CB) or an Assessing Officer certificate where the remittance is chargeable to tax and above ₹5 lakh in the tax year.