What happens at the closing table
When an Indian resident sells Indian property to anyone, Section 194-IA requires the buyer to deduct 1% TDS on the full sale value above ₹50 lakh.
When an NRI sells, Section 194-IA does NOT apply. Instead, Section 195 applies — the catch-all section for any payment to a non-resident. The buyer must deduct TDS at the rate determined by Schedule I of the Finance Act for non-resident capital gains, which after Finance (No.2) Act 2024 is 12.5% LTCG plus surcharge plus 4% Health and Education Cess. Effective at-source rates by sale-value band:
• Sale price ≤ ₹50 lakh: 12.5% × 1.04 = 13.0% • Sale price > ₹50L to ₹1 Cr: 12.5% × 1.10 (10% surcharge) × 1.04 = 14.30% • Sale price > ₹1 Cr: 12.5% × 1.15 (15% LTCG surcharge cap) × 1.04 = 14.95%
The surcharge cap of 15% on LTCG (Section 112 / 112A) was set by the FA 2022 onwards. Without that cap, the surcharge would scale to 25%/37% at higher sale values; the cap protects high-value sellers.
Critical point: this 13.0–14.95% is computed on the FULL sale value, not on your gain. A ₹2 crore Mumbai flat with a ₹40 lakh actual gain produces TDS of ₹2 Cr × 14.95% = ₹29.9 lakh deducted at closing. Your actual tax liability — ₹40L × 12.5% = ₹5L plus cess — is one-sixth of that. The gap is your cash-flow hostage until you file ITR or pre-empt with Section 197.
Section 112 — 12.5% flat LTCG, no NRI choice
Finance (No.2) Act 2024 rewrote Section 112 for land/building sales on or after 23 July 2024: a flat 12.5% LTCG without indexation. Before that date, the regime was 20% with indexation.
The FA(No.2) Act 2024 also added a proviso allowing Indian resident individuals and HUFs to elect the older 20%-with-indexation path for assets acquired before 23 July 2024 — IF the resulting tax is lower. This is the 'grandfathering' choice you may have read about.
This election is reserved for residents. The proviso text says 'in case of an individual or Hindu undivided family, being a resident'. NRIs do not get the choice. NRIs pay 12.5% flat, no indexation, period.
This matters for long-held properties where indexation would have produced a lower indexed gain. A flat purchased in 2005 for ₹40 lakh and sold in 2026 for ₹3 crore has an unindexed gain of ₹2.6 crore (taxed at 12.5% = ₹32.5L). With indexation, the indexed cost would be ~₹85 lakh, indexed gain ~₹2.15 Cr, taxed at 20% = ₹43L. Without indexation: ₹32.5L. So in this case the post-FA 2024 regime is actually CHEAPER for the NRI than the old regime would have been — but a different fact pattern (lower nominal appreciation, higher cost basis) flips the comparison.
For inherited property, Section 49(1) carries the original owner's holding period and cost basis. Section 55(2)(b) lets you step up the cost basis to fair market value as of 1 April 2001 if the property was acquired before that date — usually the single biggest tax saver for inherited pre-2001 property. The 12.5%-no-indexation regime applies on top.
Section 197 / Form 13 — the cash-flow lever
Section 197 of the Income-tax Act lets you apply to the Assessing Officer for a 'lower or nil' TDS certificate when your actual tax liability is lower than the default Section 195 deduction. The application form is Form 13.
For an NRI property sale with default 13.0–14.95% TDS on the full sale value, Form 13 typically reduces the buyer's TDS rate to one of: • Your actual computed gain × 12.5% × 1.04 (cess) ÷ sale value, expressed as a percentage of sale value • A nil rate if you have valid Section 54 / 54F / 54EC reinvestment plans that bring tax to zero
Worked example. Mumbai 2-BHK, sale price ₹2 Cr, your indexed cost basis ₹85L (you're an inherited property holder; resident-only-indexation doesn't apply but Section 55(2)(b) FMV step-up does for pre-2001), actual gain ₹1.15 Cr, actual tax 12.5% × 1.04 = ₹14.95L.
• Default TDS at closing (without Form 13): ₹2 Cr × 14.95% = ₹29.9L • Form 13 certified TDS: ₹14.95L (matches actual tax) • Cash flow unlocked at closing: ₹14.95L
Process: File Form 13 on the Indian Income Tax e-filing portal under the Section 197 application path. Required documents: PAN, copy of agreement-to-sell or LoI, computation of expected gain, supporting cost-basis documents (purchase deed, FMV valuation if pre-2001), TRC and Form 10F/41 if claiming DTAA-side benefits. AO turnaround is typically 30–45 days for clean applications. The buyer is then directed to deduct TDS at the certified rate.
Timing trap. File Form 13 BEFORE you sign the sale agreement. The buyer's TDS obligation is triggered at the moment of payment (or credit, whichever is earlier). Once the agreement is signed and the buyer is committed to pay, applying for Form 13 puts you on the back foot — the AO can ask why you didn't apply earlier. Plan 60–90 days before the closing date.
Section 54 / 54F / 54EC reinvestment — bringing tax to zero
Three reinvestment provisions can reduce or eliminate the LTCG tax on a residential house sale:
Section 54 — Reinvest the *capital gain* (not the full sale proceeds) from a residential house sale into another residential house in India. Window: 2 years for purchase / 3 years for construction. Cap: ₹10 crore under Finance Act 2023.
Section 54F — Reinvest the *NET sale proceeds* (full sale value minus expenses, not just the gain) from any long-term capital asset into one residential house in India. Window: 2 years purchase / 3 years construction. Restrictions: must NOT own more than ONE residential house (other than the new asset) on the date of original sale. Cap: ₹10 crore (FA 2023).
Section 54EC — Reinvest the *capital gain* into specified bonds (REC, NHAI, IRFC, PFC) within 6 months of sale. Cap: ₹50 lakh aggregate across the FY of transfer AND the immediately succeeding FY (not per FY — this is the FA 2018 amendment). Lock-in: 5 years.
Combination strategy. For a ₹1.15 Cr LTCG: ₹50L into Section 54EC bonds (REC + NHAI mix), plus ₹65L into a Section 54 residential house purchase = full exemption. Tax goes to zero. Form 13 applied with this reinvestment plan results in a nil-TDS certificate.
NRI access to Section 54EC bonds: REC, NHAI, PFC, IRFC accept NRI subscriptions through their primary issuance windows. The bonds can be held in NRO / RBI-permitted demat accounts. Interest on these bonds is taxable annually at slab rate.
FEMA repatriation — USD 1 million per FY rule
After the sale closes and TDS is deducted, the net proceeds land in your NRO account. To repatriate them to your home country, FEMA's repatriation rules apply.
General rule: Sale proceeds of immovable property in India can be repatriated up to USD 1 million per Indian FY out of NRO balances, per the FEMA Master Direction on Remittance of Assets, subject to (a) the property having been acquired in compliance with FEMA, (b) all applicable taxes being paid, and (c) the standard Form 15CA / 15CB documentation per Rule 37BB.
Inherited property exception: Pre-existing FEMA position allows repatriation of sale proceeds of inherited immovable property without the USD 1M cap, subject to RBI's specific approval in some cases. Practical guidance: inherited property sales under USD 1M go through normally; above USD 1M, your bank will route through RBI for specific permission.
Across-FY structuring: If your net proceeds exceed USD 1M, you can repatriate USD 1M each FY across multiple years. The cap is per FY (April–March), not lifetime. A ₹2 Cr inheritance (~USD 2.4M at 83 INR/USD) can be repatriated across 2 FYs. You may want to time the closing to give yourself maximum FY flexibility — closing in early April vs late March changes how many FYs you can spread across.
Documentation required for the outflow: • Sale deed / registered conveyance • Capital gains computation (your CA) • Income tax challan / TDS certificate showing taxes paid • Form 15CA Part C (or D for inheritance-exception cases) + Form 15CB CA cert • Bank's internal AML check + KYC currency
Section 285BA — high-value transaction reporting
Indian property sales above ₹30 lakh trigger automatic SFT reporting to the Income Tax Department under Section 285BA + Rule 114E. The Sub-Registrar files the Statement of Financial Transactions reflecting buyer name, seller name, sale value, PAN, registration date.
This means: by the time you file your ITR, the IT Department already has the sale on record (it appears in your AIS / Form 26AS automatically). Don't try to under-disclose the transaction. It's a Section 285BA-flagged event with full traceability to your PAN.
The corollary: NRIs who haven't been filing Indian ITRs but had Indian-source income (rent, dividends) are particularly vulnerable post-property-sale. The SFT-flag triggers an inquiry under Section 142(1) into past returns. A pre-sale ITR review is non-negotiable.
Coordinated workflow for a clean exit: 1. T-90 days: File Form 13 application with Section 54/54F/54EC reinvestment plan 2. T-60 days: Confirm AO certificate received; share with buyer 3. T-30 days: Sale agreement signed with the certified TDS rate 4. T+0: Closing — buyer deducts at certified rate, files Form 27Q (NOT Form 26QB — that's resident sales) 5. T+30 days: Reinvestment per Section 54/54F/54EC executed 6. T+90 days: Form 15CA Part C + 15CB CA cert filed, USD 1M repatriation processed 7. AY filing: ITR-2 with full capital gain disclosure, refund of any over-deducted TDS