Selling Indian property while you are an Australian tax resident

India taxes the full capital gain, measured from what you originally paid for the property to what you sell it for. For long-term property sold on or after 23 July 2024, the rate is 12.5% without indexation, and as an NRI you get neither the resident option of 20% with indexation nor any currency adjustment for the rupee's fall, so the whole rupee gain is taxed. The buyer must deduct TDS under Section 195 on the gain, at that rate plus surcharge and cess, not the small 1% that applies when the seller is a resident.

Because the TDS is heavy and on the gain, a lower-deduction certificate is worth getting so the buyer withholds closer to the real tax, and any excess is reclaimed by filing an Indian return. Under the treaty, India has the right to tax gains on Indian property, so the India charge is expected. The key point is the base: India looks all the way back to your original cost, however long ago and however much of the gain is just the rupee weakening.

Australia measures the gain very differently. When you became an Australian resident, the property was treated as acquired at its market value on that day, an arrival-day cost-base reset. So Australia taxes only the growth from your arrival value to the sale price, not the years of growth before you moved. If most of the appreciation happened before you migrated, most of it is outside the Australian net.

On that post-arrival gain, if the property was held more than 12 months from arrival, the 50% discount applies, so only half is taxed. The main-residence exemption is narrow for a foreign-held home and generally not available to a foreign resident, so it should not be assumed to shelter the Indian property. The result is that the Australian taxable gain is usually far smaller than the Indian one, both because it starts from the arrival value and because it is then halved.

Here is where the two sides fail to fully meet. Australia gives a foreign income tax offset for the India tax, but the offset is capped at the Australian tax on the doubly-taxed gain. Since Australia is taxing only the smaller post-arrival, discounted slice, the Australian tax available to offset is often much less than the India tax you actually paid on the whole gain.

And the excess India tax does not go anywhere useful: the offset is not refundable and cannot be carried forward to a later year. So the India tax on the pre-arrival growth, the part Australia never taxes, has no Australian tax to sit against and is simply lost. That is a real economic double tax on the appreciation before you migrated. The offset limit is worked out across all your foreign income together, so headroom from other foreign-taxed income can absorb some of it, but on a large property gain it usually cannot. This is why the timing of the sale, and getting the arrival-day valuation and the India computation right, genuinely matters, and a practising CA works the Indian side and the certificate so at least nothing is lost that did not have to be.