Selling Indian property while you are a German tax resident

India taxes the full capital gain from what you originally paid to what you sell 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 relief for the rupee's fall, so the whole rupee gain is taxed. The buyer must deduct TDS under Section 195 on the gain, plus surcharge and cess, not the small 1% that applies to a resident seller.

Because the TDS is heavy, 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. You can also reduce or remove the Indian tax entirely by reinvesting under the usual exemptions. Whether you do that turns out to matter for the German side, in a way that is easy to miss.

Germany is unusually gentle on Indian property gains, for two separate reasons. First, under German domestic law, a gain on a privately held property is tax-free once you have owned it for more than 10 years, and that applies to a foreign property held by a German resident too. So if you have held the Indian property more than 10 years, Germany does not tax the gain at all, quite apart from the treaty.

Second, even within the 10 years, the treaty exempts an Indian immovable-property gain from German tax. Germany relieves this kind of gain by exemption, not credit, so it does not tax the gain itself; it only takes it into account to set the rate on your German income, the same exemption-with-progression that applies to Indian rent. So whether you held the property for two years or twenty, Germany normally does not levy its own tax on the gain, and India's 12.5% is the only real charge. That is a much better outcome than the double-tax-with-partial-credit that residents of many other countries face.

There is a catch worth knowing, because it flips the result. Germany's exemption of the Indian gain assumes India actually taxes it. If you arrange to pay no Indian tax on the sale, most commonly by claiming a full reinvestment exemption under Sections 54 or 54F, then Germany's switch-over rule can step in and tax the gain after all, precisely because it was not taxed in India.

So the reinvestment exemption that saves you Indian tax could hand the same gain to Germany instead, which may be no saving at all, or worse. This is exactly the kind of cross-border interaction that a plan made on the Indian side alone can get wrong. The right approach is to decide the Indian reinvestment question with the German consequence in view: sometimes it is better to simply pay the 12.5% in India and keep Germany's exemption, rather than claim an Indian exemption and lose it to the German switch-over. A practising CA works the Indian computation and the certificate, and flags this interaction so the two sides are planned together, not in isolation.