NRI Tax on Indian Property: TDS, Capital Gains, and DTAA Basics

Most NRI buyers model the purchase carefully and the exit not at all. That is the wrong way round, because the exit is where Indian property taxation is genuinely punitive for non-residents — not through the headline rate, but through how much of your money gets held back, and for how long.

Nothing here is tax advice. Rates and thresholds change with each finance act, and your position depends on your residency status and your country of residence. Treat this as a map of what to ask a chartered accountant, not as an answer.

Buying: the part that is mostly straightforward

When you buy, the tax mechanics are relatively simple.

Stamp duty and registration are payable on the transaction, at rates set by the state. In Gujarat these are typically quoted as a stamp duty percentage plus a registration percentage, with concessions in some categories. They are calculated on the higher of the transaction value or the government’s published valuation — the Jantri rate — which means a below-Jantri “deal” does not reduce your duty.

TDS on purchase applies when you buy above a threshold value, and it is the buyer’s obligation to deduct and deposit it. Buying from a resident seller carries a modest rate. Buying from a non-resident seller carries a far higher rate and more involved compliance, including obtaining a TAN. Getting this wrong is the buyer’s problem, not the seller’s — which is worth knowing before you are the buyer.

The all-in cost is meaningfully above the quoted land rate once duty, registration, and legal fees are included. Our cost estimator has a line for each.

Selling: where the real complexity sits

Holding period determines the rate

Property held beyond twenty-four months is treated as a long-term capital asset; below that, short-term. The distinction matters a great deal:

• Short-term gains are added to your income and taxed at slab rates.
• Long-term gains are taxed at a flat rate, and the indexation benefit that once softened this has been curtailed in recent finance acts.

For a Dholera plot bought as a multi-year infrastructure play you will almost certainly be in long-term territory. That is the better outcome, and it is worth not accidentally triggering short-term treatment by exiting early.

The TDS trap

This is the part that surprises people.

When an NRI sells Indian property, the buyer is legally required to deduct TDS before paying you — and the deduction is applied to the entire sale consideration, not to your gain. The rate is well above what a resident seller would face.

Concretely: sell for ₹1 crore having bought at ₹70 lakh and your actual gain is ₹30 lakh, but TDS is computed against the ₹1 crore. A large share of your proceeds is withheld against a liability that is a fraction of it. You recover the excess — but only by filing a return and waiting, which can mean a year or more with your capital sitting with the Indian exchequer.

The Form 13 route

There is a mechanism for this. A lower or nil deduction certificate, applied for under Form 13, asks the assessing officer to authorise TDS at a rate matching your actual expected liability rather than the default.

It takes time and paperwork, and it needs to be started well before the sale closes rather than after the buyer has already deducted. For a transaction of any size it is usually worth the effort, and it is the single most valuable thing a good CA does for an NRI seller.

Where DTAA fits

India has Double Taxation Avoidance Agreements with most countries where NRIs live — the US, UK, UAE, Canada, Australia, and Singapore among them.

A DTAA does not usually exempt you from Indian tax on Indian property. Income from immovable property is generally taxable in the country where the property sits. What the treaty does is stop the same income being fully taxed twice: your country of residence typically grants a credit for tax already paid in India, or exempts the income.

Two practical consequences:

1. Keep your Indian tax records permanently. Foreign tax credit claims require proof of tax paid in India. Losing the documentation means losing the credit.
2. Your residence country’s rules still apply. A UAE-resident NRI and a US-resident NRI face very different combined outcomes, because one has no personal income tax and the other taxes worldwide income. The Indian side of the calculation is identical; the total is not.

Rental income, if the plot ever becomes a building

Rental income from Indian property is taxable in India for non-residents, with TDS deducted at source by the tenant, and a standard deduction plus interest deductions available against it.

For a bare land holding this is moot — land generates no rental income. Worth remembering when someone models a “rental yield” into a plot pitch.

What to actually do

• Engage a CA experienced with NRI transactions at purchase, not at sale. The decisions that determine your exit position — funding route, documentation, ownership structure — are all made at the start.
• Keep every remittance record permanently. Foreign Inward Remittance Certificates and bank statements are what make both repatriation and foreign tax credits possible years later. See our guide to NRE, NRO, and repatriation.
• Plan the Form 13 application before you list, not after the buyer has deducted.
• Model the exit before you buy, including TDS timing rather than just the tax rate. Capital withheld for a year is a real cost even when it is eventually refunded.

Our NRI guide covers eligibility and remote due diligence, and the investor FAQ answers the specific questions we are asked most often on this.