NRIs holding immovable property in India eventually face the sale. The transaction is more complex than a resident sale because of the buyer’s mandatory TDS under Section 195, the FEMA repatriation requirement on the sale proceeds, and the typically large gap between the statutory TDS rate and the seller’s actual tax liability. The four-step sequence below is the workflow we run end-to-end — same desk for the Section 197 certificate, the capital-gains computation, the buyer’s TDS compliance, and the FEMA repatriation.
Step 1: Apply for the Section 197 lower-deduction certificate
The statutory TDS under Section 195 on the sale of immovable property by an NRI is 20% (with surcharge and cess) on long-term capital gains, or 30% on short-term capital gains, computed on the full sale value where the seller’s gain isn’t separately certified.
Apply the rate to a Rs 2 crore sale: TDS at 20% = Rs 40 lakh, withheld by the buyer. The seller’s actual tax liability after applying exemptions and indexed cost might be Rs 10-12 lakh on the same transaction. The default Section 195 over-collects by Rs 28-30 lakh, which becomes a refund 12-18 months after assessment.
The fix is a Section 197 certificate that brings the rate down. The application is filed in Form 13 on the TRACES portal with:
- Computation of actual capital gain (indexed cost basis, sale value, expected gain)
- Computation of tax payable on the gain (with the exemption claims under Section 54 / 54F / 54EC)
- Past three years’ tax records and ITRs
- Draft sale agreement and supporting title documents
- NRI documentation — passport copy, PAN, residential status proof
The certificate is issued by the TDS jurisdictional Assessing Officer at a rate that will collect approximately the actual tax. Timing is critical: the certificate must be in hand before the buyer deducts TDS. Most well-prepared applications get the certificate in 15-45 working days; longer when the AO calls for additional documents.
Our recommendation: start the Section 197 application at the LOI / agreement-to-sell stage, not at the registration stage. Filing later forces the parties to either accept the over-collection or postpone the registration.
Step 2: Capital gains computation with exemption planning
The capital-gains computation involves:
- Sale value — the agreement value, or the stamp-value reference under Section 50C if the stamp value exceeds the agreement value by more than 10%. For NRI sales, the stamp-value comparison is the default starting point.
- Indexed cost of acquisition — original cost or the fair-market-value as on 1 April 2001 (whichever is higher), indexed using the Cost Inflation Index for the year of sale, for property classified as long-term. The Finance Act 2024 introduced a regime choice for LTCG on immovable property — either 12.5% without indexation or 20% with indexation; the choice is at the seller’s option for properties acquired before 23 July 2024.
- Indexed cost of improvement — capital improvements incurred after acquisition, supported by invoices, indexed similarly.
- Expenses on sale — brokerage paid to a registered broker, legal fees, valuation fees and any necessary expenses in connection with the transfer.
The exemption claims:
- Section 54 — reinvest the long-term capital gain in another residential house in India within prescribed time limits (1 year before sale or 2 years after for purchase, 3 years for self-construction). Capped at Rs 10 crore from FY 2023-24. The new property must be held for 3 years to retain the exemption.
- Section 54F — for sale of any long-term asset other than a residential house, reinvest the net consideration (not just the gain) in a residential house in India. The seller should not own more than one residential house at the time of sale.
- Section 54EC — invest the LTCG in specified bonds (NHAI, REC, PFC bonds) within 6 months of sale. Capped at Rs 50 lakh per financial year.
The Section 197 application typically reflects the exemption claim. If the NRI plans to reinvest in 54EC bonds, the certificate is calculated assuming that reinvestment. The actual reinvestment must follow the timeline, supported by the bond allotment letter, before the year-end ITR is filed.
Step 3: Buyer’s TDS compliance under Section 195 / Form 27Q
Once the Section 197 certificate is in hand and the sale closes, the buyer’s compliance kicks in. For sales by NRIs:
- Buyer needs a TAN (not just PAN). If the buyer is an individual without an existing TAN, application for TAN is the first step.
- TDS is deducted at the rate specified in the Section 197 certificate (or at the statutory Section 195 rate if no certificate was obtained).
- TDS is deposited to the credit of the Central Government within 7 days of the end of the month in which deduction was made.
- TDS is reported in the buyer’s quarterly TDS return in Form 27Q (the return for non-resident TDS deductions). The Form 26QB used for resident sales does not apply — this is a common buyer mistake.
- The buyer issues Form 16A (the TDS certificate) to the NRI seller within 15 days of the quarterly return due date.
Many resident buyers, used to the Form 26QB challan-cum-statement for resident sales, file 26QB by mistake. The 26QB is for buyers of resident-owned property. NRI property sales need TAN + 27Q. The mistake is fixable but generates a defective-deduction position for both parties until corrected.
Step 4: FEMA repatriation of sale proceeds
The NRI seller’s sale proceeds need to be deposited in an NRO account (where the immovable property was held for investment) and then repatriated abroad under FEMA. The framework:
- Sale proceeds (after TDS) credit to the seller’s NRO account.
- Repatriation from NRO is permitted up to USD 1 million per financial year, after due tax payment in India.
- Each remittance from NRO requires Form 15CA (declaration by the remitter) and Form 15CB (CA certificate on the tax-paid status).
- Form 15CB confirms that all tax due on the underlying transaction has been paid — usually evidenced by the TDS deducted by the buyer + any additional self-assessment tax paid by the seller.
- The AD bank executing the remittance verifies the 15CA / 15CB on the e-filing portal and processes the SWIFT.
The USD 1 million limit is on the aggregate of remittances from NRO in a financial year, across all sources. A seller with sale proceeds above USD 1 million plans the repatriation across two financial years.
The chronology that works
- Day 0: LOI / agreement to sell. Start Section 197 application.
- Day 15-45: Section 197 certificate received.
- Day 30-60: Sale registration. Buyer obtains TAN (if not already held). Capital-gains computation finalised with exemption plan.
- Day 60-67: Buyer deducts TDS at the Section 197 rate and deposits within 7 days of month-end.
- Day 60-90: NRI completes Section 54EC bond investment (if planned) within 6 months from sale.
- Quarter close: Buyer files Form 27Q with the deduction details.
- 15 days post-return: Buyer issues Form 16A to NRI seller.
- Post-sale: NRI seller plans NRO repatriation with 15CA / 15CB, within the USD 1 million annual cap.
- By 31 July: NRI files the ITR for the year of sale, reporting the gain, claiming exemptions, and reconciling TDS with the actual tax payable.
The common mistakes
Skipping the Section 197 application
Most NRIs skip the certificate, accept the 20% over-collection, and wait for the refund. The refund delay can be 12-24 months and costs the seller significant working capital. The certificate application is straightforward when planned ahead.
Buyer using Form 26QB
26QB is for resident-owned property sales. NRI sales need TAN + 27Q. The mistake creates a position-correction need at both ends.
Treating the sale proceeds as already-repatriated
Sale proceeds first go to the NRO account, not directly abroad. Then repatriated through the USD 1 million window with 15CA / 15CB. NRIs accustomed to selling assets in their home country expect direct overseas credit — the FEMA route doesn’t work that way.
Late Section 54EC bond investment
The 6-month window from the sale date is strict. Many NRIs cross the window because the planning happens after the closure of the sale, not in parallel. The 54EC option is then lost.
Sources
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