NRI Selling Property in Bangalore: TDS, LDC, Repatriation Explained

An NRI selling a Bangalore flat makes two simultaneous decisions — one about property law, one about tax and foreign exchange. The property side is familiar territory: title, stamp duty, registration, Khata. The tax and FEMA side catches most sellers off guard. The buyer's lawyer will flag the TDS requirement. The NRI's bank will refuse to remit proceeds without the right certificates. The income tax department may query the computation years later.

This post addresses the tax and FEMA framework, not the property-law procedure. A registered sale deed, Khata transfer, and EC update are still required — the property side remains unchanged.

Who counts as an NRI for these purposes

The Income Tax Act and FEMA use different definitions, and both apply here. Under the Income Tax Act, an individual is a non-resident if they have been outside India for 182 days or more in the financial year, or meet the alternative 60/365-day test in Section 6. Under FEMA, an NRI is a person resident outside India as defined in Section 2(w). For property transactions, the relevant test is the FEMA definition — since it governs the foreign-exchange side — but tax residency determines which TDS rate applies.

TDS under Section 195 — the buyer's obligation

Where the seller is an NRI, the buyer is required under Section 195 of the Income Tax Act to deduct tax at source on the entire sale consideration — not on capital gains, but on the full amount. This is the most common misunderstanding: the deduction is not computed only on profit.

The applicable rates, as a general framework: Long-term capital gains (property held for more than 24 months) attract tax at approximately 12.5 percent as the base rate after the Finance Act 2024 amendment, plus applicable surcharge and cess. Short-term capital gains (property held for 24 months or less) are taxed at the seller's applicable income tax slab rate, which can be 30 percent at higher income levels, plus surcharge and cess. These rates are confirmed in the current Finance Act and may be revised in subsequent budgets — verify at the time of sale. The buyer must obtain a TAN, deduct at the applicable rate, deposit the deducted amount to the government using challan 281, and issue Form 16A to the seller.

The Lower Deduction Certificate — Section 197

Where the NRI seller's actual capital gains are lower than the TDS on the full consideration would suggest — because of indexation benefit, reinvestment exemptions, or the cost of acquisition — Section 197 of the Income Tax Act allows the seller to apply to the jurisdictional Assessing Officer for a certificate of lower or nil deduction.

The seller files an application in Form 13 supported by a computation of estimated capital gains, the registered sale deed, proof of cost of acquisition, and ITRs for preceding years. The Assessing Officer reviews the computation and, if satisfied, issues an LDC specifying the rate at which TDS should be deducted. The buyer deducts at the LDC rate rather than the standard rate, which significantly reduces the seller's locked-up capital during the period between sale and ITR refund. Applications typically take several weeks to process — the LDC must be obtained before the sale deed is registered, not after.

Capital gains computation — indexation and inheritance

Long-term capital gains for an NRI are computed as the difference between the sale consideration and the indexed cost of acquisition. The cost inflation index (CII), published annually by the Central Board of Direct Taxes, is applied to the original purchase price to arrive at the indexed cost. The Finance Act 2024 amended the indexation framework for certain asset classes — confirm with a tax adviser which method applies to your specific property and acquisition date.

For inherited property, the cost of acquisition is the original cost to the previous owner (or the fair market value as of April 1, 2001, whichever is higher), and the holding period runs from when the previous owner first held it. Inherited properties held for decades often have a very low indexed cost, resulting in large taxable gains — making the Section 197 LDC particularly valuable.

Reinvestment exemptions under Sections 54, 54EC and 54F

• Section 54: gains from sale of a residential property are exempt to the extent reinvested in one residential house property in India within two years (or constructed within three years). The new property must be in India. NRIs frequently overlook this option.
• Section 54EC: gains up to ₹50 lakh are exempt if invested in specified bonds of NHAI or REC within six months of sale. The bonds have a five-year lock-in.
• Section 54F: gains from sale of a long-term capital asset other than a house are exempt if the net consideration is reinvested in a residential house — relevant where the NRI is selling a commercial property or plot.

FEMA and repatriation of sale proceeds

An NRI can repatriate sale proceeds of residential or commercial property subject to two key conditions. The property must have been acquired in compliance with FEMA — meaning funded through an NRE, FCNR, or NRO account, or through inward remittance. Proceeds of sale of up to two residential properties can be repatriated freely within the USD 1 million per financial year limit available through the NRO account route.

Where the property was originally purchased using NRE or FCNR funds, the original cost equivalent in foreign currency can be repatriated. Gains are credited to the NRO account and repatriated subject to the USD 1 million annual cap and applicable taxes. The authorised dealer bank will require Form 15CA (self-declaration by remitter) and Form 15CB (certificate from a Chartered Accountant confirming the tax position) before processing the remittance.

Documents the buyer's lawyer will require

• PAN of the NRI seller — mandatory for TDS deduction
• Tax residency certificate where the seller claims treaty benefit
• LDC under Section 197, if obtained
• Proof of the original acquisition — sale deed, remittance records, NRE/FCNR account statements
• OCI card or passport confirming NRI status
• Bank account details for TDS challan and for receiving consideration