NRI Property Rules

The money side has two hard rules. Payment “has to be received in India through banking channels”. Foreign currency notes and travellers’ cheques are not acceptable. And when you sell, you may send home the proceeds of only two homes.

What can an NRI or OCI buy, and what is off limits?

Citizenship changes the answer for some buyers. RBI’s FAQ names eleven countries whose citizens face extra restrictions and need RBI permission. They are Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong and North Korea. Holding OCI status removes that restriction.

The inheritance route is the one that surprises people. You cannot buy agricultural land. You can inherit it. So a family farm can pass to an NRI heir. That same heir could never have bought it. What you may then do with it is a state-law question. Not an RBI one.

How much money can you take back out of India?

Two separate limits apply and people confuse them constantly. The first is the two-property cap. RBI’s FAQ states that repatriation of sale proceeds is restricted to no more than two residential properties. Sell a third and that money stays in India, in your NRO account.

The second is the annual NRO remittance ceiling of one million US dollars. It covers balances in an NRO account, including inherited assets and sale proceeds. Both limits are live at the same time. Clearing the two-property test does not clear the annual ceiling. Nor the other way round.

There is also a condition on how the property was bought in the first place. Repatriation is allowed where the property was acquired under foreign exchange law. The purchase must have been funded through banking channels or an FCNR(B) account. A property bought with rupee funds sits under the NRO route instead. Our page on NRE and NRO accounts explains which account your money lands in and why it matters here.

Why does the buyer deduct TDS from your sale price?

This is the part that catches every NRI seller. The mechanics are harsh. When a resident sells, the buyer deducts 1% under section 194-IA. That applies only above a ₹50,00,000 price. When a non-resident sells, that section does not apply. The buyer deducts under section 195 instead.

Two things change. There is no threshold, so a small sale is caught too. And the cut is worked out on the sale price, not on your gain. A certificate can change that. Say you bought years ago and are selling at a modest profit. The tax withheld can then far exceed the tax you owe.

The rate itself has moved, and a lot of buyers have not noticed. Long-term capital gains are now taxed at 12.5% without indexation. CBDT confirmed the change in its own FAQ on the 2024 capital gains overhaul. Older guidance across the internet still says 20% for long-term gains. A buyer who deducts on that basis holds back your money for a year.

Surcharge and cess sit on top of the base rate. Surcharge steps up with income, from 10% above ₹50,00,000 to 37% at the top band. Health and education cess is 4%. Some categories of capital gains carry a surcharge cap. Get the exact figure confirmed before you accept a deduction.

How do you stop the buyer over-deducting?

Apply for a lower or nil deduction certificate under section 197 before the sale completes. The assessing officer looks at your expected gain and allows a smaller cut. It is the most valuable thing an NRI seller can do. It is routinely skipped, because it takes time.

Skip it and the money is not lost, but it is gone for a while. You get the excess back by filing an Indian return and claiming a refund. That lands well after the assessment year ends. On a large sale that is a serious sum sitting with the government. It earns you nothing, at the exact moment you wanted it abroad.

Two practical points follow. The buyer needs a TAN to deduct under section 195. Many individual buyers do not have one. You will also need Form 15CA and a chartered accountant’s Form 15CB. Your bank wants both before it sends the money out. Start both processes early. Neither is quick, and the sale will not wait for them.

What tax do you actually owe on the gain?

The same capital gains rules that apply to a resident. Immovable property is long-term after 24 months. Long-term gains are taxed at 12.5% without indexation. Property bought before 23 July 2024 has an optional 20% with indexation route. Short-term gains are taxed at slab rates.

The rollover exemptions are also open to you, with conditions. Put the gain into a house in India, or into specified bonds, and the charge can fall or vanish. Read capital gains exemptions for what each route requires. See capital gains on property for the sum itself.

Rental income is a separate matter and is often mishandled. Rent from Indian property is Indian-source income and taxable here. The tenant must deduct tax when paying a non-resident landlord. Filing an Indian return is not optional just because you file abroad. Double taxation relief works through the treaty, and it works only if you file.

Should an NRI buy property in India at all?

Only for a reason other than return. The honest case for buying is simple. You will live in it, or a parent will, or you want a base you control. Those are good reasons.

The case against is paperwork, and it is heavier than the brochures suggest. You will manage a tenant from another time zone. You will handle possession delays and society disputes by email. The TDS rules above turn every exit into a project. And the two-property cap means the money may not come out as easily as it went in. Before financing one, read NRI home loans and the hidden costs of buying. Transaction costs are what decide whether this works.