Tax considerations when selling inherited property in India as an NRI

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Selling inherited property in India as a Non-Resident Indian triggers a specific set of tax obligations that differ from a regular sale. The key issues are determining the correct cost of acquisition for capital gains, applying the appropriate indexation benefit, deducting TDS at the NRI rate, and ensuring the sale proceeds can be repatriated within RBI limits. This guide walks through each step so you can plan the transaction, stay compliant, and avoid last-minute surprises.

The rules apply to any NRI, OCI cardholder, or foreign citizen of Indian origin who inherits residential, commercial, or agricultural land in India. We cover how to compute long-term or short-term capital gains, the documents the buyer needs for TDS compliance, the repatriation ceiling under FEMA, and the paperwork the Assessing Officer may ask for during scrutiny. Practical checklists and common pitfalls are included so you can hand a clean file to your chartered accountant.

How the conversation usually starts

Rohan: Veda, I just got a WhatsApp from my cousin in Mumbai. Dad’s old flat in Andheri is finally selling. I’m an NRI in Dubai. What’s the tax hit?

Veda: First, breathe. Inherited property gets a step-up in cost to the fair market value on the date of inheritance. If Dad passed away in 2018, that 2018 value becomes your purchase price. Since you’ve held it more than 24 months, it’s long-term capital gains at 20% with indexation.

Rohan: Indexation? That’s the inflation adjustment thing, right?

Veda: Exactly. You multiply the 2018 cost by the Cost Inflation Index of the sale year divided by the CII of 2018-19. That inflated cost reduces your taxable gain. The buyer deducts TDS at 20% plus surcharge and cess on the full sale value, not just the gain. You claim credit when you file your India return.

Step-by-step computation

1. Establish the cost of acquisition

Rohan: How do I prove the 2018 value?

Veda: Get a registered valuer’s report dated close to the date of death. If you already have a probate or succession certificate that states a value, that works too. Keep the will, death certificate, and the valuer’s report in your file.

2. Apply indexation

Rohan: Where do I find the CII numbers?

Veda: The Income Tax Department notifies them every year. For FY 2024-25, CII is 363. For FY 2018-19 it was 280. So your indexed cost = 2018 value × 363 ÷ 280.

3. Deduct allowable expenses

Rohan: Brokerage, legal fees, stamp duty on the sale deed?

Veda: Yes, all costs wholly and exclusively for the sale. Keep proper invoices and bank statements showing payment from your NRO account.

4. Compute LTCG

Rohan: Sale value minus indexed cost minus expenses = taxable LTCG. Tax at 20% plus surcharge plus 4% cess.

Veda: Correct. If your total income including this gain exceeds ₹50 lakh, surcharge kicks in. File ITR-2 as an NRI.

TDS and the buyer’s responsibility

Rohan: The buyer is a resident. He says he’ll deduct 1% TDS like a normal sale.

Veda: Stop him. For NRI sellers, Section 195 requires TDS at 20% (plus surcharge/cess) on the full sale consideration. The buyer must have a TAN, deposit the tax, and issue Form 16A. If he deducts only 1%, you’ll get a notice later.

Rohan: Can I get a lower deduction certificate?

Veda: Yes, apply in Form 13 to your Assessing Officer before the sale. If the AO agrees your actual tax liability is lower, they issue a certificate under Section 197. The buyer then deducts at that lower rate. Do this early; it takes weeks.

Repatriation of sale proceeds

Rohan: I want the money in my Dubai account.

Veda: You can repatriate up to USD 1 million per financial year from your NRO account after paying taxes, subject to FEMA rules. You’ll need a Chartered Accountant’s certificate in Form 15CB and an undertaking in Form 15CA. The bank will also ask for the sale deed, TDS challans, and proof the property was inherited.

Rohan: What if the sale value is more than USD 1 million?

Veda: The excess stays in your NRO account. You can repatriate the balance in subsequent years, still within the annual USD 1 million limit. Alternatively, you can invest the surplus in permitted Indian assets.

Documents checklist

• Registered will or succession certificate
• Death certificate of the deceased
• Valuation report as on date of inheritance
• Original purchase deed of the deceased (if available)
• Sale agreement and sale deed
• Buyer’s TAN and Form 16A
• TDS challans (Form 26QB for resident buyer, Form 27Q for NRI buyer)
• Form 15CA and 15CB for repatriation
• Bank statements showing sale proceeds credited to NRO account
• Indexation calculation worksheet

Common pitfalls

• Using the original purchase price instead of the inherited FMV — inflates gains unnecessarily
• Forgetting to apply for a lower deduction certificate when actual tax is below 20%
• Letting the buyer deduct TDS at 1% under Section 194-IA instead of 20% under Section 195
• Missing the USD 1 million repatriation cap and parking excess funds idle in NRO
• Not filing India ITR because “TDS is already deducted” — you must file to claim refund or carry forward losses

FAQ

Is agricultural land inherited by an NRI taxable on sale?

Yes, if the land is not classified as rural agricultural land under Section 2(14). Urban agricultural land is a capital asset. Rural agricultural land is exempt. Check the location against the municipal limit and population criteria.

Can I reinvest in a new residential property to save tax?

Section 54 exemption is available if you purchase one residential house in India within one year before or two years after the sale, or construct within three years. The new property must be held for three years. As an NRI, you can claim this exemption.

What if the property was inherited before 2001?

You may use the fair market value as on 1 April 2001 as the deemed cost of acquisition, provided it is higher than the actual cost to the previous owner. A valuer’s report for 1 April 2001 is required.

References

• Income Tax Department — Capital Gains and TDS for Non-Residents: https://www.incometax.gov.in/iec/foportal/
• Reserve Bank of India — Repatriation of Sale Proceeds of Immovable Property: https://www.rbi.org.in/

Disclaimer: This article is for general educational purposes only and does not constitute tax, legal, or investment advice. Tax laws change frequently and individual circumstances vary. Consult a qualified Chartered Accountant or tax adviser before making any decisions. Verify current rates, thresholds, and procedures at the official sources linked above.