For Non-Resident Indians (NRIs), selling property in India or exploring new investment models like fractional ownership often comes with questions about taxes, TDS, repatriation, and compliance. This blog answers the most pressing concerns in a structured format, helping NRIs make informed decisions.
What is TDS on Property Sale by NRIs?
When an NRI sells immovable property in India, the buyer is legally required to deduct Tax Deducted at Source (TDS) and deposit it with the government. This ensures compliance with Indian tax laws and prevents revenue leakage.
Unlike residents, where TDS is deducted at 1%, for NRIs the TDS depends on whether the gain is long-term or short-term.
How are TDS Rates Calculated?
- Long-Term Capital Gains (LTCG): If the property is held for more than 24 months, the gain is considered long-term. The TDS rate is 20% plus surcharge and cess. Effective rates range from 20.80% to 23.92%, depending on the income bracket.
- Short-Term Capital Gains (STCG): If sold within 24 months, the gain is added to the NRI’s taxable income in India and taxed as per the applicable slab rate, which could go as high as 30% plus surcharge and cess.
This means that without proper planning, NRIs may face significant tax outgo.
Can NRIs Reduce the TDS Burden?
Yes. NRIs can apply for a Lower Tax Deduction Certificate (LDC) from the Income Tax Department by submitting Form 13 on the TRACES portal.
- If granted, the buyer deducts TDS at the lower rate approved instead of the standard 20–30%.
- Without this certificate, TDS is deducted on the entire sale consideration, not just the profit, leading to cash flow challenges.
How is Capital Gain on Sale of Property Calculated?
The formula for capital gains is:
Sale Price – (Indexed Cost of Acquisition + Cost of Improvements + Sale Expenses)
- If the property was purchased before April 1, 2001, the seller can choose the Fair Market Value (FMV) as of that date.
- Indexation benefits apply to long-term gains, reducing the taxable amount by adjusting for inflation.
Are There Any Exemptions Available on LTCG?
Yes. Under Section 54 of the Income Tax Act, NRIs can claim exemption from LTCG by:
- Reinvesting in a residential property in India within two years of sale (or constructing one within three years).
- Investing in notified bonds (Section 54EC) like NHAI or REC within six months of sale.
This helps in significantly reducing the tax liability.
How Much of the Sale Proceeds Can Be Repatriated?
NRIs can repatriate up to USD 1 million per financial year from their NRO account, provided:
- Taxes are duly paid.
- The property was acquired as per FEMA guidelines.
- Documentation like Form 15CA/15CB is furnished.
If repatriation needs exceed this limit, RBI approval is mandatory.
What Is Fractional Ownership in Real Estate?
Fractional ownership is a modern investment model where multiple investors pool money to own a share of high-value property like office spaces, retail hubs, or luxury homes.
Instead of buying an entire property, investors purchase fractions (usually via an SPV or LLP structure). This allows participation in premium real estate assets starting at investments as low as ₹10–25 lakh.
What Are the Tax Implications of Fractional Ownership?
For NRIs and domestic investors, taxation is similar to direct ownership:
- Rental Income: Taxed under the head “Income from House Property.” A standard 30% deduction is allowed for maintenance.
- Capital Gains: On selling your fractional share, gains are taxed as LTCG or STCG depending on holding period.
- Depreciation Benefits: Available if structured under LLPs or SPVs.
- TDS: Rental distributions may attract TDS, especially for NRIs.
What Are the Benefits of Fractional Ownership?
- Affordability: Invest in Grade-A commercial spaces or luxury assets with lower capital.
- Diversification: Spread risk across multiple properties or asset classes.
- Stable Returns: Earn regular rental income in proportion to your share.
- Exit Flexibility: Many platforms now offer secondary marketplaces for reselling fractional shares.
- Regulatory Backing: With SEBI introducing SM-REITs (Small & Medium Real Estate Investment Trusts) in 2023–24, the sector is becoming more transparent and investor-friendly.
Should NRIs Consider Fractional Ownership After Selling Property?
Yes. Here’s how both strategies can be combined:
- Sell Property: Optimize taxes through exemptions, LDC applications, and careful repatriation planning.
- Reinvest Smartly: Instead of buying another property outright, deploy part of the capital in fractional ownership. This ensures exposure to premium, income-generating assets while maintaining liquidity.
This hybrid approach offers tax optimization, portfolio diversification, and steady returns.
Key Takeaways
- TDS for NRIs is higher than for residents: 20% on LTCG, slab rates on STCG.
- Always apply for a Lower Deduction Certificate to avoid excessive TDS.
- Reinvest under Section 54 or 54EC to save on LTCG tax.
- Repatriation is capped at USD 1 million per year unless RBI approval is obtained.
- Fractional ownership is a rising trend, offering affordability, diversification, and SEBI-regulated structures.
Conclusion
For NRIs, selling property in India involves navigating TDS, capital gains, and repatriation rules. With proper planning, tax liabilities can be reduced significantly. At the same time, emerging opportunities like fractional ownership in real estate are reshaping investment strategies, making it easier for NRIs to diversify and earn consistent returns.
By combining traditional property sale strategies with innovative models like fractional ownership, NRIs can maximize tax efficiency, repatriate smoothly, and build a diversified real estate portfolio in India.