Selling Property in India: Understanding Capital Gains, Repatriation Rules & Legal Framework for NRIs

When Non-Resident Indians (NRIs) sell property in India, they are liable to pay capital gains tax under Indian law. However, taxation doesn’t end there — the gains may also be subject to tax in their country of residence such as the United States, the United Kingdom, or Singapore. This makes it essential to understand how Indian tax law, international tax treaties (DTAAs), and constitutional safeguards work together.

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1. Statutory Framework Governing Property Sale and Capital Gains

a. Income Tax Act, 1961

The taxation of property sale by NRIs in India is primarily governed by the Income Tax Act, 1961.

• Section 45: Imposes tax on capital gains arising from the transfer of a capital asset.

• Section 48: Provides for indexation of the cost of acquisition to adjust for inflation.

• Section 195: Mandates Tax Deducted at Source (TDS) on payments made to NRIs for property transactions.

• Section 90: Grants relief from double taxation through the Double Taxation Avoidance Agreement (DTAA).

• Section 115E: Provides preferential tax rates for NRIs on long-term capital gains from specified assets.

For example, when an NRI sells a property purchased in 2012 for ₹20 lakh and sells it for ₹1 crore, the indexed cost and long-term capital gains tax at 20% plus 4% cess become applicable under these provisions.

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2. Repatriation Rules under FEMA and RBI Guidelines

Repatriation of sale proceeds by NRIs is regulated under the Foreign Exchange Management Act, 1999 (FEMA) and the RBI’s Master Direction on Remittance of Assets.

• Rule 21(2) of FEMA (Remittance of Assets) Regulations, 2016: Allows NRIs to remit up to USD 1 million per financial year from their NRO account.

• Condition: The property must have been acquired in compliance with FEMA regulations and sale proceeds must be supported by documentary proof of ownership and tax clearance.

• Authorized Dealers (Banks) are required to verify the source of funds, tax payments, and DTAA compliance before approving repatriation.

This makes the process transparent and compliant with both domestic and international financial regulations.

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3. International Tax Treaties (DTAA) and Relief from Double Taxation

India has signed DTAAs with more than 90 countries, including the US, UK, and Singapore, which play a crucial role in eliminating double taxation.

a. India–US DTAA

• Article 6: Allows India to tax income from immovable property located in India.

• Article 25: Provides for a Foreign Tax Credit (FTC) for taxes paid in India, enabling US taxpayers to offset their Indian tax liability.

b. India–UK DTAA

• Provides similar relief through foreign tax credits.

• From April 6, 2025, the UK’s Foreign Income & Gains (FIG) regime will allow new residents a four-year relief on overseas gains.

c. India–Singapore DTAA

• Ensures no double taxation by exempting or crediting foreign tax paid.

• Singapore generally does not tax capital gains, unless the transaction is deemed as trading activity.

These agreements ensure that NRIs are not taxed twice on the same income — in both India and their country of residence.

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4. Judicial Precedents on Taxation and Repatriation

Indian courts have clarified and reinforced NRI taxation principles through several judgments:

• Azadi Bachao Andolan v. Union of India (2003) 263 ITR 706 (SC)
  The Supreme Court upheld the validity of DTAAs, emphasizing that these treaties are designed to prevent double taxation and encourage cross-border investment.

• Vodafone International Holdings B.V. v. Union of India (2012) 341 ITR 1 (SC)
  The Court discussed the principles of taxing cross-border transactions and reinforced the interpretation of “transfer” under Section 2(47) of the Income Tax Act.

• GE India Technology Centre Pvt. Ltd. v. CIT (2010) 327 ITR 456 (SC)
  The Court ruled that TDS obligations under Section 195 apply only when the payment is chargeable to tax in India, which is relevant in NRI property transactions.

• CIT v. Eli Lilly & Co. (India) Pvt. Ltd. (2009) 312 ITR 225 (SC)
  Highlighted the importance of TDS and double taxation relief under DTAAs in cross-border employment and income cases — applicable by extension to NRI asset transactions.

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5. Constitutional and Policy Perspective

The Indian Constitution indirectly safeguards taxpayer rights through:

• Article 265 – “No tax shall be levied or collected except by authority of law.”

• Article 300A – Protects the right to property, ensuring fair procedures before deprivation.

• Article 14 – Ensures equality before law, preventing arbitrary discrimination between resident and non-resident taxpayers.

These principles ensure that taxation and repatriation rules for NRIs comply with due process and fairness in fiscal administration.

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6. Comparative Summary: US, UK, and Singapore

Country	Tax on Repatriated Proceeds	DTAA Relief	Key Compliance Rule
United States	Taxed as part of worldwide income; LTCG ~15% + 3.8% NIIT	India–US DTAA allows FTC	Must report worldwide income
United Kingdom	Worldwide income taxed; FIG relief for 4 years (post-2025)	India–UK DTAA provides FTC	Report after FIG period
Singapore	No tax unless frequent trading	DTAA prevents double taxation	Capital gains tax exempt

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Conclusion: Smart Tax Planning Is Key for NRIs

For NRIs, selling property in India requires not only complying with Indian tax laws but also coordinating with foreign tax rules under DTAAs.
Proper documentation, timely tax filing, and claiming Foreign Tax Credits (FTC) can significantly reduce the effective tax burden.

A proactive understanding of the Income Tax Act, FEMA, and DTAA provisions ensures a smooth, compliant, and tax-efficient repatriation of property sale proceeds.

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