Sale of Immovable Property:

Real estate remains one of the most lucrative and preferred investment asset classes for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). However, navigating the legal, structural, and tax landscapes for selling immovable property in India requires strict adherence to regulatory bodies.

With the sweeping implementation of the new Income Tax Act, 2025 (effective from 1 April 2026), along with historic procedural changes introduced in Budget 2026, non-residents must carefully evaluate their statutory liabilities before entering into a transaction. Understanding the practical application of these laws—especially within major real estate hubs like Kolkata and West Bengal—is crucial.

Essentials of Property Sale by an NRI

Under the Transfer of Property Act, 1882, a sale is defined as a transfer of ownership in exchange for a price paid, promised, part-paid, or part-promised. For a valid execution, the following criteria must be fulfilled:

1. Competency of Parties: Both the non-resident seller and the buyer must be legally competent to contract under the Indian Contract Act, 1872.
2. Identifiable Immovable Property: The property must have a clear, unencumbered, and marketable title.
3. Price/Consideration: The exchange value must be explicitly declared and equal to or above the circle rate (stamp duty value) fixed by the local government authorities.

FEMA Rules & Overview of Property Acquisition and Transfer

The Foreign Exchange Management Act (FEMA), 1999 governs what types of properties a non-resident can hold, sell, or transfer in India.

• Permitted Properties: An NRI or OCI can freely sell commercial or residential properties to a resident Indian, another NRI, or an OCI.
• Prohibited Properties (Agricultural Land, Farmhouses, and Plantation Properties): Non-residents cannot sell agricultural land, farmhouses, or plantation properties to foreign citizens or other NRIs. These specific asset classes can only be sold or gifted to a person resident in India who is also a citizen of India.

Methods of Transfer:

• Transfer by Sale: Can be executed with residents or non-residents (subject to asset class restrictions).
• Transfer by Gift: Residential or commercial properties can be gifted to a resident Indian or an NRI/OCI. Agricultural land can only be gifted to a resident Indian citizen.
• Transfer through Mortgage: An NRI can mortgage property to an authorised dealer or an Indian housing finance institution without prior permission from the Reserve Bank of India (RBI). However, mortgaging property to a party living abroad requires explicit, prior RBI approval.

Taxation and TDS Updates for 2026

The tax framework for NRI property transactions has seen drastic changes over the past year. Transactions are now governed under Section 393(2) of the Income Tax Act, 2025 (which succeeds Section 195 of the old 1961 Act).

1. New Capital Gains Tax Rates (Post-Finance Act Update)

The calculation of capital gains no longer benefits from inflation indexation for non-residents:

• Long-Term Capital Gains (LTCG): If the property is held for more than 24 months, it qualifies as a long-term asset. The gains are taxed at a flat rate of 12.5% without indexation benefits.
• Short-Term Capital Gains (STCG): If held for 24 months or less, the gains are taxed at the progressive slab rates applicable to the NRI (up to 30% plus surcharge and cess).

2. High Default TDS & The Buyer’s Liability

Unlike a transaction with a resident seller (where TDS is a flat 1% under Section 393(1) for properties above ₹50 Lakhs), transactions with NRI sellers have no minimum threshold. TDS must be deducted on every rupee of the total sale consideration, not just the capital gains.

• Effective LTCG TDS Rate: 12.5% base + applicable surcharge and 4% health & education cess (effectively ranging between 13% to 14.95%).
• Effective STCG TDS Rate: 30% base + surcharge and cess.

3. Landmark Budget 2026 Procedural Ease (PAN-Based TDS)

• Before 1 October 2026: Resident buyers purchasing property from an NRI must mandatorily possess a Tax Deduction and Collection Account Number (TAN) and file quarterly via Form 27Q.
• From 1 October 2026 Onwards: Budget 2026 has amended the provisions to enable a PAN-based TDS deduction and deposit system for individual buyers. This eliminates the bureaucratic hurdle of obtaining a TAN, mirroring the easier 1% resident TDS process.

4. Mitigating Excess TDS: The Lower TDS Certificate

To prevent massive liquidity blockages where the buyer deducts 13–14.95% on the entire sale price, NRI sellers should apply for a Lower or Nil TDS Certificate. Under the Income Tax Act, 2025, this is done by filing Form 128 (replacing the old Form 13) on the TRACES portal before executing the sale deed. The Assessing Officer computes the actual taxable capital gains and issues a certificate directing the buyer to deduct tax only on the net profit or at a significantly lower rate.

Landmark Case Laws Shaping NRI Property Sales

To secure a dispute-free transaction, parties must align with key judicial precedents established by the High Courts and Tribunals:

1. Liability of the Buyer for Correct TDS Calculation

• Case Law: M/s. Star India Pvt. Ltd. v. Tax Recovery Officer * Principle: The courts have consistently held that the primary onus of determining the correct residential status of the seller and deducting appropriate TDS rests solely on the buyer. Contractual clauses stating “the seller will bear all tax liabilities” do not absolve the buyer from recovery penalties or interest charges under the Income Tax Act if they default on Section 393(2)/Section 195 provisions.

2. Granting Lower TDS Certificates Swiftly

• Case Law: Rajesh Kumar v. Income Tax Officer (International Taxation) * Principle: In matters concerning the delay of issuing Lower TDS Certificates, the courts have ruled that the Income Tax Department cannot indefinitely sit on applications filed via the electronic portal. Assessing Officers are under a statutory obligation to process applications within 30 to 45 days, ensuring the non-resident’s right to execute transactions without arbitrary cash-flow blockages.

3. Interplay of Section 54 Exemptions and TDS Certificates

• Case Law: Mrs. Geetha Kulkarni v. Income Tax Officer (and reaffirmed in recent international tax bench rulings)
• Principle: When an NRI intends to reinvest their sale proceeds into another residential house in India to claim tax exemptions under Section 54 or Section 54F, the Assessing Officer must take this reinvestment into account while evaluating the Lower TDS Certificate application. The department cannot force an NRI to pay full TDS at source and claim it later as a refund if the capital gains are lawfully exempt through reinvestment.

Step-by-Step Checklist for an NRI Selling Property in India

1. Verify Title & Mutation Documents: Ensure the property title is clear. In West Bengal, ensure the record-of-rights (Khatian) and Kolkata Municipal Corporation (KMC) mutation records reflect the non-resident’s name accurately.
2. Apply for a Valid PAN: Ensure your Indian PAN card is active and linked. Without a valid PAN, the buyer is legally forced to deduct a punitive default TDS of 20% or higher.
3. Execute a Registered Sale Agreement: Draw up an agreement for sale detailing the total commercial consideration, payment schedules, and clauses explicitly outlining the TDS deduction path.
4. File Form 128 for Lower TDS Certificate: File the application along with the property acquisition deeds, a detailed capital gains computation sheet, and the signed sale agreement to obtain relief from high default withholding tax.
5. Receive Remittance into an NRO Account: The buyer must deposit the funds directly into the NRI’s Non-Resident Ordinary (NRO) bank account.
6. Repatriation (USD 1 Million Scheme): To move the funds to your country of foreign residence, submit Form 15CA (online self-declaration) and Form 15CB (a certificate signed by a Chartered Accountant carrying a valid UDIN) to your bank. Under the RBI’s Liberalised Remittance Scheme (LRS), an NRI can repatriate up to USD 1 million per financial year out of their NRO account balances.

Conclusion:

It can be understood from the above explanation that NRI can sell or acquire immovable properties in India with certain limitations. NRI property lawyer in West Bengal can guide you through the documentation to effectively sell your property. The conditions to acquire or sell or transfer property to any individual in India are mentioned above. So, it is better to consult with any legal advisor before acquiring or selling or transferring any immovable property in India. For further help with property sale by NRI in West Bengal and Kolkata, consult one of the best property lawyers in West Bengal here.