1. Determining Residential Status under Section 6
Under Section 6 of the Indian Income-tax Act, 1961, tax liability is driven strictly by physical presence and residential status, not by nationality or citizenship. An individual is classified as a Resident or Non-Resident (NRI) based on the number of days spent in India during the relevant financial year (April 1 to March 31) and preceding years.
2. TDS on Property Sales by NRIs (Section 195)
When an Indian resident sells immovable property, the buyer deducts TDS at 1% under Section 194-IA if the sale consideration exceeds ₹50 lakhs. However, when the seller is a Non-Resident Indian (NRI) or Overseas Citizen of India (OCI), Section 195 applies.
Under Section 195, the buyer is legally obligated to deduct tax at 20% (plus applicable surcharge and 4% cess, often pushing the effective deduction rate to between 20.8% and 23.92%) on the total gross sale value, rather than on the actual capital gain alone. This can trap significant capital until an income tax return is processed.
3. Securing Lower TDS Certificates (Form 13)
To prevent excessive tax deduction on gross value, NRIs can file an online application under Section 197 in Form 13 on the TRACES portal before finalizing the sale deed. The Assessing Officer computes the actual anticipated capital gain (factoring in indexed cost of acquisition and planned reinvestments) and issues a Lower/Nil Deduction Certificate. The buyer then deducts tax only at the lower rate authorized in the certificate.
5. Repatriating Funds via Form 15CA and Form 15CB
Under the Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) regulations, an NRI is permitted to repatriate up to USD 1,000,000 per financial year from their Non-Resident Ordinary (NRO) account to an overseas bank account or NRE account.
The repatriation process mandates obtaining a certificate from a Chartered Accountant in Form 15CB verifying that all applicable taxes on the funds have been settled, followed by the electronic filing of Form 15CA on the Income Tax e-filing portal before presenting the transfer request to the authorized dealer bank.
Frequently Asked Questions
Can an NRI claim capital gains exemption under Section 54 by purchasing property abroad?
No. Capital gains exemption under Section 54 and Section 54F applies exclusively to investments made in residential house property located within India.
How far in advance should an NRI apply for a Form 13 certificate?
Applications should be initiated at least 4 to 6 weeks prior to the scheduled date of property sale deed registration.
This publication provides general educational information and analysis. It does not constitute formal tax or legal counsel. For specific case evaluation, consultation with an authorized tax professional is recommended.