NRI Selling Indian Property to Buy a Bigger Home: How Capital Gains Tax Works

Moneycontrol.com has reported on the capital gains tax rules for NRIs who sell a home in India. The same rules matter when the money goes into a bigger home.

You may cut or even erase the tax on your profit. For that, you must reinvest the gain in a new home on time. Plan before you sign the sale.

Key takeaways

• Tax is charged on your profit, not on the full sale price.
• Selling after 24 months counts as long-term, which has a lower tax rate.
• Putting the gain into a new house can reduce or remove the tax.
• The buyer may cut tax at source, so ask for the right certificate early.
• Rules can change in the Budget, so check them before you sell.

How capital gains tax works on a property sale

Capital gain is your sale price minus your cost. Your cost includes what you paid, plus big repair or improvement bills. Selling costs, like brokerage, can also be subtracted.

If you held the property for more than 24 months, the gain is long-term. Long-term gains on property are currently taxed at 12.5%, with no inflation adjustment. Surcharge and cess are added on top. If you sell sooner, the gain is short-term. It's taxed at the normal rate for your income.

Section 54 of the Income Tax Act helps here. It lets you save tax by buying a new residential house in India. You can buy it one year before the sale or two years after. You can also build one within three years. You must keep the new house for at least three years.

What it means in rupees

Say you bought a flat for ₹1.2 crore and sold it for ₹2 crore. Your gain is ₹80 lakh. Here's how reinvesting changes the tax. These are rough numbers, before surcharge and cess.

Gain put into new house	Taxable gain	Tax at 12.5%
₹0	₹80 lakh	₹10 lakh
₹30 lakh	₹50 lakh	₹6.25 lakh
₹50 lakh	₹30 lakh	₹3.75 lakh
₹80 lakh or more	Nil	Nil

Only the gain needs to go into the new home. A bigger home costing ₹3 crore clears that easily. Your new home may need a loan. Use the EMI calculator to see what monthly payment you can handle. Our home loan guides explain how the loan works.

Who is affected

This matters to any NRI selling a flat or house in India. It matters most if the gain is large and you plan to buy again here.

Section 54 applies to gains from a house. For a plot, Section 54F asks you to invest the full sale amount. Some gains from land or buildings can also go into special bonds, with a limit of ₹50 lakh. Ask your tax adviser which section fits your sale.

When an NRI sells property, the buyer must deduct tax at source. This can be on the whole sale price, not just your gain. A lower-deduction certificate from the tax office can fix this.

What to do now

If you're thinking of selling, follow these steps.

1. Check how long you've held the property. The 24-month mark decides long-term or short-term.
2. Work out your gain using your papers: purchase deed, repair bills and brokerage receipts.
3. Apply for a lower-deduction certificate before the sale, if you can.
4. Choose your new home and note the deadlines. Keep the dates in your calendar.
5. If you haven't bought by your tax return date, ask about the capital gains account scheme.
6. Talk to a chartered accountant before you sign. Rules and rates can change.

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Frequently asked questions

Do I pay tax if I sell my house in India as an NRI?

Yes, if you make a profit. The rate depends on how long you held the property. Reinvesting the gain in a new house can reduce or remove the tax.

Does the new home have to be bigger?

No. The size doesn't matter. What matters is the type of home. It must be residential and in India. It must also cost at least as much as the gain you want to protect.

What if I sell the new house soon after buying it?

If you sell within three years, the tax break can be taken back. The earlier gain then becomes taxable again. Plan to hold the new home for at least three years.