Buying or selling property in India can be far more complicated for NRIs than for resident Indians. Beyond finding the right buyer or negotiating the right price lies a maze of tax rules, FEMA regulations, repatriation limits and documentation requirements.
A wrong choice of bank account, a missed TDS deduction or an improperly executed power of attorney can delay transactions, lock up money for months or even invite penalties.
Here are the key issues experts say NRIs should keep in mind.
Currency reality
If you earn in US dollars, converting that income into Indian rupees can make Indian property appear more affordable because of the rupee's long-term depreciation. Similarly, when you sell the property, the gains in rupee terms may look impressive. However, what really matters is the return in the currency in which you ultimately intend to spend or hold your wealth.
Sidhant Agarwal, chartered accountant and co-founder of India for NRI, illustrated this with an example. Suppose an NRI invested ₹22.6 crore in a premium property between 2015 and 2020 and sold it today for ₹60 crore. On paper, the investment appears to have nearly tripled, generating a gain of about ₹54.4 crore after costs. But when adjusted for currency movements, the picture changes considerably.
"The currency-adjusted internal rate of return (IRR) works out to about 10.7% in rupee terms but only around 6.5% in US dollar terms over 11 years. That's broadly in line with what a simple global index fund could have delivered, without the construction risk, illiquidity and compliance burden that comes with owning property," he said.
The tax impact comes on top of this.
"Indian capital gains tax is calculated entirely in rupees using the property's purchase and sale value. It does not compensate investors for the loss in value caused by currency depreciation, unlike the treatment available for certain financial instruments," said Agarwal.
That said, the comparison is relevant only for NRIs who ultimately intend to use their wealth in US dollars. If you plan to spend or reinvest the proceeds in India, rupee returns are what matter.
Agarwal also cautioned against using cash if you intend to repatriate funds later. CA certification is mandatory for repatriation and requires documentary proof of the source of funds.
Account matters
The choice between an NRE/FCNR account and an NRO account can significantly influence how easily sale proceeds can be repatriated later.
If the property is purchased using funds from a Non-Resident External (NRE) account or a Foreign Currency Non-Resident (FCNR) account, the original investment can generally be repatriated in full upon sale. However, for residential properties, this benefit is available only for up to two properties, after which the $1 million annual repatriation limit applies. Commercial properties are not subject to this restriction.
If the property is purchased using funds from a Non-Resident Ordinary (NRO) account, repatriation is capped at $1 million per financial year regardless of the number of properties sold. Any amount above this requires prior RBI approval through the authorised dealer bank.
However, Agarwal said many NRIs misunderstand what the funding source actually achieves.
"The funding source only protects the principal's speed of exit. Any appreciation, which is usually the point of the investment, still falls within the $1 million annual repatriation limit either way," he said.
Where the sale proceeds are credited is equally important.
Under FEMA rules, the sale proceeds from an Indian property must be credited to the seller's NRO account from the buyer's bank account.
"If both the buyer and the seller are NRIs, they cannot settle the property transaction directly through their NRE or any foreign bank accounts. Doing so would violate FEMA rules and could attract significant penalties," said CA Ajay R. Vaswani of ARAS and Company.
TDS pitfalls
TDS compliance is the buyer's responsibility, but sellers have a strong interest in ensuring it is done correctly.
If the seller is a resident Indian, the buyer deducts 1% TDS (for properties above ₹50 lakh), subject to applicable conditions. If the seller is an NRI, the buyer must deduct TDS at 12.5% (plus applicable surcharge and cess) under the new capital gains regime for long-term gains.
Failure to deduct TDS attracts interest of 1% per month (or part thereof) from the due date until deduction. If deducted but not deposited, interest of 1.5% per month applies until payment.
"The seller should ensure that the buyer deducts the applicable TDS. If the TDS is not deducted, the seller may not receive credit for it while filing the income tax return. The seller may also have to pay self-assessment tax, along with interest, as the tax department could treat the shortfall as a failure to pay advance tax," Vaswani said.
If the actual capital gains tax liability is lower than the applicable TDS, the seller should apply for a lower or nil deduction certificate before the sale deed is executed. This reduces the tax deducted upfront and avoids waiting months for a refund.
NRIs earning rental income should also remember that tenants are required to deduct TDS at 30% plus applicable surcharge and cess before paying rent.
Beyond sale deeds
Many families unnecessarily execute sale deeds while transferring property among close relatives.
Agarwal recalled a case where a son transferred property to his mother through a sale agreement, resulting in avoidable stamp duty.
"We routinely meet NRIs who paid full stamp duty and transaction costs on a property transfer to their own sibling or child when the situation didn't call for a sale at all. Gift deeds, relinquishment deeds and family settlement deeds exist precisely for such situations, but many people discover them only after they have already paid the extra cost," he said.
The power of attorney trap
Many NRIs assume they must travel to India to complete a property transaction. In many cases, a properly drafted specific or general power of attorney (POA) allows a trusted relative to complete the formalities.
However, embassy attestation alone is insufficient.
"The POA stamped only by the Indian Embassy abroad will not work. It still has to be registered at the local sub-registrar's office in India to be legally binding," Agarwal said.
He added that many NRIs complete only the overseas attestation and fail to register the document in India, discovering years later that it has no legal validity.
Keep your documents ready
Documentation is another area where transactions often get delayed.
A common mistake among NRI sellers is not having a Permanent Account Number (PAN), particularly among those who left India at a young age and never needed one. A PAN is essential because the buyer cannot correctly deduct and deposit TDS without it.
“Without PAN, the TDS will be deducted at 20% plus surcharge and cess,” said Vaswani.
Other important documents include the original sale deed (or a certified copy), a legal heir or succession certificate in case of inherited property, and, where applicable, the freehold conversion deed for properties converted from leasehold to freehold.
For NRIs, buying or selling property in India is not just about finding the right deal but also meeting a maze of compliance. Seeking professional advice early on can help avoid expensive mistakes and regulatory hassles later.