Capital Gain on Sale/Transfer of Immovable Properties

This page is written from the position of a non-resident seller. Several rules below, indexation in particular, work differently for a resident. This article is for general information and does not constitute tax advice.

Land, residential flats, houses, and commercial property are all capital assets under Section 2(14), and gains from selling them get taxed under the head Capital Gains. There’s one meaningful exception, though: rural agricultural land that meets the Act’s specific criteria isn’t treated as a capital asset at all, so gains on selling it aren’t taxed as capital gains.

Short-term vs long-term classification

	Short-term	Long-term
Holding period	24 months or less	More than 24 months
Tax rate	Slab rates, up to 30%	12.5% without indexation (sold on or after 23 July 2024), or 20% with indexation (sold before that date)

The indexation choice is not available to you as a non-resident. Where land or a building was acquired before 23 July 2024, the law allows the seller to compare 20% with indexation against 12.5% without it, and pay whichever comes out lower. That option is restricted to resident individuals and Hindu undivided families. A non-resident seller does not get it. If you are an NRI selling on or after 23 July 2024, the rate is 12.5% without indexation whatever date you bought the property, and there is nothing to compare. The 20%-with-indexation figure in the table above applies only to sales completed before 23 July 2024, where it was simply the law of the day rather than an election.

This is worth being clear about because general capital gains guidance, written for residents, describes the comparison as though everyone gets it. An NRI who plans a sale on that basis will budget for the wrong number, and on a property held for fifteen or twenty years the difference is not small.

TDS: what the buyer withholds

When you sell as an NRI, the buyer deducts TDS at the same rate that applies to your gain, 30% for short-term, 20% (pre-July 2024) or 12.5% (from 23 July 2024) for long-term, plus applicable surcharge and cess. This is meaningfully different from the flat 1% TDS a resident seller’s buyer would deduct, and it’s deducted on the full sale value, not just your net gain, which is exactly why filing your return afterward matters, it’s how you claim back the difference between what got withheld and your actual tax liability.

A practical step many NRI sellers take: apply for a lower or nil TDS certificate from the tax department before the sale closes, based on your actual expected gain, rather than waiting to claim the full refund after filing. This avoids a large chunk of your sale proceeds sitting with the tax department for months.

Rural agricultural land: the exemption and its limits

Land specifically classified as rural agricultural land under the Act’s criteria (based on distance from municipal limits and population thresholds of the nearby area) falls outside the definition of a capital asset entirely, so selling it doesn’t attract capital gains tax at all. This is a narrow exemption though, urban agricultural land, or land that fails any of the specific distance or population tests, is taxed as a normal capital asset. Whether a given plot genuinely qualifies as rural is worth confirming carefully before assuming this exemption applies.

A related point worth flagging: NRIs generally can’t purchase agricultural land, farmhouses, or plantation property in the first place, but can continue holding such property if it was inherited or acquired while still resident. Selling it is a separate question from whether you were allowed to hold it, both matter here.

If you’re the buyer instead: your own compliance burden

Everything above covers your position as a seller. If you’re buying property from an NRI seller instead, the compliance burden shifts onto you as deductor, and it looks meaningfully different from buying from a resident:

Requirement	Seller is resident	Seller is NRI
Buyer needs a TAN	No	Yes
TDS deposit form	Form 26QB (challan-cum-statement)	Challan ITNS 281
TDS return	Form 26QB, within 30 days of month-end of payment	Form 27Q, within 30 days of quarter-end (31 May for the March quarter)
Certificate to seller	Form 16B, within 15 days of the 26QB due date	Form 16A, within 15 days of the 27Q due date
Deposit deadline	Within 30 days of month-end of payment	Within 7 days of month-end of deduction (30 April if deducted in March)
Exemption below 50 lakh rupees	Yes, no TDS at all on agricultural land or property under 50 lakh rupees	No exceptions, except with a nil-rate Tax Exemption Certificate or an acceptable CA certificate

In practice, buyers often deduct on the entire sale consideration rather than trying to work out the seller’s actual capital gain themselves, since determining the seller’s cost basis and computing their gain is genuinely difficult for a buyer to do accurately, and under-deducting carries real personal risk for the buyer, covered below.

“Sale consideration” is defined broadly for TDS purposes, it includes club membership fees, car parking charges, electricity or water facility fees, maintenance, and any other charges incidental to the transfer, not just the headline property price. “Stamp duty value” means the value assessed by the relevant government authority for stamp duty purposes, also called the jantri rate or circle rate depending on the state.

Buying below stamp duty value has a tax consequence too

If a buyer purchases at a price below the property’s stamp duty value, and the gap between the two is more than the higher of 50,000 rupees or 10% of the consideration, the excess is taxed in the buyer’s hands as Income from Other Sources. This is separate from the seller’s capital gains position entirely, a genuinely underpriced deal creates a tax bill for the person paying less, not just a compliance question for the person receiving more.

What happens if the buyer gets TDS wrong

A buyer who fails to deduct, or deducts but fails to deposit, is treated as an assessee-in-default and faces real exposure:

• Failure to deduct: 1% per month interest under Section 201, running from when TDS should have been deducted until it actually is, plus a penalty under Section 271C equal to the TDS amount itself
• Deducted but not deposited: 1.5% per month interest under Section 201, from deduction to actual deposit, plus penalty under Section 221 (up to the tax in arrears) and prosecution exposure under Section 276B, though reasonable cause is a defence and compounding is available
• Failure to file the TDS statement: a fee of 200 rupees per day under Section 234E, capped at the TDS amount, plus a separate penalty under Section 271H (10,000 to 100,000 rupees) and Section 272A (500 rupees per day)
• Failure to issue the TDS certificate to the seller: a further penalty under Section 272A of 500 rupees per day of default

A buyer who under-deducted isn’t always stuck as an assessee-in-default. The escape route requires all of: the seller has filed their return, declared the income in it, paid the tax due on it, and the buyer furnishes a CA certificate in the prescribed form and pays 1% interest under Section 201(1A) from when TDS was due until the seller actually filed. All four conditions need to hold, not just some of them.

Compulsory acquisition follows a different section entirely. Where immovable property is compulsorily acquired by the government, TDS on the compensation or enhanced compensation is deducted under Section 194LA instead, not the sections that apply to an ordinary sale.