An NRI Selling Property in India: Is Tax Payable on Sale of Ancestral Property?

An NRI selling property in India, especially ancestral property, often worries about tax liability. However, Indian tax law provides clear rules. Therefore, if you understand the Income Tax Act properly, you can anticipate tax exposure, plan exemptions, and avoid legal mistakes.

In this article, we explain whether an NRI is liable to tax in India on selling ancestral property, how capital gains apply, and what compliance steps matter most.

Who Is an NRI Under Indian Tax Law?

Before discussing taxation, you must determine your residential status.

Under the Income Tax Act, 1961, an NRI is a person who does not satisfy the residency conditions in India during a financial year. Consequently, India taxes an NRI only on income arising or received in India.

👉 Therefore, income from selling property located in India becomes taxable in India.

What Is Ancestral Property Under Indian Law?

Ancestral property refers to property:

Inherited up to four generations

Acquired by birth, not by will

Undivided among coparceners

Hence, when an NRI sells ancestral property in India, taxation depends on inheritance rules and capital gains provisions, not on ownership duration of ancestors.

Is an NRI Liable to Pay Tax on Sale of Ancestral Property in India?

Yes. If an NRI sells ancestral property located in India, capital gains tax applies in India.

However, taxation depends on:

Date of acquisition by the previous owner

Date of sale

Nature of gain (short-term or long-term)

Thus, inheritance does not exempt NRIs from tax.

How Capital Gains Are Calculated for Ancestral Property

1. Period of Holding (Major Advantage for NRIs)

For inherited or ancestral property:

The holding period of the previous owner counts

Cost of acquisition of the original owner applies

As a result, most ancestral properties qualify as long-term capital assets.

2. Long-Term Capital Gains (LTCG)

If the property qualifies as long-term:

Tax rate: 20% with indexation

Indexation applies from the year the previous owner acquired the property

Therefore, tax liability reduces significantly in most cases.

3. Short-Term Capital Gains (Rare but Possible)

If the previous owner acquired the property within 24 months before sale:

Gains are taxed as per applicable slab rates

No indexation benefit applies

TDS on Sale of Property by an NRI

Buyers must deduct TDS under Section 195.

However, this TDS often exceeds the actual tax payable.

Therefore, NRIs should apply for a Lower or Nil TDS Certificate under Section 197 to avoid excess deduction.

Legal Ways NRIs Can Reduce Tax on Ancestral Property Sale

1. Section 54 – Reinvestment in Residential Property

NRIs can claim exemption by:

Buying another residential house in India

Constructing a house

Thus, reinvestment can eliminate tax liability entirely.

2. Section 54EC – Capital Gain Bonds

NHAI Bonds

REC Bonds

3. Capital Gains Account Scheme (CGAS)

If reinvestment is delayed:

Deposit gains in a CGAS account

Claim exemption temporarily

Avoid immediate taxation

4. DTAA Benefits for NRIs

If your resident country taxes the same income:

DTAA helps avoid double taxation

Tax credit becomes available

Refund complexity reduces

Hence, DTAA planning remains crucial.

Repatriation of Sale Proceeds

NRIs can repatriate:

Subject to tax payment and RBI compliance

Therefore, ensure proper documentation before remittance.

Mandatory Compliance for NRIs

File Income Tax Return in India

Report capital gains correctly

Maintain inheritance proof

Follow FEMA and RBI rules

FAQs: NRI Selling Ancestral Property in India

Q1. Is ancestral property sale tax-free for NRIs?

No. Sale of ancestral property attracts capital gains tax in India.

Q2. Does inheritance attract tax?

No. Inheritance itself is tax-free, but sale of inherited property is taxable.

Q3. From which year is indexation calculated?

Indexation applies from the year the previous owner acquired the property.

Q4. Can an NRI claim the Section 54 exemption?

Yes. NRIs enjoy the same exemption benefits as resident Indians.

Q5. Is TDS mandatory on sale by NRI?

Yes. The buyer must deduct TDS under Section 195.

Q6. Can NRIs get a refund of excess TDS?

Yes. NRIs can claim refunds by filing ITR.

Q7. Is DTAA applicable to the ancestral property sale?

Yes. DTAA applies to capital gains, depending on treaty provisions.

Conclusion

In conclusion, an NRI selling ancestral property in India is liable to tax in India. However, with correct planning, exemptions, and compliance, NRIs can significantly reduce or defer tax legally.

Disclaimer: This article is for educational and informational purposes only. It provides a general understanding of legal remedies but does not constitute legal advice. For specific legal guidance, you can consult a legal expert.