Buying and Selling Property in India as an NRI or OCI: What FEMA Permits Without RBI Approval

For a Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI), buying a flat in Pune or selling an inherited house in Chennai does not need a signature from the Reserve Bank of India. The permission is already written into the statute. The governing framework is the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, read with RBI's FED Master Direction No. 12/2015-16 on Acquisition and Transfer of Immovable Property under FEMA 1999, last updated on 1 September 2022. This guide walks through what that general permission covers, how the Income Tax Act taxes the transaction, how your country of residence gives credit for Indian tax, and how the sale money reaches your account abroad.

The single most misunderstood point is the boundary of the permission. An NRI or OCI may acquire any immovable property in India other than agricultural land, plantation property, or a farmhouse, and may do so without any prior approval from the RBI. That carve-out has held firm since the 2019 Non-Debt Instruments Rules replaced the older FEMA notifications, and it is the first thing to confirm before you sign a sale agreement.

FEMA / DTAA Position

Chapter IX of the FEM (Non-Debt Instruments) Rules, 2019 sets out the general permission. Under Rule 24, an NRI or OCI may purchase residential or commercial immovable property in India, and there is no cap on the number of such properties. The three prohibited categories are agricultural land, plantation property, and farmhouses; these can only be acquired by inheritance, not purchase. A resident but foreign national of non-Indian origin needs specific RBI approval, but that is a separate track from the NRI/OCI general permission discussed here.

Acquisition is permitted through three routes. First, purchase, funded through banking channels. Second, gift from a person resident in India, or from another NRI or OCI who is a relative as defined under Section 2(77) of the Companies Act, 2013. Third, inheritance from a person resident in India or from a person who acquired the property under the foreign-exchange law in force at the time of acquisition. Payment for a purchase must move through normal banking channels using an NRE, NRO, or FCNR(B) account, and the rules expressly bar payment in foreign currency notes or by traveller's cheque. This banking-channel requirement is what later makes repatriation clean, because the inward remittance is documented from day one.

The Double Taxation Avoidance Agreement (DTAA) becomes relevant only at the sale stage, because a purchase generates no income. On sale, capital gains from Indian immovable property are governed by the "situs" principle: gains from property situated in India are taxable in India under every one of India's treaties. Under Article 6 and the capital-gains article of the India-USA, India-UK, India-UAE, and India-Canada treaties, India retains full taxing rights on immovable property located within its territory. No treaty treats such gains as exempt, and a taxpayer who is told otherwise is being misinformed. The DTAA only decides how your country of residence relieves the double burden, not whether India can tax the gain.

Tax Treatment in India

Once you sell, the Income Tax Act, 1961 takes over. Gains on immovable property held long enough to qualify as a long-term capital asset are taxed under the post-Budget-2024 regime at 12.5% without indexation, effective for transfers on or after 23 July 2024. Property acquired before 23 July 2024 carries a grandfathered alternative of 20% with indexation, per the transitional rule introduced by the Finance (No. 2) Act, 2024. Short-term gains, on property held for a shorter period, are added to total income and taxed at slab rates.

Two exemptions can shelter the long-term gain. Section 54 of the Income Tax Act exempts long-term capital gains on a residential house if the gain is reinvested in another residential house in India within the prescribed timelines. Section 54EC allows an exemption of up to Rs 50 lakh where the gain is invested in five-year bonds issued by NHAI or REC. Both sections are available to NRIs, which is a point often missed because the reinvestment property or bonds must be in India, not abroad.

The mechanics of collection sit in Section 195. When a buyer pays an NRI seller, the buyer must deduct tax at source before releasing the consideration. Section 195 requires withholding at the DTAA rate or the Income Tax Act rate, whichever is lower, so a valid Tax Residency Certificate can bring the deduction down to the treaty ceiling. The buyer must hold a TAN, deposit the tax, and issue Form 16A. Where the actual gain is far smaller than the headline consideration, the NRI seller should apply under Section 197 for a lower or nil deduction certificate, otherwise the buyer is compelled to deduct on a larger base and the seller waits for a refund. Model your expected liability on Oquilia's NRI tax calculator before you agree a completion date.

Surcharge and cess sit on top of the base tax. The surcharge slabs for FY 2025-26 are set out below, and a health and education cess of 4% applies on tax plus surcharge in every case.

The final column matters for high-value property sales: the new tax regime caps the top surcharge at 25%, so the old regime's 37% rate no longer applies to a resident who has opted into the new regime. This single change can move the effective peak rate materially on a multi-crore transaction. Use the TDS glossary entry to confirm how the deducted amount reconciles against your final self-assessed liability.

Tax Treatment Abroad

Paying tax in India does not mean paying twice. Your country of residence taxes worldwide income but grants a foreign tax credit (FTC) for the Indian tax already borne. The credit is claimed under the relief article of the relevant treaty, and India's own FTC mechanism, under Rule 128 of the Income Tax Rules with Form 67, works symmetrically for the reverse case. The table below sets out the capital-gains position and the FTC route for the four most common corridors.

The India-USA treaty, effective from 12 September 1991, allows a US resident to claim the Indian capital-gains tax as a credit under Article 25. The India-Canada treaty, effective from 6 May 1997, confirms in Article 13 that India retains taxing rights on gains from Indian property and directs the Canadian resident to Section 126 of Canada's Income Tax Act for relief. For a UAE resident, where there is no personal income tax, the 12.5% Indian tax is effectively the final tax on the gain. In every case the credit is limited to the lower of the Indian tax paid and the home-country tax on the same income, so a well-timed sale and a correct Section 197 certificate protect the net outcome. Oquilia's NRI rental income tax calculator helps map the tax on rental income during the holding period.

Repatriation Mechanics

Getting the sale proceeds abroad is a FEMA question, not a tax question, and it turns on which account received the original funds. The general rule under the Non-Debt Instruments Rules is that repatriation of sale proceeds of immovable property is allowed for up to two residential properties, provided the property was acquired in accordance with the foreign-exchange law in force at the time and the purchase price was paid through banking channels or from an NRE/FCNR(B) account.

The account you use decides the ceiling. Funds held in an NRE account are freely repatriable without any monetary limit, and so are FCNR(B) deposits, which is why the original inward remittance route matters so much. Funds credited to an NRO account fall under the "remittance of assets" facility, which caps repatriation at USD 1 million per financial year across all NRO balances, including sale proceeds beyond the two-property limit. The comparison below summarises the position.

Every repatriation needs a documentation trail. The remitting bank requires Form 15CA from the remitter and Form 15CB, a certificate from a chartered accountant confirming that the applicable tax has been paid, before it will process an outward remittance of sale proceeds. Plan the sequence with Oquilia's repatriation calculator so the Form 15CB certificate, the Section 195 TDS credit, and the USD 1 million window all line up in the same financial year. Where proceeds exceed the two-property repatriation allowance, the excess simply routes through the NRO USD 1 million channel over one or more years rather than being blocked.

FAQ

Can an NRI buy agricultural land in India?

No. Under Chapter IX of the FEM (Non-Debt Instruments) Rules, 2019, an NRI or OCI cannot purchase agricultural land, plantation property, or a farmhouse. These may only be acquired by inheritance from a person resident in India, and even then any subsequent sale is generally restricted to a resident Indian citizen.

Does an NRI need RBI approval to buy a residential flat?

No. The general permission in Rule 24 of the 2019 Non-Debt Instruments Rules covers residential and commercial property, so no prior RBI approval is required. Payment must move through banking channels via an NRE, NRO, or FCNR(B) account and cannot be made in foreign currency notes, as confirmed in RBI's Master Direction updated on 1 September 2022.

What is the TDS rate when a buyer purchases property from an NRI?

The buyer must deduct tax under Section 195 of the Income Tax Act at the DTAA rate or the Act rate, whichever is lower. On long-term gains the base rate is 12.5%, plus applicable surcharge and 4% cess. The seller can reduce the deduction by obtaining a Section 197 lower-deduction certificate where the actual gain is smaller than the sale consideration.

Are capital gains on Indian property exempt under any DTAA?

No. India retains taxing rights on gains from immovable property situated in India under the USA, UK, UAE, and Canada treaties. The long-term rate is 12.5%. The treaty only lets your country of residence grant a foreign tax credit; it never exempts the Indian gain.

How much can an NRI repatriate from a property sale?

Sale proceeds of up to two residential properties are repatriable if the purchase was funded through banking channels or an NRE/FCNR(B) account. Beyond that, proceeds credited to an NRO account are repatriable up to USD 1 million per financial year under the remittance-of-assets facility, supported by Form 15CA and a chartered accountant's Form 15CB.

Can an NRI claim Section 54 and 54EC exemptions?

Yes. Section 54 exempts long-term gains on a residential house reinvested in another Indian residential house within the prescribed timelines, and Section 54EC allows up to Rs 50 lakh invested in five-year NHAI or REC bonds. Both are available to NRIs, provided the reinvestment is made in India.

Which account should fund an NRI property purchase?

Fund the purchase from an NRE or FCNR(B) account if you expect to repatriate the sale proceeds fully, because those routes carry no monetary cap. An NRO-funded purchase ties later repatriation to the USD 1 million per financial year limit, which suits rental income and inherited assets more than actively repatriated investments.