Selling Your Indian Flat as an NRI: The Two-Property Repatriation Cap and Permitted Payment Channels

When a non-resident Indian decides to sell a flat in Mumbai, Pune or Bengaluru, the cheque from the buyer is only the start of the journey. The harder question is how to move that money out of India lawfully, and how much of it the Income Tax Department and the buyer's withholding obligation will hold back before a single dollar crosses the border. The governing framework is the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, read with the Reserve Bank of India's standing instructions on immovable property. The single rule that surprises most sellers is the repatriation cap: an NRI may repatriate the sale proceeds of not more than two residential properties out of India, a restriction the RBI confirms in its FAQ on purchase of immovable property (FAQ Id 1855, published at rbi.org.in). This article walks through the FEMA position, the Indian tax bite under Section 195, the foreign-tax-credit interaction abroad, and the precise account mechanics that decide whether your money leaves on time.

FEMA / DTAA Position

The right of an NRI or OCI to buy, hold and sell residential or commercial property in India is granted by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, notified under the Foreign Exchange Management Act, 1999. Section 6 of FEMA 1999 sets the default rule that capital-account transactions require RBI permission unless specifically permitted, and immovable property is exactly the kind of transaction the 2019 Rules then permit within defined limits. Agricultural land, plantation property and farmhouses sit outside this permission: an NRI who already holds such land (typically by inheritance) may sell it only to a resident Indian citizen, never to another non-resident.

The repatriation ceiling is the heart of this angle. Per the RBI FAQ at rbi.org.in (Id 1855), the repatriation of sale proceeds of residential property is restricted to not more than two such properties. There is no cap on the number of properties an NRI may own or sell; the cap is purely on how many residential units' proceeds may be sent abroad through the automatic NRE route. Proceeds from a third residential sale remain in India and can be repatriated only through the NRO route within the broader FEMA remittance framework. To learn the building-block definitions, see our glossary entries on FEMA and the NRO account.

A Double Taxation Avoidance Agreement does not override FEMA; the two regimes run in parallel. FEMA controls the movement of foreign exchange, while the DTAA allocates taxing rights between India and the country of residence. For capital gains on Indian immovable property, every major treaty preserves India's right to tax, because the property is situated in India. This is why "exempt" is the wrong word for any country: under the India-USA, India-UK and India-UAE treaties alike, India retains taxing rights on the gain at 12.5%, and the resident country then grants relief rather than India giving up the tax. The treaty table below summarises the position for the three corridors most NRI sellers ask about. Read the DTAA glossary entry for the mechanics of how relief is claimed.

The point to retain is that the 12.5% figure is the India-side long-term rate introduced by Budget 2024, not a treaty concession. No DTAA reduces an Indian-property capital gain to nil.

Tax Treatment in India

Indian tax on a property sale turns first on the holding period. Immovable property held for more than 24 months before sale is a long-term capital asset; held for 24 months or less, the gain is short-term and taxed at the seller's applicable slab rate (the FY 2025-26 slabs are published at incometax.gov.in). For long-term gains, the rate framework changed on 23 July 2024. From that date the long-term capital gains rate on property is 12.5% without indexation. A grandfathering option survives only for property acquired before 23 July 2024, where the seller may instead compute the gain at 20% with indexation and pay whichever is lower. The table below sets out the resulting matrix.

For a non-resident seller, the more immediate concern is Section 195 of the Income Tax Act, 1961, which obliges the buyer to deduct tax at source on the payment to the NRI. The withholding is on the sale consideration, and Section 195 directs that tax be withheld at the DTAA rate or the Income Tax Act rate, whichever is lower. On a long-term gain that means 12.5% plus the applicable surcharge and the 4% health and education cess; on a short-term gain it tracks the slab structure. Surcharge follows the standard slabs of 10% (income above Rs 50 lakh up to Rs 1 crore), 15% (Rs 1 crore to Rs 2 crore) and 25% (Rs 2 crore to Rs 5 crore). Critically, the enhanced 37% surcharge does not apply to capital gains; surcharge on long-term capital gains chargeable under Section 112 is capped at 15% (incometax.gov.in). Our NRI income tax calculator lets you model the surcharge-and-cess gross-up before you sign the sale deed.

Because Section 195 deducts on the gross consideration rather than the gain, the cash withheld frequently exceeds the real tax due. The remedy is a lower-deduction or nil-deduction certificate under Section 197: the NRI applies to the Assessing Officer, who certifies the buyer to deduct at a reduced rate reflecting the actual computed gain. Without that certificate, the seller waits for a refund after filing the return. The two principal exemptions that reduce the gain itself are Section 54 (long-term gain on a residential house reinvested in another residential house within the statutory timelines is exempt) and Section 54F (reinvestment of net consideration from any long-term asset into a residential house). A buyer's TDS obligation is explained further in our TDS glossary entry.

Tax Treatment Abroad

Once India has taxed the gain, the country of residence taxes the same gain again under its worldwide-income principle, and the DTAA's relief article prevents genuine double taxation. For a US-resident NRI, Article 24 of the India-USA treaty (in force since 12 September 1991) provides a foreign tax credit in the United States for the Indian tax paid on the property gain. The credit is ordinarily limited to the US tax attributable to that same income, so if the US effective rate on the gain is lower than the Indian 12.5%-plus-surcharge outflow, the excess Indian tax is not refunded by the US Treasury; it can in some cases be carried over, subject to US domestic rules.

The UK and UAE corridors work on the same logic. The India-UK treaty (effective 26 October 1993) grants UK residents credit relief for Indian tax on the gain, while the India-UAE treaty (effective 22 September 1993) provides relief consistent with the UAE's domestic position. In every case the foreign credit is claimed in the residence country's own return, supported by proof of the Indian tax paid, which is why retaining the Indian challan and the Form 16A issued by the buyer matters. Oquilia's foreign tax credit calculator and the glossary make the sequencing clear: India taxes first as the source state, the residence state credits second.

A practical caution: the credit mechanism relieves income tax, not the FEMA repatriation friction. An NRI can be fully square with both tax authorities and still be unable to wire the money out if the two-property cap or the account routing is mishandled. Tax compliance and exchange-control compliance are separate gates, and both must be cleared.

Repatriation Mechanics

The account a sale proceed lands in decides how freely it can travel. Funds in an NRE (Non-Resident External) account are freely repatriable, principal and interest, without a separate RBI approval; funds in an NRO (Non-Resident Ordinary) account are subject to the FEMA remittance framework and require documentary support before they leave India. Sale proceeds of Indian property are, by default, credited to the NRO account, because the underlying asset and the rupee gain arose in India.

Repatriation of those NRO funds requires the seller to furnish Form 15CA (a self-declaration filed online with the Income Tax Department) and, where applicable, Form 15CB (a chartered accountant's certificate confirming that the appropriate tax has been deducted or paid). Only after these are in place, and the bank is satisfied that the two-property repatriation cap is respected, will the authorised dealer remit the funds abroad. The original purchase consideration matters here too: the RBI FAQ (Id 1855, rbi.org.in) requires that the original payment for purchase of the property must have been received in India through normal banking channels by way of inward remittance or by debit to an NRE, FCNR(B) or NRO account. Payment for the purchase by traveller's cheque or by foreign currency notes is not permitted, and a purchase funded that way can compromise the later repatriation. To model the routing end-to-end, use our NRI repatriation calculator.

For completeness, note the asymmetry with residents: a resident individual remits abroad under the Liberalised Remittance Scheme up to USD 250,000 (USD 2.5 lakh) per financial year under Section 6 of FEMA 1999, whereas an NRI repatriating their own property proceeds operates under the separate immovable-property rules, not the LRS. The two regimes should never be conflated. The FCNR deposit glossary entry and the NRE account entry explain why the funding history of the account chain determines repatriability.

This builds on our earlier coverage of what an NRI or OCI can and cannot buy under FEMA and the rules on converting NRE and FCNR balances to an RFC account on returning to India.

FAQ

How many properties' sale proceeds can an NRI repatriate?

Per the RBI FAQ at rbi.org.in (Id 1855), repatriation of the sale proceeds of residential property is restricted to not more than two such properties through the automatic route. There is no limit on how many properties you may own or sell; the restriction applies only to repatriating residential-sale proceeds abroad. Proceeds beyond the two-property cap remain repatriable through the NRO route within the broader FEMA framework, supported by Forms 15CA and 15CB.

What rate of TDS does the buyer deduct when an NRI sells?

Under Section 195 of the Income Tax Act, 1961, the buyer deducts at the DTAA rate or the Act rate, whichever is lower. For a long-term gain the base rate is 12.5% (the Budget 2024 rate effective 23 July 2024) plus surcharge and 4% cess; for a short-term gain (property held 24 months or less) it follows the slab structure. The deduction is on the gross sale consideration, so a Section 197 lower-deduction certificate is often worthwhile.

Can a DTAA make my property gain tax-free in India?

No. India retains taxing rights on gains from Indian-situated property at 12.5% under every major treaty, including the India-USA, India-UK and India-UAE agreements. The treaty does not exempt the gain; it provides a foreign tax credit in your country of residence for the Indian tax paid. Treating the gain as "exempt" is a common and costly error.

Can I avoid the gain altogether by reinvesting?

You can reduce or eliminate the long-term gain, not the FEMA routing. Section 54 exempts a long-term gain on a residential house if reinvested in another residential house within the statutory timelines, and Section 54F offers a parallel exemption for net consideration from other long-term assets. These reduce the Indian tax computation; they do not change the requirement to route proceeds through an NRO account with Forms 15CA/15CB.

Can an NRI sell agricultural land and repatriate the money?

An NRI may sell agricultural land, plantation property or a farmhouse only to a resident Indian citizen. Such land cannot be sold to another non-resident, and the proceeds follow the standard NRO repatriation route rather than the two-property residential cap. The underlying permission flows from the FEMA (Non-Debt Instruments) Rules, 2019.

What documents does the bank need before remitting abroad?

The authorised dealer typically requires Form 15CA (online self-declaration) and Form 15CB (a chartered accountant's certificate) confirming that the correct tax has been deducted or paid, alongside evidence that the original purchase was funded through banking channels (inward remittance or NRE/FCNR(B)/NRO debit). Purchase funded by traveller's cheque or foreign currency notes is not permitted under the RBI FAQ (Id 1855) and can block later repatriation.

Does the foreign tax credit refund my Indian tax?

No. The credit in your residence country (for example, under Article 24 of the India-USA treaty in force since 12 September 1991) is limited to the residence-country tax on the same gain. If the Indian outflow of 12.5% plus surcharge exceeds the residence-country tax on that income, the excess is not refunded by the foreign treasury, though some jurisdictions allow a carryover under domestic rules.