NRI Property Sale Tax: 12.5% Without Indexation vs 20% With Indexation Explained

General information, not tax or legal advice. Rules as of October 2026.

What changed on 23 July 2024?

Before the July 2024 Budget, a long-term capital gain on land or a building was taxed at 20% after indexation for every seller, resident or NRI. Indexation meant you could raise your purchase cost using the Cost Inflation Index (CII) notified by the CBDT, so that the part of your gain that was just inflation was not taxed.

The Finance (No. 2) Act, 2024 cut the rate to 12.5% and removed indexation for transfers made on or after 23 July 2024. When the change drew criticism from property owners, the government amended the Bill before it passed. The amendment let a resident individual or HUF selling land or a building bought before 23 July 2024 work out the tax both ways, 12.5% without indexation and 20% with indexation, and pay whichever is lower. That relief was written for residents only.

The holding period did not change. Property held for more than 24 months is long-term. Sell sooner and the gain is short-term, taxed at your normal slab rates, which for most NRI sellers of a meaningful property means the 30% bracket. If you are near the line, our explainer on the short-term vs long-term capital gains 2-year rule shows how the dates are counted.

Rates in the table are before surcharge and the 4% health and education cess. On long-term capital gains the surcharge is capped at 15%.

Did Budget 2025 or Budget 2026 change NRI property tax?

No, not the rate and not indexation. Plenty of articles from 2025 describe a 2025 Budget change to NRI property tax, sometimes with a date of 23 July 2025. That is a mix-up. The change that removed indexation came from the July 2024 Budget, and the cut-off date is 23 July 2024.

• Budget 2025 (February 2025): no change to the rate, the holding period or indexation on land and buildings. Its capital gains change raised the rate for foreign institutional investors on certain securities, which has nothing to do with an individual NRI selling a flat.
• Income-tax Act, 2025 (in force from 1 April 2026): carried the 12.5% rate and the resident-only choice over to the new law. Section numbers and form numbers changed, the substance did not.
• Budget 2026 (February 2026): no change to capital gains rates or holding periods. It did make one procedural change for buyers, covered in the TDS section below.

The CBDT has kept notifying the Cost Inflation Index, and the figure for FY 2026-27 is 384. That index matters only to residents and HUFs who still have the indexation option. It does not reopen indexation for NRIs.

Can an NRI claim indexation on property sold in 2026?

No. The relief that lets a seller choose 20% with indexation applies to a resident individual or HUF. Your residential status is decided separately for each financial year, so what counts is your status in the year of sale, not where you were when you bought the property. If you are an NRI for that year, you pay 12.5% on the unindexed gain, even if you bought the flat in 2005 while living in India.

Why NRIs were left out has never been officially explained beyond the government's general aim of one simple rate across asset classes. Some writers assume it was a deliberate policy against NRIs. Others see it as drafting that has not been revisited. Either way, the text is clear, and no tax treaty restores indexation, though the treaty with your country of residence still matters when you claim a credit abroad for the Indian tax. Our DTAA guide covers that side.

One situation is worth knowing about. If you are moving back to India and become resident for the financial year in which you sell, the choice should become open to you, because the test is your status in that year. Tax writers generally treat the not-ordinarily-resident (RNOR) category as a sub-type of resident for this purpose, but that point has not been tested much, so get advice before timing a sale around a move. The returning NRI tax and banking guide and the residency calculator help you work out which status you will have.

How indexation worked, and how it is calculated now

Without indexation, the gain is simple: sale price minus the original cost, minus the cost of any improvements, minus the expenses of the transfer such as brokerage and legal fees. That is how every NRI computes the gain today.

With indexation, which only residents and HUFs can still use for older property, the cost is first scaled up: indexed cost = original cost x (CII for the year of sale / CII for the year of purchase). The same scaling applies to improvement costs, using the CII for the year each improvement was made. The gain is then the sale price minus the indexed cost.

The longer the property has been held and the higher inflation has been, the more indexation reduces the gain. That is why long-held property feels the change most.

Property bought before 2001: the 1 April 2001 grandfathering

If the property was bought, or inherited from someone who bought it, before 1 April 2001, you can use its fair market value on 1 April 2001 as the cost instead of the actual price paid. For land and buildings, that value cannot be more than the stamp duty value on 1 April 2001. This rule is separate from indexation and is still available to NRIs.

It matters a lot for family homes and inherited land. A plot bought for a few thousand rupees in the 1980s may have had a far higher value by 2001. Using the 2001 value can cut the taxable gain sharply, even at 12.5% with no indexation. You will need a registered valuer's report giving the fair market value on 1 April 2001, and a copy of the stamp duty value for that date if you can get one. Any improvement made before 1 April 2001 is not added to the cost.

For inherited property, the cost and the holding period of the previous owner are carried over to you. The inherited property capital gains calculator applies the 2001 rule and the previous owner's dates.

Worked example: an NRI and a resident selling the same flat

Illustrative example. The figures are made up to show how the rules work. The CII values are the notified ones: 137 for FY 2008-09 and 384 for FY 2026-27. Real tax also depends on your other income, the surcharge band, the cess and any exemption you claim.

Two siblings each own an identical flat in the same building. Each flat was bought in FY 2008-09 for Rs 40,00,000 and each is sold in FY 2026-27 for Rs 1,60,00,000. One sibling lives in Dubai and is an NRI for the year. The other lives in Pune and is resident. Assume no improvements and no transfer expenses, to keep the numbers clean.

The resident also computes the 12.5% figure, which would be Rs 15,00,000, and simply pays the lower amount. The NRI has no such choice and pays about Rs 5,42,000 more on an identical sale, before surcharge and cess. With a gain of Rs 1.2 crore the NRI's income for the year is above Rs 1 crore, so a 15% surcharge and the 4% cess take the NRI's bill to roughly Rs 17,94,000.

›When 12.5% without indexation comes out cheaper

The flat rate is not always worse. Two cases where it wins:

• Recently bought property. A flat bought in FY 2022-23 for Rs 80 lakh and sold in FY 2026-27 for Rs 1.1 crore has a gain of Rs 30 lakh. At 12.5% the tax is Rs 3.75 lakh. With indexation (CII 331 to 384) the cost rises to about Rs 92.8 lakh and the gain falls to about Rs 17.2 lakh, but at 20% the tax is about Rs 3.44 lakh. The gap is small, and with a slightly higher sale price or a shorter holding the 12.5% route wins.
• Very old property with the 2001 value. Say the fair market value on 1 April 2001 was Rs 10 lakh and the sale price is Rs 1.2 crore. Without indexation the gain is Rs 1.1 crore and the tax at 12.5% is Rs 13.75 lakh. With indexation (CII 100 to 384) the cost is Rs 38.4 lakh, the gain Rs 81.6 lakh and the tax at 20% Rs 16.32 lakh. Here even a resident would choose 12.5%.

In short, losing indexation hurts most when a property bought in the late 1990s to mid 2010s has risen only modestly above inflation. Where the price has risen much faster than inflation, or the holding is short, 12.5% flat often comes out ahead.

What this means for TDS when an NRI sells property

The rate change also flows into TDS. When an NRI sells, the buyer must deduct tax under Section 393(2) of the Income-tax Act, 2025 (earlier Section 195) before paying you. For a long-term sale the deduction is worked out at 12.5% plus surcharge and cess, and in practice buyers apply it to the whole sale price, not just to your gain. Our TDS for NRI sellers guide explains the mechanics in full.

Some older articles list TDS of 16.25% or 17.81% for sales above Rs 2 crore or Rs 5 crore. Those bands do not apply to long-term capital gains, because the surcharge on these gains is capped at 15%. For a short-term sale the base rate is 30%, so TDS can go above 35%.

In the worked example, the buyer of the NRI's flat would deduct 14.95% of Rs 1.6 crore, about Rs 23,92,000, against an actual tax of about Rs 17,94,000. You can claim the difference back by filing a return, but a refund can take months. The better route is to apply before the sale for a lower TDS certificate on Form 128 (earlier Form 13) under Section 395 (earlier Section 197), so that TDS is based on your actual gain. You can check the likely deduction with the TDS calculator, and the Form 128 guide explains how to apply.

Budget 2026 brought one procedural change. From 1 October 2026, a resident individual or HUF buying property from an NRI can deduct and deposit the TDS using their PAN and Form 141, instead of first getting a TAN and filing quarterly TDS returns. Companies and firms buying from NRIs still need a TAN. The TDS rates are unchanged, and the 1% rate for property bought from resident sellers still does not apply when the seller is an NRI.

How NRIs can reduce capital gains tax on property now

With no choice of rate, planning is about reducing the gain, sheltering it or timing the sale. The main levers:

1. 1Buy another house. Section 82 (earlier Section 54) exempts the gain from selling a house if you put it into a residential house in India within the time limits. Section 86 (earlier Section 54F) does the same for the sale of other long-term assets such as a plot, but the whole net sale price has to be reinvested for a full exemption.
2. 2Invest in capital gains bonds. Section 85 (earlier Section 54EC) exempts the gain you put into specified bonds within six months of the sale, up to Rs 50 lakh, with a five-year lock-in.
3. 3Get the cost right. Include stamp duty and registration paid on purchase, brokerage, documented improvements and the transfer costs of the sale. Each rupee of documented cost saves 12.5 paise of tax.
4. 4Use the 1 April 2001 value for older property, backed by a registered valuer's report.
5. 5Check your residential status for the year of sale. If you are returning to India, the year you sell in can change your options.
6. 6Pay the tax on time. Pay advance tax on the gain in the quarter of the sale if TDS does not cover it, and file your return by the due date to claim any refund.

Which reinvestment route fits depends on what you sold and what you plan to buy. The Section 54 vs 54F comparison works through both. The capital gains bonds guide for NRIs covers the six-month deadline and the practical problems NRIs face when buying the bonds.

You can model a reinvestment with the reinvestment calculator. For a wider view of every lever, including timing and joint ownership, see the playbook on how to save capital gains tax when selling property in India as an NRI.

NRI property sale checklist after the indexation change

• Confirm your residential status for the financial year of the sale.
• Confirm the holding period is more than 24 months from the date of acquisition.
• Collect the purchase deed, stamp duty and registration receipts, and bills for every improvement.
• For property bought before 1 April 2001, get a registered valuer's report for its value on that date.
• Compute the tax at 12.5% without indexation, then decide on any reinvestment or bonds before the deadlines.
• Apply for a lower TDS certificate on Form 128 well before the registration date.
• Have the sale proceeds paid into your NRO account and keep the TDS certificate the buyer gives you.
• Line up Forms 145/146 (earlier 15CA/15CB) before you send the money abroad.
• File your Indian income tax return for the year and claim credit for the TDS.

Moving the money out is a separate step with its own rules, including the USD 1 million per financial year limit from an NRO account. The repatriation guide and the Form 145/146 guide cover those steps.

If you would rather hand over the whole sale, from tax computation and the lower TDS certificate to registration and repatriation, see our property sale service for NRIs.