An NRI living in Germany jointly owns a residential property in India with her resident sister. According to reports from Mint, they each contributed 50% of the purchase price seven years ago and now plan to sell the property. While the NRI wants to remit her share of the sale proceeds abroad, her sister plans to reinvest her share in another residential property. The sale is scheduled after 1 April 2026, making it subject to the provisions of the Income-tax Act 2025.
Since both co-owners contributed equally to the property acquisition cost, capital gains arising on the sale would be computed separately in equal proportion for each co-owner. As reported by Mint, the property qualifies as a long-term capital asset acquired seven years ago, making gains taxable as long-term capital gains (LTCG). For residential property sales on or after 23 July 2024, LTCG is taxable at 12.5% plus applicable surcharge and cess without indexation benefit. However, resident individuals can compare the earlier provisions (20% tax with indexation benefit) with current provisions and opt for the more beneficial option.
The tax implications differ significantly between the co-owners due to their residency status. According to Mint reports, the resident sister can independently claim capital gains tax exemption upon reinvestment of her share, up to ₹10 crore per reinvested asset subject to prescribed conditions including specified timelines, deposit requirements, and lock-in periods. However, the NRI co-owner would be taxable at 12.5% plus applicable surcharge and cess without any indexation benefit, as she is classified as a non-resident for tax purposes. Recent developments show that India retains the right to tax long-term capital gains on Indian securities at 12.5% under the India-USA, India-UK and India-UAE treaties, with the residence country granting foreign tax credit where applicable.
Despite the NRI's preference to remit her share abroad, the resident sister can independently avail the capital gains tax exemption available upon reinvestment of her share. As reported by Mint, the exemption computation is based on the capital gains amount computed under the amended provisions without considering indexation. All co-owners are eligible to independently claim this exemption, with the sister's eligibility subject to fulfilling prescribed conditions including specified timelines, deposit requirements, and compliance with lock-in periods.
Property sale proceeds are subject to specific remittance regulations under the Foreign Exchange Management Act 1999. According to recent reports, **funds credited to a Non-Resident Ordinary (NRO) account are repatriable only up to USD 1 million per financial year under the RBI Remittance of Assets rules, after payment of applicable Indian taxes. The bank requires a chartered accountant's certificate in Form 15CB and the remitter's declaration in Form 15CA confirming that tax under Section 195 has been deducted or is not payable before any remittance. Foreign funds parked in an NRE account, by contrast, repatriate without any ceiling, making the choice of account type crucial for NRIs planning property sales.
