NRI vs Resident Property Capital Gains: FY 2025-26 and FY 2026-27
CA Meet Dhrangadhariya 
November 2, 2026
CA Meet Dhrangadhariya November 2, 2026
Table of Contents
8 min readTable of Contents
Last updated: 02 November 2026
Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
When a property is sold, the tax rules that apply depend on three things working together: how long it was held, which financial year the sale falls in, and whether the seller is a resident or a non-resident (NRI) under section 6 of the Income-tax Act. Two of the biggest, most commonly missed differences are the financial-year change and the residency rule – both covered in full below, with a worked example for each combination.
A property (land or building) held for 24 months or more before sale gives a long-term capital gain (LTCG); held for less, it is a short-term capital gain (STCG). This 24-month test, and the way STCG is taxed, does not change between a resident and an NRI, or between FY 2025-26 and FY 2026-27.
Short-term capital gain on property is simply added to the seller’s total income and taxed at the applicable slab rate. This applies equally to a resident and a non-resident – there is no special flat STCG rate for immovable property (the flat-rate section 111A applies only to listed securities, not to land or buildings). The rest of this article is therefore about long-term capital gains, where the real resident-vs-NRI and year-vs-year differences arise.
The Income-tax Act, 2025 came into force from 01 April 2026 and governs Tax Year 2026-27 onward. Tax Year 2025-26 and all earlier years remain governed by the Income-tax Act, 1961. The substance of the capital-gains rules is largely carried forward, but the section numbers change:
| Topic | FY 2025-26 (1961 Act) | FY 2026-27 (2025 Act) |
|---|---|---|
| LTCG on land/building, general rate | Section 112(1)(a) | Section 197(1)(b) |
| 20%-with-indexation choice (resident only) | 2nd proviso to section 112(1)(a) | Section 197(3) |
| TDS on payment to a non-resident | Section 195 | Section 393(2) |
| TDS on payment to a resident (property ≥ Rs 50 lakh) | Section 194-IA | Section 393 (same section covers non-resident TDS too, as a different item), same 1% rate |
| Cost Inflation Index (CII) for the sale year | 376 | 384 |
Note: the renumbering above reflects how the Income-tax Act, 2025 is understood to map onto the 1961 Act in current professional commentary. Confirm the exact section against the enacted text or a CBDT clarification before citing it in a filing or a notice reply.
For a resident individual or HUF selling land or a building that was acquired before 23 July 2024, the law allows a choice: compute the tax both ways and pay whichever is lower.
For property acquired on or after 23 July 2024, there is no choice at all – the flat 12.5% without indexation rate applies, resident or not.
A resident also gets a benefit an NRI does not: if the seller’s other income is below the basic exemption limit, the shortfall can be set off against the capital gain before tax is computed, so a small amount of the gain can escape tax entirely.
This is the single most common misunderstanding in this area, including in notes prepared by advisors who have not checked the exact wording: the 20%-with-indexation choice does not exist for a non-resident seller, under either Act. The 2nd proviso to section 112(1)(a) of the 1961 Act, and section 197(3) of the Income-tax Act 2025, both say in as many words that the benefit is for an individual or HUF being a resident.
An NRI selling land or a building therefore pays a flat 12.5% on the long-term capital gain, computed without any indexation, whatever the acquisition date and however long the asset was held. The basic-exemption set-off described above is also not available – the gain is taxed from the first rupee.
Surcharge on long-term capital gains taxable under this section is capped at 15%, however high the seller’s total income is, but it is not automatically 15% – the ordinary slab still governs below that cap: nil up to Rs 50 lakh total income, 10% from Rs 50 lakh to Rs 1 crore, 15% beyond Rs 1 crore (capped there). Health and Education Cess of 4% applies on tax plus surcharge in every case. A common computation error is assuming a flat 15% surcharge regardless of the actual gain amount – this overstates the liability whenever the gain itself is below the relevant threshold.
Whatever the final tax liability works out to be, the TDS the buyer deducts at the time of payment follows separate rules, and here residency makes a very large practical difference:
| Seller | TDS section | Rate | Deducted on |
|---|---|---|---|
| Resident | Section 194-IA (only if sale value is Rs 50 lakh or more) | Flat 1% | Sale value |
| Non-resident, FY 2025-26 | Section 195 | Rate for the applicable LTCG/STCG option, grossed up for surcharge and cess | Full sale value, absent a lower-deduction certificate |
| Non-resident, FY 2026-27 | Section 393(2) | Same logic as section 195 | Full sale value, absent a lower-deduction certificate |
Because the buyer normally has no way to verify the seller’s actual cost of acquisition, TDS on a non-resident’s sale is usually deducted on the entire sale consideration, not on the net gain – producing a TDS figure that is often far larger than the seller’s real tax liability. The difference becomes a refund, but only after an Indian income-tax return is filed for that year. An NRI seller can reduce this upfront deduction by applying, before the sale, for a certificate for deduction of tax at a lower or nil rate, computed on the actual gain rather than the gross value.
Property bought for Rs 45,00,000 in July 2012, sold for Rs 1,15,00,000. CII of the purchase year (FY 2012-13) is 200 throughout.
| Seller / Year | Basis | Capital gain | Tax before surcharge/cess |
|---|---|---|---|
| Resident, FY 2025-26 (CII 376) | Lower of 20% w/ indexation or 12.5% w/o – here, 20% with indexation is lower | Rs 30,40,000 | Rs 6,08,000 |
| Resident, FY 2026-27 (CII 384) | 20% with indexation (still lower here) | Rs 28,60,000 | Rs 5,72,000 |
| NRI, FY 2025-26 or FY 2026-27 | Flat 12.5%, no indexation – CII plays no role | Rs 70,00,000 | Rs 8,75,000 |
The resident pays less tax on the identical transaction purely because of the indexation choice an NRI does not get – a difference worth checking carefully before relying on any note or calculation that offers an NRI seller a choice between the two rates.
We prepare the capital gain computation for both residents and NRIs, confirm which option (and which year’s law) actually applies to a specific sale, help apply for a lower/nil TDS deduction certificate before the transaction, and file the income-tax return that claims back any excess TDS. Please reach out to our team and we will be happy to assist.
No. The 2nd proviso to section 112(1)(a) of the 1961 Act, and its successor section 197(3) of the Income-tax Act 2025, both restrict this choice to a resident individual or HUF. A non-resident individual or HUF is taxed at a flat 12.5% without indexation on long-term capital gains from land or building, regardless of when the property was acquired or how long it was held.
The CII of the financial year in which you sell, not the year you bought. CII for FY 2025-26 (Tax Year 2025-26) is 376, notified by CBDT Notification No. 70/2025 dated 01/07/2025. CII for FY 2026-27 is 384, notified by CBDT Notification No. 85/2026 dated 15/07/2026. CII is relevant only if you are eligible for indexation at all – it has no role in a flat 12.5% computation.
No. The benefit of adjusting the basic exemption limit against long-term capital gains (so only the gain above the exemption limit is taxed) is also restricted to resident individuals and HUFs. A non-resident’s entire capital gain is taxable from the first rupee.
The computation is the same for everyone: short-term capital gain (property held under 24 months) is added to total income and taxed at the applicable slab rate. There is no special flat rate for short-term gains on immovable property under section 111A (that section applies only to listed securities). The real difference for an NRI is in TDS, not in the final tax rate.
A resident seller’s buyer deducts a flat 1% under section 194-IA (only if the sale value is Rs 50 lakh or more). A buyer purchasing from a non-resident deducts under section 195 (FY 2025-26) or section 393(2) (FY 2026-27), at the rate that would actually apply to the seller’s capital gain, grossed up for surcharge and cess – and, absent a lower-deduction certificate, on the FULL sale value, not just the gain. This routinely produces a large TDS figure that is refunded only when the NRI files an Indian income-tax return.
Yes, by applying for a certificate for deduction of tax at a lower or nil rate (successor to the old section 197 certificate) before the sale, based on the actual computed capital gain rather than the gross sale value. This needs to be applied for well before the transaction closes.
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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