FEMA Compliance for NRI Property Sale in Kerala
When an NRI or OCI cardholder sells property in Kerala, two frameworks apply at once — the Income-tax Act, 2025 and FEMA, 1999. This page sets out what the buyer must deduct, how proceeds are repatriated, and the remittance forms, all under the numbering in force since the Income-tax Act, 1961 was replaced on 1 April 2026.
Two frameworks operate together: the Income-tax Act, 2025 (TDS on capital gains, income tax return) and FEMA, 1999 (repatriation). The buyer deducts TDS — 12.5% on long-term capital gains where the property has been held more than 24 months, or applicable slab rates for short-term gains — plus surcharge and cess.
Repatriation from the NRO account is permitted up to USD 1 million per financial year, subject to Form No. 146 (the CA's certificate) and Form No. 145 (the remitter's declaration) — the successors to Forms 15CB and 15CA under Rule 220 of the Income-tax Rules, 2026, effective 1 April 2026.
Proceeds must first be credited to the NRO account, never NRE. An NRI should obtain a lower deduction certificate under Section 395(1) in Form No. 128 before the sale to avoid deduction on the full consideration. From 1 October 2026 the TAN requirement is removed for individual and HUF buyers under Section 397(1)(c)(iii).
FEMA and NRI Property in Kerala
The Foreign Exchange Management Act, 1999 governs cross-border transactions involving residents and non-residents, including the acquisition, holding and disposal of Indian immovable property by NRIs and OCI cardholders. The governing regulations are the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018 and the Foreign Exchange Management (Remittance of Assets) Regulations, 2016.
Its practical significance is twofold: what an NRI may sell and to whom, and how proceeds may be remitted. Residential and commercial property may be sold freely to any person resident in India or to another NRI or OCI cardholder. Agricultural land, plantation property and farmhouses may be sold only to a resident Indian citizen — not to another NRI or OCI cardholder.
Renumbering under the Income-tax Act, 2025. The TDS obligation on an NRI property sale, formerly Section 195, is now Section 393(2). The lower or nil deduction certificate, formerly Section 197 in Form 13, is now Section 395(1) in Form No. 128. The remittance forms formerly numbered 15CA and 15CB are now Form No. 145 and Form No. 146 under Section 397(3)(d) and Rule 220 of the Income-tax Rules, 2026.
What the Buyer Must Deduct
Under Section 393(2) of the Income-tax Act, 2025, a buyer purchasing immovable property from an NRI must deduct TDS at source before payment. Failure to deduct and deposit makes the buyer liable for the tax plus interest and penalty.
| Holding period | TDS rate | Basis |
|---|---|---|
| Long-term — held more than 24 months | 12.5% + surcharge + 4% cess (max effective 14.95%) | On the capital gain |
| Short-term — held 24 months or less | Applicable slab rates, up to 30% + surcharge + cess | On the capital gain |
Practical note. Although TDS is charged on the gain, most buyers deduct on the full sale consideration because they cannot verify the cost of acquisition. The seller then claims a refund of the excess by filing an Indian return — or, better, obtains a lower deduction certificate before the sale. The buyer files the quarterly return in Form No. 144 (formerly Form 27Q) and issues Form No. 131 (formerly Form 16A) to the seller.
Form 16B does not apply to a non-resident seller. That certificate belongs to the resident-to-resident route. Where the seller is an NRI, the certificate is Form No. 131.
The Buyer's Registration and the October 2026 Change
A buyer purchasing from an NRI is currently required to obtain a Tax Deduction and Collection Account Number before depositing TDS, unlike a resident-to-resident purchase.
With effect from 1 October 2026, that requirement is removed for a resident individual or Hindu undivided family deducting tax on consideration for the transfer of immovable property — Section 397(1)(c)(iii) of the Income-tax Act, 2025, as substituted by Act No. 4 of 2026. Companies and firms continue to require a TAN. Until 30 September 2026 a TAN remains required for all buyers in an NRI property transaction.
The procedural mechanism for PAN-based deposit has been announced but is not yet prescribed in the Rules. Buyers should confirm the position with their Chartered Accountant before relying on it.
Section 54 and 54EC Exemptions
An NRI selling a residential property in India may claim exemption from long-term capital gains tax under Section 54 by reinvesting the gain in another residential property in India within the prescribed timelines. Under Section 54EC, gains up to ₹50 lakh may be invested in specified NHAI or REC bonds within six months of the sale and held for five years. These reduce actual liability and therefore the rate the Assessing Officer will certify for a lower deduction certificate.
Indexation is not available to a non-resident seller, and the reinvestment reliefs are stated here under Income-tax Act, 1961 numbering (Sections 54, 54EC, 54F) pending verification of their Income-tax Act, 2025 equivalents against the Bare Act.
Section 395(1), Form No. 128
Where the NRI's actual tax liability is lower than the standard deduction — for example, because of a Section 54 reinvestment — the NRI applies to the Jurisdictional Assessing Officer for a lower or nil deduction certificate under Section 395(1) of the Income-tax Act, 2025 (formerly Section 197) in Form No. 128 (formerly Form 13). The application is filed through the TRACES portal. The certificate specifies a reduced rate; the buyer deducts at that rate, avoiding a large upfront deduction and a prolonged refund. Applications take four to six weeks in practice and should be filed well before the transaction.
Form No. 145 and Form No. 146
Before an authorised dealer bank will remit NRI property sale proceeds abroad, two documents are required under Rule 220 of the Income-tax Rules, 2026 and Section 397(3)(d) of the Income-tax Act, 2025 — replacing the former Forms 15CA and 15CB.
Form No. 146 — Chartered Accountant's certificate (formerly Form 15CB). Certifies that tax on the remittance has been paid or provided for, in accordance with the Income-tax Act, 2025 and the applicable DTAA. The CA verifies the TDS deducted, the nature of the income and the applicable rate. It must be obtained before Form No. 145 is filed.
Form No. 145 — remitter's declaration (formerly Form 15CA). Filed on the Income-tax e-filing portal by the remitter or the NRI's authorised representative under a valid Power of Attorney, incorporating the details from Form No. 146. The acknowledgement is submitted to the bank with the remittance request.
For a taxable remittance above ₹5 lakh in the tax year, both forms are required. Below that threshold a simplified declaration suffices. Property sale proceeds in Kerala are almost invariably above ₹5 lakh, making the CA certificate the standard requirement.
Where Sale Proceeds Must Be Credited
Sale proceeds of Indian immovable property must be credited to the NRI's NRO (Non-Resident Ordinary) account — not directly to an NRE account or an overseas account. From the NRO account:
- Repatriation is permitted up to USD 1 million per financial year, inclusive of all NRO credits — sale proceeds, rent, dividends and other income
- Form No. 145 and Form No. 146 compliance is required before the bank remits
- No separate RBI permission is required for residential or commercial property proceeds within this limit
- For amounts above USD 1 million in a single year, prior RBI approval is required through an authorised dealer bank
NRE accounts hold freely repatriable funds but are designed for money brought into India from abroad. Indian property proceeds originate in India and must route through NRO. Funds may be moved NRO to NRE within the USD 1 million limit after Form No. 145 and Form No. 146 compliance, as a separate step.
DTAA — Where the Gain Is Taxed
India has Double Taxation Avoidance Agreements with most countries where large NRI communities reside — the USA, UK, UAE, Canada, Australia, Singapore and Malaysia among them. A DTAA determines in which country the capital gain on Indian property is taxable, and whether the NRI may claim credit in the country of residence for tax paid in India. The position below is India-side; advice on the foreign return should be taken from a qualified adviser in that country.
India–UAE. Capital gains on immovable property situated in India are taxable only in India. As the UAE levies no personal income tax, there is no double taxation for UAE-based NRIs.
India–USA. Gains on Indian immovable property are taxable in India. The USA taxes its citizens and residents on worldwide income, including these gains, but allows a foreign tax credit for tax paid in India. US-connected NRIs should keep their India filings in order to support the credit claim on the US return.
India–UK. Gains are taxable in India; the UK allows credit for Indian tax paid. UK-resident NRIs should coordinate the India position with their UK self-assessment return.
For other countries the specific treaty governs — the treatment of immovable-property gains varies between treaties, and the applicable article should be checked before the remittance.
The FEMA Compliance Sequence
Before sale
Confirm the property type — residential or commercial (freely saleable) against agricultural or plantation (restricted). Obtain title documents, encumbrance certificate and patta/thandaper. Execute the sale agreement and receive advance consideration. Apply under Section 395(1) in Form No. 128 for a lower deduction certificate where a Section 54 reinvestment is planned or the gain is much lower than the consideration. Put a valid Power of Attorney in place if the NRI is not present for registration.
At registration
The buyer deducts TDS at the applicable rate before payment, deposits it, files the quarterly return in Form No. 144, and issues Form No. 131 to the seller within fifteen days of the return due date. The sale deed is executed and registered at the Sub-Registrar's office.
After sale — filing
The NRI files an Indian income tax return for the year of sale, computes the capital gain, claims Section 54, 54EC or 54F relief where applicable, and claims a refund of any excess TDS. Mutation is applied for at the Village Office to update revenue records.
Repatriation
Proceeds are credited to the NRO account. Obtain Form No. 146 from a practising CA and file Form No. 145 online. Submit the acknowledgement and the certificate to the authorised dealer bank, which remits to the overseas account within the USD 1 million annual limit.
FEMA Compliance and NRI Property Sale — Legal Assistance
The office advises NRIs and OCI cardholders on FEMA compliance, deduction of tax at source, lower deduction certificates and remittance certification for Kerala property sales — managed remotely under Power of Attorney.
Frequently Asked Questions
What is the repatriation limit for NRI property sale proceeds from India?
Under FEMA, an NRI or OCI cardholder may repatriate sale proceeds of immovable property up to USD 1 million per financial year from the NRO account. The limit covers the aggregate of all NRO remittances in the year — property proceeds, rent, dividends and other credits. Form No. 145 and, where required, Form No. 146 must be completed before the authorised dealer bank processes the remittance.
What TDS applies when an NRI sells property in India?
The buyer deducts TDS under Section 393(2) of the Income-tax Act, 2025 (corresponding to Section 195 of the repealed Income-tax Act, 1961 for periods before 1 April 2026): 12.5% plus surcharge and cess on long-term capital gains where the property has been held for more than 24 months, or applicable income tax slab rates, up to 30% at the highest slab, for short-term gains. TDS is charged on the capital gain, not the full sale price, but buyers typically deduct on the full consideration where no lower deduction certificate has been obtained. The buyer files the quarterly return in Form No. 144 and issues Form No. 131 to the seller.
What are Form No. 145 and Form No. 146?
Form No. 146 is the Chartered Accountant's certificate confirming that tax on the remittance has been paid or provided for, in accordance with the Income-tax Act, 2025 and the applicable Double Taxation Avoidance Agreement. Form No. 145 is the remitter's declaration filed on the Income-tax e-filing portal, incorporating the details from Form No. 146. Both are prescribed under Rule 220 of the Income-tax Rules, 2026 and Section 397(3)(d) of the Income-tax Act, 2025, and replace the former Forms 15CB and 15CA with effect from 1 April 2026. Form No. 146 must be obtained before Form No. 145 is filed.
Can NRI sale proceeds be credited directly to an NRE account?
No. Property sale proceeds must first be credited to the NRO account. Repatriation from NRO abroad is permitted up to USD 1 million per financial year on Form No. 145 and Form No. 146 compliance. Funds may be transferred from NRO to NRE after tax compliance, but the initial receipt of Indian property sale proceeds must be through the NRO account.
Can an NRI reduce TDS to the actual tax liability before the sale?
Yes. The NRI applies to the Jurisdictional Assessing Officer under Section 395(1) of the Income-tax Act, 2025 (formerly Section 197) in Form No. 128 (formerly Form 13) for a lower or nil deduction certificate, filed through the TRACES portal before the sale completes. The buyer then deducts at the certified rate rather than on the gross consideration. Where a Section 54 reinvestment is planned, the effective liability — and therefore the certified rate — is lower.
Does an NRI seller get the indexation benefit?
No. The indexation benefit on long-term capital gains from property was removed with effect from 23 July 2024 by the Finance (No. 2) Act, 2024, and the grandfathering election available to resident individuals and Hindu undivided families for property acquired before that date does not extend to non-residents. An NRI seller's gain is computed at 12.5% without indexation of the cost of acquisition.