Priya Shah, an NRI based in Singapore, decided to sell her Pune apartment for ₹1.2 crore. Before finalising the deal, she checked her holding period and realised she was just weeks away from completing 24 months.
She delayed the registration slightly so the transfer qualified as long-term capital gains. She also applied for a lower TDS certificate since her actual capital gain was much lower than the TDS deducted on the full sale value.
By aligning the transfer date with her Section 54 investment timeline and keeping all documents ready, Priya reduced excess tax deductions and ensured a smooth repatriation of funds.
Transfer date matters most
In most cases, when an NRI sells property in India, the date of registration of the sale deed is treated as the date of transfer for capital gains tax purposes. This is because capital gains tax is triggered when the property’s ownership legally passes to the buyer. Legally, ownership transfers when the sale deed is executed and registered.
“Simply signing an agreement to sell does not usually amount to a transfer unless possession and substantial payment have also been completed in a legally enforceable way. But generally, the registration date is considered the transfer date,” says Abhishek Soni, Ceo, Tax2win
“The buyer’s TDS obligation is triggered on the actual date of transfer , irrespective of the date of agreement or registration. Consequently, the deduction of tax and adherence to the statutory timelines must be aligned with this transfer date,” says Kunal Savani, Partner, Cyril Amarchand Mangaldas.
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Navigating the 24-month holding rule
As we have seen, Sec. 2(47) of the Income-tax Act, 1961, defines the word “transfer” for the purpose of capital gains. “This states that tax liability arises when there is a transfer. A transfer takes place when a deed of transfer is executed or when possession is handed over, whichever is earlier,” says Anil Harish, Managing Partner, D. M. Harish & Co., Advocates.
“Taxpayers often make mistakes like assuming that the agreement date is the date of transfer and consequently end up reporting capital gains in the wrong financial year (also leading to mismatches with the buyer’s TDS deduction in some cases),” says Savani.
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It is advisable for taxpayers to appropriately plan such a transfer and ensure (i) agreement and registration fall within the same financial year to avoid any scrutiny; eligibility for long-term capital gains treatment (i.e., by ensuring the property has been held for more than 24 months prior to the date of transfer); and (iii) evaluating available tax exemptions provides opportunities to optimize tax liability.
When should TDS really be deducted?
The question of Tax Deducted at Source is important. Sec.195 of the Income-tax Act 1961 states that if any payment is made to an NRI, income tax is to be deducted at source.
If the transaction is a one-shot payment and the entire amount is paid at once, then TDS would have to be calculated with reference to that date. The tax would have to be paid by the 7th of next month.
“The issue arises if the payment is made at more than one place. If, for example, earnest money is paid on 10 February and the balance is paid on March 20, should TDS be deducted on February 10 with reference to the February 10 payment? Or should it be only with reference to the 20th March payment?” says Harish.
In practice, some people deduct TDS at 10% and then at 90% later. Others do it entirely on the basis of a deed of transfer. “It could be that the seller does not have a good title or the buyer does not have the money ready, and therefore the transaction could get cancelled. In such a case, if TDS had been deducted even with reference to the earnest money under the agreement, it could result in a problem.
For example, suppose the deal is for ₹10 crore. The buyer pays ₹1 crore as an advance and deducts ₹15 lakh as TDS, so the seller actually receives only ₹85 lakh. If the deal later falls through, the seller may not be able to return the full ₹1 crore immediately, as only ₹85 lakh has been received. The remaining ₹15 lakh has already gone to the tax department. At the same time, the seller cannot claim credit for this TDS either, since no income has arisen because the sale never happened.
“Therefore, in practical terms, many people prefer to state in the agreement that the amount paid is in advance and refundable in the event the transaction is not completed. In the event the transaction is completed, then it will be treated as part of the sale proceeds, and in such a case, TDS would be entirely on the last date,” says Harish.
Timing transfers to avoid penalties
NRIs can plan in the following ways. Ensure the transfer occurs after 24 months of holding, so the gain qualifies as long-term. “Apply for a lower or nil TDS certificate if the actual capital gain is lower than the default TDS rate. Plan the timing of the transfer so that exemptions under Sections 54 or 54F can be properly claimed. Maintain proper documentation for easier repatriation of sale proceeds,” says Soni.
File the Indian income tax return on time to claim TDS credit or refunds. Proper timing and planning can significantly reduce taxes and avoid unnecessary complications.
“An incorrect assumption that registration alone governs transfer frequently results in excess deduction, denial of treaty benefits, or misalignment between the year of taxability and the year in which TDS credit becomes available, thereby creating avoidable cash flow constraints and compliance disputes for the non-resident,” says Tushar Kumar, Advocate, Supreme Court of India.
From a strategic standpoint, the timing of the transfer is a powerful and legitimate instrument of tax optimisation and regulatory efficiency. “By carefully synchronising the date of possession, receipt of consideration, and execution of the conveyance, an NRI may ensure eligibility for long-term capital gains treatment, maximise exemption opportunities, and streamline repatriation of sale proceeds under the applicable foreign exchange framework,” says Kumar.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
