Buying Property from an NRI in India FY 2026–27: Complete Tax, TDS & DTAA Guide

By CA Surekha Ahuja

FY 2026–27 brings major procedural and compliance changes for buyers purchasing property from NRIs in India, including PAN-based TDS simplification from 1 October 2026 and revised compliance forms under the Income Tax Act, 2025.

This guide explains the complete tax, TDS, DTAA, repatriation and compliance framework applicable to property purchases from NRI sellers in India during FY 2026–27.

Key Change in FY 2026–27

1 April 2026 – 30 September 2026

• Buyer generally required to obtain TAN
• TDS governed by Section 393(2)(a)

From 1 October 2026

• PAN-based simplified TDS mechanism introduced
• No TAN requirement in eligible cases
• Section 393(2)(b)

Old vs New Section Mapping

Income Tax Act, 1961	Income Tax Act, 2025	Purpose
Section 194-IA	Section 394	Resident property TDS
Section 195	Section 393(2)	TDS on payments to NRIs
Section 195(8A)	Section 393(2)(b)	PAN-based simplified TDS
Section 206AA	Section 402	Higher TDS for no PAN
Section 197	Section 395	Lower/nil deduction certificate
Form 13	Form 128	Lower/nil TDS application
Form 15CA	Form 145	Foreign remittance declaration
Form 15CB	Form 146	CA remittance certificate
Form 26AS	Form 168	Tax credit statement
Form 16A	Form 131	TDS certificate
Form 27Q	Form 144	NRI TDS return
Section 54	Section 123	Residential reinvestment exemption
Section 54F	Section 124	LTCG reinvestment into residential house
Section 54EC	Section 125	Investment in specified bonds

Correct Tax, TDS & Surcharge Rates – FY 2026–27

Category	Final Tax Rate	Practical TDS Rate*
LTCG (holding ≥24 months)	12.5% + surcharge + 4% cess	12.5% + surcharge + 4% cess
STCG (holding <24 months)	Slab rates	Generally 30% + surcharge + 4% cess

*Subject to lower/nil deduction certificate under Section 395.

Correct Surcharge Position for Property LTCG

LTCG Taxable Under Section 112

Total Income	Applicable Surcharge
₹50 lakh – ₹1 crore	10%
₹1 crore – ₹2 crore	15%
Above ₹2 crore	15% cap continues

Cess: 4% on tax plus surcharge.

Enhanced surcharge rates of 25% and 37% do not apply to LTCG taxable under Section 112. Effective surcharge on such gains remains capped at 15%.

Most Important Rule

In NRI property transactions, TDS is generally deducted on the full sale consideration unless the seller obtains a lower deduction certificate.

Although tax is legally deductible on the sum chargeable to tax, buyers commonly deduct on gross consideration to avoid exposure and litigation risk.

Essential Due Diligence Before Purchase

Before payment or registration, verify:

• Encumbrance Certificate
• Complete title chain
• Mutation records
• Seller PAN
• Passport / OCI / PIO documents
• Tax Residency Certificate (TRC)
• Form 10F in DTAA cases

Maintain:

• Agreements
• TDS records
• Bank trail
• Capital gains computation
• Registration documents

for at least 7 years.

Most Important Tax Planning Tool

Section 395 – Form 128

Lower/Nil TDS Certificate.

Why It Matters

Without Form 128:

• TDS may substantially exceed actual capital gains liability
• Seller refund may remain blocked for months

With Form 128:

• TDS aligns closer to actual taxable gains
• Significant cash-flow relief possible

Best Practice

Apply 45–60 days before registration.

TDS Compliance – Before 1 October 2026

Buyer generally must:

• Obtain TAN through Form 49B
• Deposit TDS through ITNS 281
• File TDS return in Form 144
• Issue TDS certificate in Form 131

TDS Compliance – From 1 October 2026

Simplified PAN-based process expected:

• No TAN requirement in eligible cases
• PAN-based compliance
• Challan-cum-statement mechanism
• Simplified certificate generation

Capital Gains Exemptions – FY 2026–27

New Section	Earlier Section	Benefit	Limit
Section 123	Section 54	Residential reinvestment	₹10 crore
Section 124	Section 54F	LTCG reinvestment into residential house	₹10 crore
Section 125	Section 54EC	NHAI / REC bonds	₹50 lakh

DTAA Position – No Direct TDS Relief

India generally retains taxation rights over immovable property situated in India.

Therefore:

• TDS continues to apply in India
• DTAA usually provides foreign tax credit relief later in country of residence

Repatriation Rules

NRI sellers may generally repatriate:

Up to USD 1 million per financial year

subject to:

• Payment of taxes
• FEMA compliance
• Form 145 / Form 146 compliance
• Banking documentation

Key Compliance Risks

Issue	Consequence
Delay in TDS deduction	Interest liability
Delay in TDS deposit	Interest + penalty
Short deduction	Buyer may be treated as assessee in default
No/invalid PAN	Higher TDS exposure
Incorrect filings	Penalty exposure

Interest under Section 401(1A):

• 1% per month for non-deduction
• 1.5% per month for delayed deposit

Final Takeaways

• PAN verification should happen first
• Form 128 is the single most important tax planning tool
• Post-1 October 2026 transactions are procedurally simpler
• LTCG surcharge on property gains is effectively capped at 15%
• DTAA does not remove Indian TDS
• Maintain complete tax and TDS documentation
• High-value transactions should always be CA-reviewed before payment

Final Practical Strategy

Form 128 filed early + PAN verified upfront + post-1 October 2026 execution (where feasible) = the most efficient structure for buying property from an NRI in India during FY 2026–27.

NRI Property Sales 2026 – Lower TDS Certificate & India-US Investment Advisory

 By CA Surekha S Ahuja

Introduction: The 2026 NRI Property Landscape

As 2026 unfolds, NRIs face a transformed taxation and investment environment for Indian property sales:

• Finance Act 2025: LTCG at 12.5% without indexation, or 20% with indexation for pre-July 2014 properties.

• Section 195 TDS remains a key liquidity issue: buyers must deduct TDS on gross sale proceeds, potentially locking up significant funds.

• US-resident NRIs must consider PFIC taxation, impacting Indian mutual fund investments.

Critical questions for NRIs:

1. Should I obtain a Lower TDS Certificate (Form 13)?

2. How do PAN, Aadhaar, and residential status affect TDS and refunds?

3. Should I reinvest in India or repatriate to the USA?

This guidance note provides a 360-degree roadmap for NRI sellers.

Lower TDS Certificate (Form 13) – Strategic Cash Flow Management

Why Form 13 Matters

• Buyers deduct TDS on total sale value without a certificate.

• With Form 13, TDS is restricted to actual capital gains, often much lower than gross sale value.

• Protects liquidity and blocked capital, especially for high-value sales.

Decision Matrix – When to Apply Form 13

Scenario	Standard TDS (No Certificate)	Form 13 – Lower TDS Certificate	Recommendation
High-cost property, small gain	TDS ~20–24% of total sale	TDS only on gains (0–12.5%)	No-brainer – Apply Form 13
Reinvestment under Sec 54/54EC	Funds blocked 12–18 months	TDS can be reduced to 0%	Apply Form 13
Pre-2014 property	Buyer deducts 20% on gross	AO applies lower of 12.5%/20% with indexation	Apply Form 13
Urgent sale / time-critical	Delays certificate issuance	2–4 weeks wait	Consider skip and claim refund later
Small-ticket sales (<₹25L)	TDS impact low	Certificate cost may exceed blocked interest	Skip if minimal financial impact

New TDS Rates for NRI Property Sales (2026)

Gain Type	Sale Value	Base Rate	Surcharge	Cess	Effective TDS
LTCG	≤₹50L	20%	Nil	4%	20.8%
LTCG	₹50L–₹1Cr	20%	10%	4%	22.88%
LTCG	>₹1Cr	20%	15%	4%	23.92%
STCG	Any	30%	10–15%	4%	31.2–35.88%

Key insight: Form 13 reduces TDS from gross sale value to actual gains, releasing trapped capital immediately.

PAN, Aadhaar & Residential Status – Compliance Imperatives

• PAN: Mandatory; absence triggers Section 206AA, higher TDS

• Aadhaar: Optional but speeds up Form 13 issuance and refunds

• Residential Status: NRIs and RNORs fall under Section 195, not 194-IA

Implications: Proper documentation ensures minimal blocked funds, faster refunds, and smoother repatriation.

Buyer-Facing Compliance Advisory

• Verify seller PAN and documentation

• Request Form 13 for high-value/complex sales

• Collect proof for Sec 54/54EC reinvestments

• Ensure AO applies pre-2014 indexation benefits

• Monitor TDS compliance and timelines

Consequences of non-compliance: penalties, delays, or buyer liability issues.

Repatriation & US-NRI PFIC Advisory

FEMA-Compliant Repatriation

• Limit: USD 1 million per financial year from NRO account

• Requires Forms 15CA & 15CB

• Excess TDS cannot be repatriated until refund is processed

US-NRI Considerations

• Indian Mutual Funds = PFICs, subject to punitive US taxation

• Prefer Direct Equities, PMS, or AIFs

• Plan globally: minimize PFIC exposure, optimize liquidity, and align with US tax rules

India vs. USA – Investment Verdict

Factor	India (Growth)	USA (Safety)
Economy	Fastest-growing large economy	Stable S&P 500, predictable returns
Currency	INR resilient	USD strong (₹90+), hedge volatility
Tax	Complex TDS + ITR	Simpler US tax compliance
Investment	Direct equity, PMS, AIF, commercial real estate	US ETFs, retirement funds

Strategic Recommendation:

• Aggressive (<50, Indian tax resident): Retain proceeds in India; invest in direct equity or commercial property

• Conservative / US-tax resident: Use Form 13, repatriate under FEMA, invest in US-based instruments, avoid PFICs

Common Myths – Debunked

Myth	Reality
TDS = 1%	Only for residents (194-IA). NRIs under 195 = 20–24%
TDS is final tax	Must file ITR to claim refund / pay balance
Repatriation is immediate	Excess TDS waits for refund cycle; USD 1M/year cap
Indian Mutual Funds safe	PFIC rules apply; punitive US tax

Actionable NRI Seller Plan (2026)

1. Confirm residential status, PAN, Aadhaar

2. Compute capital gains (LTCG/STCG)

3. Decide reinvestment vs. exit

4. Apply Form 13 if blocked funds > 15–20% of gains

5. Ensure buyer TDS compliance

6. Plan FEMA-compliant repatriation (USD 1M limit)

7. For US-residents, avoid PFIC exposure; prefer direct equity/US ETFs

Principle: Cash flow, liquidity, and compliance are as critical as tax optimization. Form 13 is a strategic liquidity tool, not just a compliance form.

Final Takeaway

In 2026, NRI property sales require:

• Strategic use of Form 13 to release blocked capital

• PAN/Aadhaar and residential compliance

• Informed decisions on reinvestment vs repatriation

• Awareness of US-PFIC implications for cross-border investors

Proper planning ensures your wealth works for you, not the tax authorities.

 

Clause 422, Income-tax Bill 2025: Why NRIs Must Now Treat Tax Reconciliation as Asset Protection

 By CA Surekha S Ahuja

No panic. No noise. Just a quiet change in recovery law that every NRI with Indian assets should understand.

The proposed Income-tax Bill, 2025 introduces Clause 422, a provision that subtly but decisively reshapes the manner in which outstanding tax dues may be recovered. While the authority to recover taxes is not new, the speed and sequencing under the new framework marks a material shift, particularly for Non-Resident Indians (NRIs) who manage Indian assets and compliance remotely.

This note is intended as a professional advisory with an alert element — to help NRIs understand the change clearly, assess their exposure calmly, and take preventive steps where required.

Understanding Clause 422 — What Has Really Changed

Clause 422 consolidates and modernises the recovery provisions that earlier existed across multiple sections of the Income-tax Act, 1961. The most significant change is procedural compression.

Once a tax demand becomes legally enforceable, the tax authorities may initiate recovery actions such as attachment of bank accounts, fixed deposits, rental receivables, or immovable property, where recoverable dues exceed the prescribed threshold.

Importantly, this does not remove the taxpayer’s right to appeal, seek rectification, or obtain relief through due process. However, the practical time gap between demand crystallisation and recovery action has reduced.

Why This Matters More for NRIs

Most NRIs manage Indian tax matters in good faith, relying heavily on tax deducted at source and third-party reporting. While this model works in most cases, it also means that system-driven mismatches, rather than intentional defaults, are the primary source of exposure.

Typical areas where NRIs encounter issues include rental income where TDS under Section 195 is short or incorrectly deposited, property sales where TDS at 30 percent exceeds actual capital gains, refunds withheld due to automated verification or risk flags, and small interest or penalty demands that remain unnoticed on the e-filing portal.

Under Clause 422, unresolved mismatches — not intent — may lead to faster recovery actions.

How Risk Commonly Builds Up in Practice

Experience shows that recovery exposure rarely begins with large tax defaults. More often, it starts with a small difference, an untracked demand, or a pending clarification. In a fully digital environment, silence or delay is interpreted as non-response, allowing the system to move forward.

Clause 422 does not change the law’s intent; it changes the tempo.

Advisory Safeguards NRIs Should Implement

Periodic reconciliation of Form 26AS and AIS is now essential, not optional. This ensures that income, TDS credits, and system records are aligned and that no demand remains unnoticed.

Where income has been under-reported inadvertently or TDS credit has been missed, ITR-U provides a structured and lawful route to regularise matters. Used timely, it prevents minor gaps from maturing into recovery proceedings.

Equally important is maintaining complete DTAA documentation, including a valid Tax Residency Certificate and Form 10F. Proper treaty compliance often reduces excess TDS and avoids refund-driven mismatches that later convert into demands.

What Clause 422 Does Not Mean

Clause 422 does not permit arbitrary attachment of assets. It does not override appellate remedies or dilute taxpayer protections. Compliant taxpayers remain fully safeguarded.

The provision simply reflects an expectation of timely response and data accuracy in a technology-driven tax ecosystem.

Professional Perspective

Clause 422 reinforces a fundamental professional principle:

In a real-time tax system, timely reconciliation is the most effective form of asset protection.

For NRIs holding Indian real estate, rental portfolios, bank deposits, or repatriation-linked investments, compliance discipline is now a strategic necessity, not a procedural formality.

Conclusion

There is no cause for alarm.
There is, however, a clear reason for attentiveness.

Clause 422 does not introduce a new power; it reduces the cushion of time that taxpayers previously relied upon. NRIs who monitor, reconcile, and regularise their tax positions remain on solid ground. Those who delay may find that recovery mechanisms move faster than expected.

Calm compliance continues to be the strongest safeguard.

Joint Development Agreement (JDA) Taxation in India: Capital Gains vs Business Income – Case Law, NRI Taxation & Guidance

By CA Surekha S Ahuja

“In Joint Development Agreements, taxability follows conduct — not contracts.”

Courts do not tax JDAs by their commercial appeal or revenue potential. They tax them by role, risk, and legal transfer.

Joint Development Agreements (JDAs) have become a preferred real-estate monetisation model in India, allowing landowners to unlock value without funding construction. However, JDAs also attract intense tax scrutiny, particularly on whether receipts should be taxed as capital gains or business income, and on when such income becomes taxable.

Mischaracterisation can result in denial of indexation, higher tax rates, GST exposure, interest, and prolonged litigation. For NRIs, the risk multiplies due to TDS under section 195, DTAA application, and FEMA repatriation rules.

This article provides a case-law–driven, SEO-aligned, and advisory-focused analysis of JDA taxation, explaining:

• capital gains vs business income,

• judicial differentiators,

• tax planning guardrails, and

• compliance obligations for resident and NRI landowners.

JDA Taxation: Capital Gains vs Business Income

Indian courts have consistently held that the nature of income under a JDA depends on the role of the landowner, not on the wording of the agreement or the form of consideration.

Judicially Accepted Determinants

Parameter	Capital Gains Treatment	Business Income Treatment
Role of landowner	Passive contribution of land	Active involvement in development
Nature of land	Capital asset	Stock-in-trade
Consideration	Revenue share / built-up area / cash on transfer	Income from development activity
Timing of tax	On legally effective transfer	On accrual / receipt
Key cases	Mathikere Ramaiah Seetharam (2025), V.S. Construction (2017)	CIT v. Hind Construction Ltd. (2019), Ashoka Buildcon Ltd. (2020)

Insight: Passive landowners under JDAs are normally taxed under capital gains, not business income.

Leading JDA Case Law Explained

DCIT v. Mathikere Ramaiah Seetharam (2025, ITAT Bangalore)

• Land contributed under JDA

• No role in construction or marketing

Held:
Income taxable as Long-Term Capital Gains (LTCG); advances are not business income.

Key Principle:
Revenue sharing alone does not convert capital gains into business income.

V.S. Construction Co. (2017)

• Revenue share agreement

• No development role of landowner

Held:
Capital gains treatment upheld; advances treated as capital receipts.

CIT v. Hind Construction Ltd. (2019)

• Landowner actively involved in execution

Held:
Income taxable as business income.

Differentiator:
Operational involvement and risk assumption.

Ashoka Buildcon Ltd. (2020, Bombay HC)

Held:

• Developer → business income

• Landowner → capital gains

Key Learning:
Different parties to the same JDA can have different tax treatments.

JDA Taxation for NRIs – Special Focus

Issue	NRI-Specific Compliance
TDS (Section 195)	Applicable only on sums chargeable to tax
DTAA relief	Can reduce withholding; PAN mandatory
FEMA compliance	Repatriation subject to RBI norms
Form 15CA/15CB	Mandatory for outward remittance
Timing of tax	Capital gains on transfer, not on advance
GST exposure	Only if income is business income

JDA tax for NRIs requires simultaneous compliance under Income-tax Act and FEMA.

Tax-Saving Strategies (Judicially Sustainable)

• Maintain a strictly passive role as landowner

• Avoid participation in construction, marketing, or financing

• Clearly document advances as adjustable capital receipts

• Time transfer deeds to optimise LTCG computation

• Avail indexation benefits for land held beyond 24 months

• Apply DTAA provisions to reduce TDS for NRIs

• Segregate roles clearly in joint ventures

These strategies are court-tested, not aggressive tax planning.

Common Mistakes Leading to Disallowances

• Treating land as stock-in-trade without formal conversion

• Recognising advances as taxable income prematurely

• Mixing passive and active roles without accounting clarity

• Incorrect or excess TDS deduction under section 195

• FEMA non-compliance during repatriation

• Weak documentation of JDA terms and possession clauses

Most JDA disputes arise from execution lapses, not legal uncertainty.

Practical Case Study (JDA + NRI)

Facts:
An NRI landowner contributes land under a JDA and receives 30% of constructed flats. He has no role in construction.

Tax Outcome:

• Income taxable as LTCG on transfer/sale

• Indexation benefit available

• TDS under section 195 applies only on sale

• DTAA may reduce tax

• Form 15CA/15CB required for repatriation

Contrast:
Active participation would shift taxation to business income, with possible GST exposure.

Conclusion

The taxation of Joint Development Agreements in India is well-settled in law but sensitive in execution.

• Passive landowners enjoy capital gains treatment and indexation benefits.

• Active participants face business income taxation and higher compliance burden.

• NRIs must manage TDS, DTAA relief, and FEMA rules with precision.

Final Takeaway:
Clear role definition, disciplined documentation, and alignment with judicial precedents are the most reliable tools for optimising tax outcomes and avoiding prolonged litigation under JDAs.

 

Foreign Asset Disclosure in ITR – AY 2025–26

Professional Compliance, Risk Analysis, and Practical Guidance
By CA Surekha S Ahuja

Introduction: The Compliance Imperative

In today’s interconnected financial world, foreign assets are fully traceable. India participates in CRS and FATCA, enabling the Income Tax Department to receive verified data from hundreds of jurisdictions.

For AY 2025–26, the Department has identified high-risk cases where foreign assets are not reported in ITRs. SMS and email alerts have been sent to taxpayers, who now have until 31 December 2025 to revise returns or face penalties.

This note provides a comprehensive professional guide, covering law, intent, enforcement, penalties, risks, and procedural solutions, including revised ITR for AY 2025–26 and ITR-U for earlier years.

Legal Framework: Statutory Obligations

• Income-tax Act, 1961

  • Section 139(1): Requires all ROR taxpayers to disclose all foreign assets in Schedule FA.

  • Section 149: Reopening of assessments for foreign matters up to 16 years.

  • Rule 12 & ITR Forms: Specify reporting format and timeline.

• Black Money (Undisclosed Foreign Income & Assets) Act, 2015 (BMA)

  • Tax: 30% of asset value

  • Penalty: 90% of asset value

  • Prosecution: Up to 10 years

  • Applies even to historic assets or if foreign tax has been paid.

• CRS & FATCA Data Exchange

  • Annual sharing of bank accounts, investments, pensions, insurance, trusts, and entities.

  • Automatic cross-verification with ITR filings.

  • Non-disclosure flags high-risk cases.

Key Principle: Any foreign asset over which the taxpayer has ownership, control, or beneficial interest must be disclosed.

Legislative Intent: Purpose Behind Disclosure

1. Prevent Offshore Tax Evasion: Identify undisclosed accounts, layered investments, and untaxed foreign income.

2. Encourage Voluntary Compliance: Early correction reduces penalties and prosecution risk.

3. Align with Global Norms: CRS and FATCA obligations require domestic transparency.

Scope of Schedule FA: What to Disclose

• Bank Accounts: Active, dormant, joint, inherited, closed

• Investments: Foreign equities, bonds, mutual funds, ETFs, RSUs/ESOPs

• Insurance & Retirement Funds: 401(k), IRA, superannuation, foreign pensions

• Business/Entity Interests: Foreign companies, partnerships, trusts (all roles)

• Property Abroad: Residential, commercial, direct, or indirect

• Digital/Crypto Assets: Foreign wallets, exchanges

• Other Rights: Royalties, IP income, nominee accounts

Rule of Thumb: If the asset exists outside India and provides financial benefit, it must be disclosed.

Current Enforcement: AY 2025–26 Posture

• High-Risk Identification: AI-driven matching of foreign asset data vs. Schedule FA.

• SMS/Email Nudges: Alert taxpayers to revise ITRs by 31 December 2025.

• Past Year Performance: 24,678 taxpayers revised returns, disclosing ₹29,208 crore in assets and ₹1,089.88 crore in foreign-source income.

• Frequently Affected Groups: Senior citizens, retired NRIs, parents with joint accounts, RSU/ESOP holders.

Voluntary revision now avoids presumptions of concealment.

Consequences of Non-Disclosure

Income-tax Act

• Reopening under Section 149

• Penalty under Section 270A (200% of under-reported tax)

• Prosecution under Sections 276C/277

Black Money Act

• Tax: 30% of asset value

• Penalty: 90% of asset value

• Combined: 120% of asset value

• Prosecution: Up to 10 years

• Confiscation possible

Additional Risks: PAN flagged high-risk, restricted remittances, FEMA scrutiny, loss of treaty benefits, reputational and financial risk.

Procedural Solutions: Corrective Measures

1. Audit All Foreign Assets: Bank accounts, ESOPs, pensions, trusts, property.

2. Reconcile with Schedule FA: Confirm balances, ownership, and foreign-source income.

3. File Revised or Updated ITR:

   • AY 2025–26: File a revised ITR before 31 December 2025.

   • Earlier two years: Use ITR-U (Updated ITR) to report previously undisclosed foreign assets.

4. Maintain Documentation: Bank statements, acquisition proofs, foreign taxes paid, valuations.

5. Respond Promptly to Notices: Address SMS/email alerts professionally.

6. Seek Expert Guidance: Complex assets like trusts, RSUs, crypto, and cross-border investments require professional interpretation.

Foreign Asset Disclosure Checklist

• ✔ Bank accounts (active, dormant, joint, closed)

• ✔ Brokerage/custodial accounts, RSUs/ESOPs

• ✔ Foreign shares, ETFs, bonds

• ✔ Overseas property (residential/commercial)

• ✔ Foreign entities, trusts, partnerships

• ✔ Insurance and retirement funds

• ✔ Crypto or digital assets abroad

• ✔ Foreign royalties, IP income, nominee accounts

Guiding Principle: When in doubt, disclose it.

Conclusion: Transparency as Protection

Foreign asset disclosure is no longer a formality—it is financial self-protection.

Proactive, accurate, and well-documented disclosure ensures compliance, preserves legacy, and mitigates severe penalties.

“What you voluntarily disclose today will always cost less than what the system discovers tomorrow.”

For AY 2025–26, revision and professional documentation are critical, while earlier years can be regularized using ITR-U, ensuring full compliance and minimizing enforcement risk.

GST on Renting Commercial Property from an NRI Landlord in the Same State — Reverse Charge Mechanism (RCM) & Place of Supply Explained

Renting commercial property from a Non-Resident Indian (NRI) landlord is becoming increasingly common, particularly in metro business hubs. However, when the landlord is outside India, GST compliance can get tricky — especially with Reverse Charge Mechanism (RCM) rules and the Place of Supply (POS) determination.

This note provides an exhaustive, practical, and law-backed guide to understanding whether GST applies under RCM, and whether CGST+SGST or IGST is payable when the property is in the same state as the tenant’s GST registration.

Legal Backdrop — Why This Matters Now

Until late 2024, renting commercial property generally required forward charge GST — the landlord collected and remitted the tax. Many landlords, especially individuals and NRIs, were unregistered either because their rental income was below the threshold, or simply due to non-compliance.

Problem:
Tax leakage from unregistered property owners.

Solution by Government:
Through Notification No. 09/2024 – Central Tax (Rate) dated 8 October 2024 (effective 10 October 2024), GST liability on renting of commercial property from unregistered persons shifted to the recipient under RCM — irrespective of:

• Landlord’s turnover, or

• Residential status (resident or NRI).

Policy Objective:

1. Bring uniformity in tax treatment of commercial rentals.

2. Plug GST revenue leakage from unregistered owners.

3. Shift tax responsibility to registered tenants who can comply.

NRI Landlords — Are They “Non-Resident Taxable Persons” (NRTPs)?

Definition (Section 2(77), CGST Act):
NRTP = A person who occasionally undertakes taxable transactions in India without a fixed place of business or residence in India.

In our case:

• Renting is continuous supply of service (Section 2(102) + Schedule II).

• The NRI owns immovable property in India — considered a fixed place of business for GST purposes.

  • Circular No. 37/11/2018-GST: Ownership and use of property for taxable supply can amount to a place of business.

  • Case Law — In re Tagros Chemicals India Pvt. Ltd. (AAR Tamil Nadu): Ownership of land with taxable supplies = place of business.

Conclusion:
The NRI landlord is not an NRTP here.

• If registered → charges GST under forward charge.

• If unregistered → recipient must pay GST under RCM per Notification No. 09/2024.

RCM Overlap — Domestic RCM vs Import of Service

This transaction technically satisfies both:

• Import of Service (Section 2(11), IGST Act) — Supplier outside India, recipient in India, POS in India.

• Domestic RCM on unregistered supplier — per Notification No. 09/2024.

Compliance reality:

• GST liability is paid only once.

• Classification impacts tax type:

  • Import of Service → IGST

  • Domestic RCM → CGST + SGST

• ITC is available in both cases if property is used for business.

Best Practice:
Treat as domestic supply under RCM where the property and tenant are in the same state — avoids IGST complications, aligns with state-wise revenue allocation, and fits GST portal logic.

Who Is the ‘Supplier’ in RCM for POS Purposes?

This is where interpretation matters.

Two views:

1. Actual Supplier View — POS determined based on landlord’s location → may create unworkable situations where CGST/SGST of another state would need to be paid.

2. Deemed Supplier View (Preferred) — Under Section 9(3), recipient is treated as supplier for liability purposes, so for POS:

   • Location of recipient = location of supplier (deemed).

   • Prevents cross-state mismatch.

   • Matches GST Council’s destination-based taxation principle.

Recommendation:
Adopt deemed supplier approach for RCM POS determination.

Place of Supply — Renting of Immovable Property

Special rule:

• Section 12(3), IGST Act (both parties in India) → POS = location of property.

• Section 13(4), IGST Act (one party outside India) → POS = location of property.

Our case:

• Property in same state as tenant’s GST registration.

• POS = that state → Intra-State supply → CGST + SGST payable under RCM.

Practical Compliance Steps

If landlord is unregistered:

1. Raise self-invoice for rent under RCM.

2. Pay CGST + SGST in GSTR-3B (Table 4A(3)).

3. Claim ITC in the same return (if eligible).

4. Keep rent agreement, landlord’s details, and payment proofs for audit trail.

If landlord is registered:

• GST charged under forward charge by landlord; you pay GST to landlord and claim ITC.

Final Position

Facts:

• Commercial property in same state as tenant’s GST registration.

• NRI landlord, unregistered in GST.

Tax Treatment:

• RCM applies under Notification No. 09/2024.

• CGST + SGST payable (not IGST).

• Full ITC available if used for business.

Key Insight:
While the landlord’s NRI status might initially suggest an “import of services” route, the nature of the service (linked to immovable property in India) and RCM notification together make domestic RCM with CGST+SGST the more practical, legally sound, and administratively aligned approach.

Returning NRIs, Foreign Property, and Overseas Loans

A Legal and Strategic Guide under FEMA, Income Tax, and RBI Regulations

Introduction: The Quiet Complexity of Coming Home

For thousands of Non-Resident Indians (NRIs), the decision to return to India—whether prompted by the global pandemic, a career shift, or family priorities—brings not just emotional and cultural realignment, but also a complex set of financial and legal transitions.

Among the most common challenges faced by returning NRIs is this:

“I bought property abroad using a loan. Can I keep it after returning to India? Can I continue to pay the EMIs from India or from the rent earned there? What are the tax, FEMA, and RBI implications?”

These questions are not merely academic. They touch upon a confluence of laws—FEMA regulations, Income Tax Act provisions, and RBI circulars—each of which treats foreign income, asset holding, and loan repayment differently depending on a person's residential status.

Many returnees are unaware that residential status under FEMA and residential status under the Income Tax Act are determined differently, and often become misaligned. Others continue remitting funds for EMI payments without complying with India’s foreign exchange rules, or fail to disclose foreign rental income and property in their Indian tax returns—exposing themselves to avoidable legal and financial risks.

This comprehensive guide is written to address every possible scenario faced by a returning NRI who still holds property and obligations abroad. It offers clear, practical answers backed by:

• The letter of the law,

• Judicial and regulatory interpretations,

• Reporting requirements, and

• Strategic compliance choices.

Whether you plan to retain or sell the overseas property, continue loan repayments, or reinvest the proceeds in India, this guide provides a reliable legal and financial roadmap.

Let us begin by understanding the foundational principle: the dual definitions of residency under Indian law—and why they matter.

Dual Residency Status: Income Tax Act versus FEMA

Understanding the difference in residential classification under the Income Tax Act and FEMA is foundational.

A. Under the Income Tax Act, 1961

This determines whether foreign income and assets are taxable and reportable in India.

• Resident and Ordinarily Resident (ROR):

  • Global income, including rental income and capital gains from foreign property, is taxable in India

  • Disclosure of all foreign assets in Schedule FA is mandatory

  • Eligible for Foreign Tax Credit (FTC) under Double Taxation Avoidance Agreements (DTAAs) through Form 67

• Resident but Not Ordinarily Resident (RNOR) / Non-Resident (NR):

  • Only income sourced or received in India is taxable

  • Foreign income and assets are generally not taxable or reportable

Most NRIs who returned during or after the COVID period and stayed in India for more than 730 days over the preceding seven years now qualify as ROR.

B. Under FEMA, 1999

This governs the ability to retain or acquire foreign assets and the permissibility of foreign transactions.

• A person becomes a "Resident" under FEMA if they reside in India for more than 182 days in the preceding financial year with an intention to stay in India permanently.

• Once classified as a resident under FEMA, acquisition of new foreign assets requires RBI permission.

• However, retention of assets acquired while being an NRI is fully permitted.

Can a Returning NRI Retain Foreign Property?

Yes, under Regulation 4 of the FEMA (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015, a person resident in India may continue to hold foreign immovable property if:

• It was acquired while being a non-resident, or

• It was inherited from someone who was permitted to hold such property under foreign exchange laws

There is no requirement to dispose of such assets upon return to India.

Can the Outstanding Loan on the Foreign Property Be Repaid After Returning?

Yes. Under FEMA Notification No. 10(R)/2015-RB, repayment of loans availed abroad while being an NRI is permissible after return, provided:

• The loan was contracted when the person was a non-resident

• The repayment is made through one of the following:

  • Rental income earned from the foreign property

  • Balances held in NRE, FCNR, or RFC accounts

  • Remittance from India under the Liberalised Remittance Scheme (LRS), up to USD 250,000 per financial year

It is important to note that direct remittance from a regular Indian savings account without complying with LRS will constitute a FEMA violation.

Is Foreign Rental Income Taxable in India?

Yes, if the individual qualifies as a Resident and Ordinarily Resident under the Income Tax Act, global income including rental income from property situated abroad is fully taxable in India under Section 5(1).

If tax is also paid in the foreign country (such as Canada or the United States), relief under the relevant DTAA may be claimed through:

• Disclosure of such income in Schedule FSI of the Income Tax Return

• Filing of Form 67 before submission of the return to claim Foreign Tax Credit (FTC)

• Supporting documentation including foreign tax payment proofs and rent agreements

Reporting Obligations under the Income Tax Act

The following compliance steps are essential for ROR individuals:

Compliance Requirement	Tool or Form
Disclosure of foreign rental income	Schedule FSI in ITR-2 or ITR-3
Claim of Foreign Tax Credit (FTC)	Form 67 (mandatory before filing ITR)
Disclosure of foreign assets	Schedule FA
Reporting of capital gains (if any)	Schedule CG and claim DTAA relief if applicable

Failure to disclose foreign assets may attract a penalty under Section 271FAA (₹50,000) and may, in willful cases, be prosecuted under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Making EMI Payments from India – LRS Process

If the returning NRI intends to pay EMIs from India, the following steps must be followed under the Liberalised Remittance Scheme (LRS):

1. Route the remittance through an Authorised Dealer (AD) bank

2. Select the appropriate purpose code (generally S0023 – Loan repayment abroad)

3. Submit required documents including:

   • Loan agreement

   • Proof of property ownership

   • Outstanding loan schedule

   • Tax residency declaration

Note: NRE and FCNR accounts may also be used if not yet re-designated; however, post-return, they should ideally be converted or closed as per FEMA guidelines. Use of RFC (Resident Foreign Currency) accounts is highly recommended for holding and utilising foreign funds post-return.

Sale of Foreign Property – Tax and Repatriation

A. Capital Gains Taxation

• Capital gains on sale of foreign property are taxable in the country of sale and again in India if the individual is ROR

• Relief is available under the DTAA through Foreign Tax Credit

• All such gains must be declared in Schedule CG of the ITR

B. Repatriation of Proceeds to India

Permissible under Regulation 4(2) of FEMA 2015, subject to:

• Proof of legal acquisition and loan repayment

• Documentation including sale deed, bank credit of sale proceeds, and tax payments abroad

• Ideally, funds should be received in India through banking channels or credited to an RFC account

Real-World Scenarios and Strategic Guidance

1. Jointly Owned Property with a Spouse Still Abroad

• Retention is permitted

• Rental income should be split based on ownership ratio

• Each owner must comply separately based on residential status

2. Inherited Foreign Property

• Retention is permitted without restriction

• Must be disclosed in Schedule FA

• Income or gains are taxable in India if the inheritor is ROR

3. Property Not Yielding Rent and EMI Burden Is High

• Consider sale to close the loan

• Repatriate proceeds

• Reinvest in a residential property in India to claim exemption under Section 54 or 54F, even if the capital gains arose abroad

• Route sale proceeds through RFC or through AD bank with full disclosures

Strategic Compliance and Documentation Checklist

Action Item	Frequency / Trigger
Determine residential status under FEMA and Income Tax	At the beginning of each financial year
Convert NRE / FCNR to RFC or Resident Account	Upon return to India
Open RFC account for managing foreign inflows	Immediately after return
Disclose foreign income in Schedule FSI	Annually while filing return
File Form 67 for FTC	Before filing ITR
Disclose property and foreign bank accounts	Annually in Schedule FA
Use LRS or RFC for EMI payment	Monthly or quarterly
Maintain complete documentation	Ongoing

Conclusion: Legally Sound and Strategically Wise

Returning NRIs are fully permitted to retain and manage their foreign property and associated liabilities, provided they align with FEMA regulations and fulfil tax compliance under the Income Tax Act.

With correct use of tools like the RFC account, Form 67, and proper LRS channels, the financial and legal risks can be fully mitigated.

A few key takeaways:

• Retention of foreign assets is legally allowed under FEMA

• EMI repayment must follow LRS or be made through eligible accounts

• Global income is taxable for RORs, but relief is available through FTC

• Disclosure of foreign assets and income is mandatory in Indian tax filings

• Strategic reinvestment can provide tax benefits under Section 54 or 54F

Proper planning, supported by documentary evidence and timely disclosures, can ensure a compliant and financially efficient post-return transition.