When an NRI in Bahrain sells inherited property in India, the buyer must deduct TDS under Section 195 of the Income Tax Act, generally at 20% plus applicable surcharge and cess on long-term capital gains. Bahrain does not levy personal income tax and does not have a comprehensive Double Taxation Avoidance Agreement with India -- only a narrower Tax Information Exchange Agreement -- and the NRI can still repatriate net proceeds abroad, up to USD 1 million (or equivalent) per financial year, from an NRO account, subject to Form 15CA/15CB certification.
How capital gains are calculated on inherited property
Under Section 49 of the Income Tax Act, the cost of acquisition for inherited property carries over
from the original owner rather than resetting to the property's value on the date of inheritance, and
the holding period counts from the original owner's date of acquisition -- so most inherited-property
sales qualify for long-term capital gains treatment, with indexation benefit available where
applicable. This computation is identical for an NRI seller based in Bahrain as it would be for one
based anywhere else.
TDS under Section 195 -- why it is higher than for resident sellers
Section 194-IA's 1% TDS applies only to resident sellers. For a non-resident seller, the buyer must
instead deduct TDS under Section 195, generally on the full sale consideration at the capital-gains
rate unless a lower-deduction certificate has been obtained.
Getting a lower or nil TDS certificate (Form 13 / Section 197)
An NRI seller in Bahrain can apply to the jurisdictional Assessing Officer, via Form 13 under
Section 197, for a certificate authorizing TDS at a lower or nil rate based on the actual computed
gain -- worth evaluating with a chartered accountant before the sale closes.
Repatriation of sale proceeds via FEMA
Net sale proceeds are typically credited to the NRI's NRO account in India. FEMA rules permit
repatriation abroad of up to USD 1 million (or equivalent) per financial year, cumulative across
eligible remittances from that account, subject to the authorized dealer bank receiving Form 15CA (and
Form 15CB where applicable) -- this process is the same for an NRI remitting to a Bahrain bank account
as it is for any other destination country.
Why Bahrain's tax-treaty position is genuinely different from most other countries here
Bahrain does not levy personal income tax, so there is generally no Bahrain-side tax on this
capital gain to seek relief against. Unlike Qatar (which has a 1999 DTAA with India, even though
Qatar's own personal-tax relevance is limited) or Saudi Arabia and the UAE (which do have DTAAs with
India), Bahrain does not have a comprehensive Double Taxation Avoidance Agreement with India at all --
only a narrower Tax Information Exchange Agreement (TIEA), which is designed for information sharing
rather than allocating taxing rights or providing double-tax relief. This is a genuine, specific
distinction NRIs in Bahrain should know, though in practice it rarely changes the outcome for this
transaction since there is typically no Bahrain-side tax to relieve in the first place. This does not
reduce the Indian tax or TDS obligation in any way.
Common mistakes in this process
- Assuming the resident 1% TDS rate applies once the seller has become an NRI.
- Not applying for the Section 197 lower-deduction certificate before the sale closes.
- Leaving Form 15CA/15CB paperwork until after proceeds reach the NRO account.
- Assuming Bahrain has a full DTAA with India the same way Saudi Arabia or the UAE do -- it does
not; only a narrower TIEA applies.
