When an NRI in Canada 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, higher than the 1% TDS resident sellers face under Section 194-IA — and the NRI can repatriate the net sale proceeds abroad, up to USD 1 million (or equivalent) per financial year, from an NRO account, subject to Form 15CA/15CB certification by a chartered accountant.
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 — meaning most inherited-property
sales qualify for long-term capital gains treatment, with indexation benefit available where applicable.
TDS under Section 195 — why it's higher than for resident sellers
Section 194-IA's familiar 1% TDS applies only to resident sellers. For a non-resident seller, the buyer
must instead deduct TDS under Section 195 — on the full sale consideration at the capital-gains rate,
unless a lower-deduction certificate has been obtained. This distinction is worth confirming directly with
the buyer's advisor before the transaction closes, since applying the resident rate by mistake creates
liability for the buyer.
Getting a lower or nil TDS certificate (Form 13 / Section 197)
An NRI seller 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 rather than the full
sale value — worth evaluating with a chartered accountant before the sale closes rather than reclaiming
excess TDS as a refund afterward.
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). Arranging this documentation alongside the sale, rather than afterward, shortens the
overall timeline.
Claiming relief against double taxation in Canada
Because the gain is generally also reportable to the Canada Revenue Agency, the India-Canada Double
Taxation Avoidance Agreement and Canada's foreign tax credit rules allow the NRI to claim credit in Canada
for tax already paid in India on the same gain, subject to Canadian tax rules — this is a Canadian tax
filing matter best handled with a Canadian tax professional familiar with foreign property disposals,
alongside the Indian-side computation.
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, delaying
repatriation.
- Using the property's value on the date of inheritance as the cost basis instead of the original
owner's carried-over acquisition cost.
