When an NRI in Nepal 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. The India-Nepal DTAA, signed 27 November 2011 and in force since 16 March 2012, confirms treaty-based relief may be available under Sections 90/90A, though this platform flags that the treaty contains no separate Fees for Technical Services article and a narrow, royalties-only MFN clause. The NRI can 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 Nepal as it would be for one based anywhere else.
This is entirely separate from Nepal's own capital-gains treatment of property located in Nepal, which
this platform's Inheritance guide for Nepal discusses separately -- the two systems should not be
conflated.
TDS under Section 195, and getting a lower or nil TDS certificate
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. An NRI seller in Nepal 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.
DTAA relief -- available, with two flagged gaps to check
An India-Nepal Double Taxation Avoidance Agreement exists, signed 27 November 2011 at Kathmandu and in
force since 16 March 2012, so treaty-based relief under Sections 90/90A of the Income Tax Act is
generally available on the same capital gain. This platform flags two specific gaps in this treaty
that an NRI seller should be aware of: it contains no separate article or defined rate for Fees for
Technical Services (relevant if any technical-service payments are connected to the transaction), and
its MFN clause is narrow, confined in the Protocol to royalties only rather than covering dividends,
interest, or FTS generally. Neither gap affects the confirmed dividend, interest, and royalty rates, but
an NRI seller relying on treaty relief should still confirm the applicable provision directly against the
Income Tax Department's current treaty text 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). Readers moving funds specifically between India and Nepal, as opposed to repatriating
further abroad, should separately note the fixed NPR-INR currency peg (1 INR = 1.6 NPR) discussed in this
platform's Compliance guide for Nepal.
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.
- Confusing Nepal's own capital-gains treatment of property located in Nepal with Indian tax on the
sale of Indian property -- these are entirely separate regimes.
