Selling Inherited Property in India as an NRI in Sri Lanka -- TDS, Capital Gains & Repatriation

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 Sri Lanka 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 Sri Lanka 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 -- distinct from Sri Lanka's own exchange controls

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 is an Indian-side rule and process, entirely separate from Sri Lanka's own exchange control regime under the Foreign Exchange Act, No. 12 of 2017 (administered by the Central Bank of Sri Lanka), which governs funds moving out of Sri Lanka, not funds arriving into a Sri Lankan bank account from India. Note that Sri Lanka remains under an active IMF Extended Fund Facility programme, so its exchange control settings can change -- confirm the current position before relying on any specific figure.

Relief under the India-Sri Lanka DTAA

India and Sri Lanka's tax treaty was originally signed on 27 January 1982 and notified in India on 19 April 1983. An amending Protocol was signed on 16 December 2024, entered into force on 19 June 2026, and is effective from FY 2027 -- it adds a Principal Purpose Test anti-abuse rule to the treaty. Together, the DTAA provides the framework for relief against double taxation where the same gain could otherwise be taxed in both countries. The exact treatment depends on the NRI's Sri Lankan tax residency status under the Inland Revenue Act's own residency tests (see this platform's Tax section) -- confirm current treatment with a cross-border tax advisor familiar with both jurisdictions before the sale closes.

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 India's FEMA repatriation rules (governing funds leaving India) with Sri Lanka's own exchange control rules (governing funds leaving Sri Lanka) -- the two are independent and both may need separate attention depending on what happens to the funds next, particularly given Sri Lanka's ongoing IMF programme conditions.