Sold ancestral property in India? Here’s how NRIs can transfer funds abroad safely

For Non-Resident Indians (NRIs), selling property in India is only the first step. The bigger challenge often lies in transferring the proceeds abroad, a process that requires strict adherence to the Foreign Exchange Management Act (FEMA), Reserve Bank of India (RBI) guidelines, and income tax rules. With proper documentation and compliance, however, the transfer can be smooth and hassle-free.

Who can NRIs sell property to?

Under FEMA rules, NRIs are free to sell residential or commercial property in India to resident Indians, other NRIs, or Persons of Indian Origin (PIOs). But when it comes to agricultural land, plantation property, or farmhouses, the law is more restrictive. Such properties can only be sold to resident Indians, not to other NRIs or PIOs.

NRIs may also mortgage their property in India, though only to Indian banks or registered housing finance companies.

Repatriation rules

The repatriation rules differ depending on how the property was acquired.

If purchased as a resident Indian: Sale proceeds can be sent abroad up to USD 1 million per financial year. Transfers above this limit require special RBI approval.

If purchased as an NRI using foreign funds (NRE/FCNR accounts): The full sale amount can be repatriated, but only for two residential properties in a lifetime.

If purchased using Indian funds or through an NRO account: The repatriation limit is USD 1 million per year.

Repatriation process steps

After the sale, NRIs must first deposit the proceeds into an NRO account. To initiate repatriation, the following documents are typically required:

Form 15CA and Form 15CB (a CA-certified tax compliance form)

Sale deed and bank statements

Tax clearance certificate

Repatriation application to the bank

Once verified, the authorised bank transfers the funds overseas.

Inherited property

For inherited property, NRIs must provide proof such as a Will or Legal Heir Certificate, along with a tax clearance certificate. Repatriation of inherited property is capped at USD 1 million per year under FEMA. If the inheritance is from a non-resident, additional RBI approval may be necessary.

Tax implications

Tax compliance is a critical part of repatriation.

Short-term capital gains (held less than 3 years): Taxed as per the individual’s income tax slab.

Long-term capital gains (held more than 3 years): Taxed at 20% after indexation, which adjusts the purchase price for inflation.

Exemptions: NRIs can reduce tax liability by reinvesting under Section 54 (residential property) or Section 54EC (specified bonds).

Rental income or any gains must also be declared and taxed before funds are transferred abroad.

Key takeaways

FEMA rules are central to the repatriation process. While funds from NRE and FCNR accounts are fully repatriable without restrictions, NRO account funds are capped at $1 million per year. Careful planning, complete paperwork, and timely tax compliance help NRIs avoid delays and penalties.

For NRIs looking to liquidate assets in India, understanding these rules ensures that property proceeds are repatriated efficiently, with minimal tax impact.