This guide breaks down how these accounts handle rental income, property sales, and capital gains. Learn how TDS applies, whether DTAA helps avoid double taxation, and how to legally repatriate funds abroad.

📚 Table of Contents

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• Understanding NRO and NRE Accounts
  • Non-Resident External (NRE) Account
  • Non-Resident Ordinary (NRO) Account
• How TDS, TCS, and DTAA Impact NRIs
  • What is TDS and why does it apply to NRIs?
  • When is TDS due?
  • What are the TDS rates applicable to NRIs?
  • Does TDS mean double taxation?
  • How is TCS different from TDS for NRIs?
  • How does DTAA come into the picture regarding TDS and income tax for NRIs?
• Is NRO account better than NRE for real estate deals?
• What is the tax due to be paid if the property was purchased using funds from NRE account?
• How is income tax calculated when NRIs sell property in India?
• How can NRIs repatriate the real-estate sale amount abroad?

Before getting into the applicability of NRE / NRO accounts for real-estate, it is important to understand some nuances of these accounts, income tax, TDS and DTAA.

Understanding NRO and NRE Accounts

To comply with the Foreign Exchange Management Act (FEMA) rules, an NRI cannot have regular savings accounts in India. Therefore, you must convert existing accounts to NRO accounts and excess accounts must be closed. This step is important once your status changes from resident Indian to NRI and can be done either online, for selected banks, or during your next visit to India.

Feature	NRO Account	NRE Account
Income Source	Indian income (including capital gains)	Primarily foreign income, some Indian income
Repatriation	Allowed with Forms 15CA/15CB	Fully repatriable (for foreign income and taxable Indian income)
Limits	Unlimited when deposited; $1 million/year on reptriation	No limits on deposits/withdrawals
Capital Gains	Can receive proceeds from sale of assets	Cannot receive proceeds from sale of assets
Taxation	TDS applies to Indian income	Generally no tax on foreign income, tax applies to specific Indian income

Non-Resident External (NRE) Account

An NRE account can be opened only once you are an NRI as a fresh account. Old accounts, which existed when you were a resident Indian, must be converted into NRO accounts, not NRE accounts. You can check your NRI status here: Who is an NRI and who is not? Understanding FEMA and NRE/NRO bank accounts.

This account is used to send money to India. The features and uses are:

• This is a fresh account that can only be opened by an NRI.
• Money deposited in this account must originate outside India.
• Interest earned is tax-free in India but may be taxable in the country where the NRI is residing.
• You can send both interest and principal out of India without limits.
• Deposits can only be made in foreign currency, and withdrawals are in INR.
• Joint accounts are allowed only with another NRI.
• You can transfer funds to other NRE or NRO accounts.
• It may be used for stock investing but is not recommended.
• It is the best option for MF investing.
• It cannot be used for investing in RBI/Gilt bonds.

Non-Resident Ordinary (NRO) Account

This account is used for any income and investments in India. The features and uses are:

• Existing savings accounts are converted to NRO accounts.
• Interest earned is taxable in India at current slab rates. The benefit of the Double Taxation Avoidance Agreement (DTAA) is available with most countries so that you do not pay tax twice.
• You can send both interest and principal out of India, but the principal must be within $1 million. A CA must certify that you have paid taxes on this income.
• You can make deposits in foreign currency and INR, and withdrawals are in INR.
• Joint accounts are allowed with another NRI or a resident.
• Funds can be transferred only to another NRO account.
• Transfer from NRO to an NRE account i.e. for repatriation is capped at $1 million per financial year and requires CA input on the required forms to be filled
• This account is used to receive income from interest, FD, rent, stock and MF dividends, and the proceeds from selling real estate, stocks, and mutual funds.
• It can be used for both stock and MF investing.
• Only NRO accounts can be used for investing in and for receiving interest from RBI/Gilt bonds from the RBI Retail Direct Portal.

How TDS, TCS, and DTAA Impact NRIs

What is TDS and why does it apply to NRIs?

Tax Deduction at Source (TDS) is the income tax which is deducted before the income is given to you.

A classic example of TDS is a bank deducting the due tax on interest before sending the interest to your account. This way, it becomes your responsibility to file an income tax return (ITR)and reclaim the TDS amount if more than what you actually need to pay has been deducted:

• Income happens between 1st April and 31st March (this is the financial year in India)
• TDS is associated with this income
• Capital gains tax or income tax, if more than the TDS amount, is due before 31st March (advance tax)
• Income tax return must be filed on or before the following 31st July (though the government extends this date sometimes)
• Any unpaid capital gains/income tax must be paid along with return filing (self-assessment tax)
• If TDS is more than the capital gains or income tax, there will be refund as per the income tax return and will be credited to the bank account linked with the return filed
• Any tax paid on this Indian income will be available as a tax credit in your home country under DTAA (please check official tax websites for the latest rules)

Advance tax dates for India

Due date	Advance tax payable
15th June	15%
15th September	45%
15th December	75%
15th March	100%

Section 195, which covers TDS, applies to NRIs having income from India from multiple sources like rental income, dividends, capital gains from real estate / stocks / mutual funds etc. For NRIs, TDS applies to every income source in India except NRE FDs.

When is TDS due?

TDS (tax deducted at source) is applied at the time of receiving income or capital gains. If you are an NRI who earns rental income, dividends, or sells property, the TDS is deducted before you receive the funds. The applicable rate depends on the type of income and tax treaty (DTAA) with your home country. If excess TDS is deducted, you can request a refund by filing an income tax return by 31 July.

Failure to deduct TDS, for example by the tenant, will lead to penalties.

What are the TDS rates applicable to NRIs?

There are no lower thresholds for these TDS limits for NRIs unlike, say, real estate where TDS (that too only 1%) kicks in only if the property is more expensive than 50 lakhs.

If tenants and real estate buyers don’t declare and deposit TDS on the income tax website, they will face interest and penalties.

Income source	Rate	Section	Who deducts?
Shares	12.5%	112A	Brokerage
Bonds (corporate / gilt / state)	12.5%		Company / Issuer
Company FD	10%		Company / Issuer
Equity-oriented mutual funds	12.5%	112A	AMC
Business Trusts like REIT / InvIT	12.5%	112A	Company
Short-term Capital Gains	20%	111A	AMC / Company
Debt-oriented mutual funds	20%		AMC
Any other LTCG	20%		Buyer
Coupon from bonds	30%	115E	Company / Issuer
NRO Interest	30%	115E	Bank
NRO FD maturity (interest only)	30%	115E	Bank
Dividends from stocks / REITs	20%	115E	Company
Dividends from Mutual Funds	20%	115E	AMC
Property Sale (held less than 24 months)	30% (short-term)		Buyer
Property Sale (held more than 24 months)	12.5% (no indexation)		Buyer
Rent	30%		Tenant
Other income	30%		Whoever gives money

These TDS rates are designed in a way that they are the same or higher than the actual tax due. A cess of 4% applies to all TDS figures.

Note: Please see page 117 of Finance Bill 2024 for details of changing the TDS for property sales by NRIS from 20% to 12.5% under Section 195.

Remember: NRE FDs are tax-free in India and do not have TDS.

Related:
Frequently asked questions on Tax Deducted at Source (TDS): the complete guide

Does TDS mean double taxation?

TDS is a form of advance tax deduction. If your actual income tax (whether from ordinary income or capital gains) is less than the TDS, you will get an income tax refund provided you file your income tax return by the usual deadlines. If the TDS is less than the income tax due, then you need to either pay advance tax (before 31st March) or self-assessment tax before income tax return filing.

How is TCS different from TDS for NRIs?

Tax Collected At Source is TCS

TCS is applicable only to resident Indians and is not applicable to NRIs. Resident Indians typically pay TCS when:

• remitting money abroad under LRS for invests, travel and foreign education: Latest on TCS and LRS
• 1% on buying a car of more than ₹10 lakhs: Frequently asked questions (FAQs) on Tax Collected at Source (TCS) when you buy a car

How does DTAA come into the picture regarding TDS and income tax for NRIs?

A Double Taxation Avoidance Agreement (DTAA) between India and the home country of an NRI allows offsetting the income tax already paid in India for Indian income in the home country and vice versa

The latest DTAA rules as per the Indian income tax website are here: International Taxation >Double Taxation Avoidance Agreements.

For example, an US tax-resident having 10 lakhs of income in India and have already paid say 2 lakhs tax on this income can claim a foreign tax credit of ₹2 lakhs while filing an US tax return which will include this 10 lakhs as a part of global income reporting. If the tax due in the US on this 10 lakhs is ₹3 lakhs (hypothetically), the NRI will be required to pay only the remaining ₹1 lakh after claiming foreign tax credit under DTAA.

Is NRO account better than NRE for real estate deals?

The general rule regarding NRO is for receiving all income and capital gains from Indian assets:

• Current income: rent, pension and interest
• Capital sale proceeds: from selling real estate, shares, mutual funds, bonds etc.

All credits into an NRO account is post-TDS. Any excess TDS, if it is over the income tax due on that transaction, can be claimed back by filing income tax return in India on or before 31st July

Any amount in an NRO account can be repatriated abroad via providing Form 15CA and 15CB to the bank regarding proof of funds and evidence of tax paid.

However, the RBI does permit NRE accounts be used to receive “current income” in India namely rent, dividends and pension. These are fully repatriable with proper proofs of source of funds and evidence of tax paid.

NRE account cannot be used to receive sale proceeds from real estate transactions, shares, or mutual funds

Sale proceeds in NRO account = Sale value - TDS

Only NRO accounts, with proper TDS, is applicable here.

Normally resident accounts, i.e. those you held before you left India, get converted to NRO. If you don’t have one, please open a new one in your current bank before the sale of the property.

What is the tax due to be paid if the property was purchased using funds from NRE account?

If you have purchased property in India using funds brought from abroad, then India does not tax the incoming amount whether you bring it via NRE or deposit into NRO.

If you sell the same property, India will tax the capital gains on the sale amount (with TDS) and not the amount itself.

There are two aspects of transaction:

1. Tax in India: Property sales incur both TDS and capital gains tax and capital gains due is lowered by the TDS already deducted. If you sell the property, you will get the amount post-TDS. There are two scenarios here
   • TDS is more than CG tax: then you need to file ITR by 31st July and claim the difference
   • TDS is less than CG tax: then you need to pay the excess tax in India via the advance tax (before 31st March) or self-assessment tax (before 31st July) mechanisms

You cannot repatriate (NRO to abroad) without proof that these taxes have been paid.

This closes the India aspect of transactions. The source of funds (NRO or NRE) in purchasing the property is not relevant to these two taxes. However, India is not taxing you on the amount you paid for the property but just on the capital gains on it.

1. Tax abroad: Your home country does not care if you paid tax to India when you remit money to India via the NRE account since the money you send out is post-tax income in your home country.

However, India will report large transactions under both FATCA and CRS due to say a real estate sale. You need to therefore capture those details in your foreign tax return, and pay any extra tax, after taking the required foreign tax credit under DTAA. Please consult with a local CPA in your home country on the exact nuances.

How is income tax calculated when NRIs sell property in India?

Capital gains on property = Selling price - Buying price

Income tax on property sales in India is called capital gains tax. Property sold within two years of buying it is classified as short-term and is calculated as per the marginal i.e. progressive rates starting from zero. If sold after two years, tax is calculated at 12.5% of the capital gains amount.

Please refer to these guides for more details:

• How should NRIs sell property in India?
• Complete Tax Guide for NRIs Selling Land in India

How can NRIs repatriate the real-estate sale amount abroad?

NRO > NRE > abroad (with Form 15CA/CB)

An NRE account allows unrestricted repatriation, i.e. money being sent abroad without tax or limits, while an NRO account has limits.

As per the RBI circular from 2012, NRO to NRE transfer is allowed up to $1 million in a financial year (Apr to Mar).

Since income in the NRO account is taxable, only the post-tax amount can be transferred to your NRE account. This means you need to produce a certificate, via CA, that all taxes have been paid before the bank will accept the NRO to NRE transfer.

For doing the NRO to NRE transfer, you must submit:

• FEMA declaration that essentially says that you are an NRI and eligible to transfer from NRO to NRE
• Form 15CA is a declaration filed via the Income Tax portal (with a copy to the bank) that the money transferred is post-tax
• Form 15CB is a certification provided by a CA that the amount being transferred is compliant with all relevant income tax sections (including Section 195 regarding TDS) and any tax paid already (say on interest, capital gains or rent) is DTAA compliant (so that you don’t pay tax twice in your home country on the same income).

Read more here on repatriation of money from India to abroad: The complete guide for transferring money to an NRE account: NRO to NRE and resident to NRE covered