Selling jointly owned property by NRI: How will capital gains be taxed?

An NRI living in Germany jointly owns a residential property in India with her resident sister. They had each contributed 50% of the purchase price seven years ago and now plan to sell the property. While the NRI wants to remit her share of the sale proceeds abroad, her sister plans to reinvest her share in another residential property. Can the sister claim the capital-gains tax exemption even if the NRI does not reinvest her share?

– Name withheld on request

Since the sale of the property is to be made after 1 April 2026, the tax implications of the sale would be governed by the provisions of the Income-tax Act 2025, which came into effect from 1 April 2026. Further, for determining the taxability and eligibility for capital gains tax exemption on reinvestment, I have assumed that you will qualify as a non-resident for the tax year 2026–27.

Separate computation

Since you and your sister have contributed equally towards the cost of acquisition of the property, the capital gains arising on the sale would also be computed separately in the hands of each co-owner in equal proportion.

The property, having been acquired seven years ago, would qualify as a long-term capital asset and the gains would be taxable as long-term capital gains (LTCG).

Any LTCG arising from the sale of a residential property on or after 23 July 2024 is taxable at 12.5% (plus applicable surcharge and cess) without the indexation benefit.

However, where an immovable property was acquired before 23 July 2024 by a resident individual, such individual is permitted to compare the tax liability under the earlier provisions, i.e. taxation at 20% (plus applicable surcharge and cess) with indexation benefit, with the present provisions, i.e. taxation at 12.5% (plus applicable surcharge and cess) without indexation, and opt for the more beneficial tax treatment.

Accordingly, your resident sister can make a comparison of both options and adopt the more beneficial one.

On the other hand, being a non-resident, you would be taxable at 12.5% (plus applicable surcharge and cess) without any indexation benefit. Hence, the computation of capital gains tax liability may differ between the two of you.

Independent benefit

Even if you may not want to reinvest your share of the capital gains, it is possible for your sister to independently avail the benefit of capital gains tax exemption available upon reinvestment of the capital gains amount.

For the computation of the capital gains exemption, the capital gains amount computed under the amended provisions, i.e., without considering indexation, would be taken into account.

Since all co-owners are eligible to independently claim the capital gains exemption available upon reinvestment, your sister is independently eligible to claim such exemption up to ₹10 crore per reinvested asset in respect of her share of LTCG, subject to fulfilment of the prescribed conditions, including the specified timelines for reinvestment, deposit of the unutilised amount in the notified account, and compliance with the prescribed lock-in period.

Harshal Bhuta is a partner at P. R. Bhuta & Co. Chartered Accountants