The recent Budget 2024-25 has significantly altered the tax landscape for Non-Resident Indians (NRIs selling property in India. Previously, NRIs enjoyed an indexation benefit for long-term capital gains (LTCG), which adjusted the purchase price for inflation, reducing taxable gains. This benefit has now been removed for property sales occurring on or after July 23, 2024.
Understanding Capital Gains Tax for NRIs
When an NRI sells a residential property in India, the tax liability depends on the holding period, classifying the gain as either short-term or long-term.
- Short-Term Capital Gains (STCG): If the property is sold within 24 months of purchase, the gain is considered short-term. It is taxed according to the NRI’s applicable income tax slab rates (which can go up to 30%), plus any surcharge and a 4% cess. The buyer is required to deduct TDS at 30% of the sale value (plus surcharge and cess). No indexation benefit applies.
- Long-Term Capital Gains (LTCG): If the property is held for more than 24 months, the gain is classified as long-term.
- For sales on or after July 23, 2024: The LTCG is now taxed at a flat 12.5%, in addition to any applicable surcharge and a 4% cess. The indexation benefit is no longer available.
- For sales before July 23, 2024: LTCG was taxed at 20% with the benefit of indexation.
The Impact of the New Tax Rules and TDS
The removal of indexation and the revised tax rate significantly impact the overall tax outgo. For instance, if an NRI purchased a property for Rs 1 crore in 2010 and sells it in 2025 for Rs 2 crore, the Rs 1 crore long-term capital gain is now fully taxable.
The LTCG tax at 12.5% would be Rs 12.5 lakh. With an additional surcharge (e.g., Rs 1.87 lakh) and a 4% cess (e.g., Rs 57,500), the total tax liability could reach approximately Rs 14.95 lakh.
A crucial change is that the buyer is legally obligated to deduct TDS (Tax Deducted at Source) on the entire sale value, not just the capital gain. In the above example, TDS on the Rs 2 crore sale value would be Rs 25 lakh (12.5%). With surcharge and cess, this could total nearly Rs 30 lakh. This upfront deduction often exceeds the actual tax liability, meaning NRIs will need to file an Income Tax Return (ITR) to reclaim the excess amount. Any delays or errors in filing could complicate the refund process.
Key Recommendations for NRIs Selling Property in India:
Experts emphasize the importance of strict compliance with tax regulations. Even if income from rent or capital gains falls below the exemption limit, filing ITRs, adhering to TDS norms, and following FEMA (Foreign Exchange Management Act) guidelines for repatriation are essential.
Before initiating a property sale, NRIs should:
- Obtain a Form 13 Certificate: This certificate allows for a lower or nil TDS deduction, mitigating excessive upfront tax deductions.
- Maintain Thorough Documentation: Keep all relevant documents, including the title deed, occupancy certificate, tax receipts, and RERA registration.
- Seek Professional Guidance: Engage a property lawyer and a chartered accountant specializing in NRI tax laws to navigate the complexities effectively.
Additional Points for NRIs:
- Rental Income: Rental income generated from Indian properties is taxable in India.
- Repatriation of Sale Proceeds: NRIs are permitted to repatriate up to USD 1 million per financial year from the sale proceeds. This requires necessary compliance, such as submitting Form 15CA/CB and obtaining bank certification.
- Penalties: Non-compliance with FEMA and Income Tax Act rules can result in severe penalties.
In conclusion, while Budget 2024-25 has clarified capital gains rules, the removal of the indexation benefit and the shift to TDS on the full sale value have a significant impact on NRI property transactions. Understanding these changes and undertaking careful planning are paramount to avoid undue tax losses and ensure compliance.