Non-resident Indians (NRIs) in India have always seen property buying as a preferred option when it comes to investing their money. But when it comes to selling that property, tax rules at times can be slightly complicated. Especially when the government makes changes in the rules of capital gains, the calculation of tax liability can be a bit confusing.
When an NRI transfers a capital asset, being a residential property situated in India, the transfer would be subject to capital gain tax. Such capital gains tax liability of the NRI depends on whether the gains are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG), which is determined based on the period of holding of the said property.
New capital gains taxation rules
Last year in July, in Budget for 2024-25, the government tweaked the capital gains tax rules. Now, the calculation of tax on selling property for NRIs has become clearer than ever, but there are some complications in it too — like no benefit of indexation, and higher deduction of TDS on the sale price.
In Finance (No.2) Act, 2024, the Centre introduced certain amendments to the capital gain tax rates applicable to the transfer of such assets. Accordingly, when an NRI sells property in India, the tax implications are primarily governed by the nature of the capital gain i.e. whether it is short-term or long-term. If the property is sold within 24 months from the date of acquisition, the resulting gain is treated as short-term and taxed at the applicable slab rates for the NRI.
However, if the holding period exceeds 24 months, the gain is classified as long-term capital gain (LTCG) and is subject to tax at a flat rate of 20% with indexation (reduced to 12.5% without indexation w.e.f. 23 July 2024), plus applicable surcharge and health and education cess.
The applicable capital gains tax rates and the corresponding period of holding criteria are summarised as follows:
| Type of Gain | Holding Period | Tax Rate | TDS Rate | Benefit of Indexation |
| LTCG if asset sold on or after 23 July 2024 | > 24 months | 12.50% + surcharge (if any) + 4% cess | 12.50% of sale value + surcharge (if any) + 4% cess | No indexation |
| LTCG if asset sold before 23 July 2024 | > 24 months | 20% + surcharge (if any) + 4% cess | 20% of sale value + surcharge (if any) + 4% cess | With indexation |
| STCG if asset sold on or after 23 July 2024 | ≤ 24 months | Applicable Slab Rates + surcharge (if any) + 4% cess | 30% of sale value + surcharge (if any) + 4% cess | Not Applicable |
| STCG if asset sold before 23 July 2024 | ≤ 24 months | Applicable Slab Rates + surcharge (if any) + 4% cess | 30% of sale value + surcharge (if any) + 4% cess | Not Applicable |
Explaining the changes effected in capital gains tax rules in Budget 2024-25 in July last year, taxation expert CA (Dr.) Suresh Surana said the indexation benefit, which adjusted the purchase price of capital assets for inflation to reduce taxable gains, has been removed for all the taxpayers with effect from 23 July 2024.
However, a key distinction remains that while Resident Indians continue to have the option to choose between a 12.50 % tax rate without indexation and a 20% rate with indexation for property (land and building) acquired prior to 23 July 2024, in contrast NRIs are not eligible for this indexation benefit, he added.
“Further, Section 195 of the I-T Act provides for deduction of tax at source (TDS) by the buyer, who is obligated to deduct TDS. For LTCG, TDS is typically deducted at an effective rate of 20% (12.5% w.e.f. 23 July 2024), plus applicable surcharge and cess, unless a lower or nil deduction certificate is obtained in advance from the Assessing Officer,” he explained.
In order to mitigate excess TDS and manage cash flows efficiently, NRIs may obtain a certificate for lower or nil deduction by filing Form 13 before completing the transaction, Surana added. “Additionally, exemptions under Section 54, Section 54EC etc. may be availed by reinvesting the capital gains in a new residential property or specified bonds within the prescribed timelines.”
Let us know how much tax NRIs will have to pay based on revised LTCG rates and TDS and what the new rules mean for them.
Understand with an example: How much tax will have to be paid?
Suppose an NRI bought a flat in 2010 for Rs 1 crore and is selling it in 2025 for Rs 2 crore. Considering this, there is a long term capital gain of Rs 1 crore.
But in India, NRIs do not get the indexation benefit (i.e. the benefit will not be added after deducting the effect of inflation).
In such a situation, the entire Rs 1 crore becomes taxable.
The tax calculation is done like this:
LTCG tax (12.5%) = Rs 12.5 lakh
Surcharge (15%) = Rs 1.87 lakh
Cess (4%) = Rs 57,500
Total tax = Rs 14.95 lakh
TDS i.e. tax deduction at source – the real reason for trouble
An even bigger thing is that when an NRI sells his property, the buyer has to deduct 12.5% TDS on the entire sale price, not just on the profit (capital gain).
TDS on a deal of Rs 2 crore = Rs 25 lakh
Total deduction including surcharge and cess = Rs 29.9 lakh
That is, in reality the tax comes to Rs 15 lakh, but the government first deducts Rs 29.9 lakh. NRI has to file ITR to get this amount back. In case of late filing or mistakes, the refund gets stuck.
What changed in Budget 2024-25?
In the budget presented in July 2024, the government changed the LTCG tax rules in a simple but decisive way.
Conclusion: Tax burden is not less, understanding is important
The tax math for NRIs while selling property in India has now become easier, but the tax amount may increase. Not getting the benefit of indexation, and TDS being deducted on the full value are two big challenges.
The government has tried to bring transparency and equality in Budget 2024-25, but its real blow can fall on those investors who had invested in property years ago.