NRIs Selling Property in India: Understanding New Tax Rules and Life Without Indexation

NRIs selling property in India now face steeper bills and bigger TDS due to new tax rules. Properties held for over 24 months attract a flat 12.5% LTCG tax, without indexation benefits, and the buyer must deduct TDS on the full sale value. Exemptions are available if the gains are reinvested in another property or specified bonds.

Non-resident Indians (NRIs) selling property in India are now subject to new tax rules that have increased their tax burden and TDS (tax deduction at source) obligations. Effective July 2024, the government introduced a flat 12.5% LTCG (long-term capital gains) tax for NRIs, without the benefit of indexation. Additionally, TDS is now deducted on the entire sale value, not just the capital gain. These changes have made the tax calculation more straightforward but have also increased the overall tax burden for NRIs.

New Tax Rules for NRIs

The revised rules affect NRIs who sell residential properties in India. The key changes include:

1. LTCG Tax Rate: For properties held for over 24 months, the LTCG tax rate is now a flat 12.5%, without indexation benefits. This rate applies regardless of when the property was originally acquired.

2. TDS Deduction: TDS is now deducted on the entire sale value, not just the capital gain. For LTCG, TDS is typically deducted at an effective rate of 12.5%, plus applicable surcharge and cess.

3. Exemptions: NRIs can reduce their tax liability by reinvesting capital gains in a new residential property or specified bonds within the prescribed timelines. This is in line with exemptions under Section 54, Section 54EC, etc.

Impact on NRIs

The new rules have several implications for NRIs:

- Increased Tax Liability: The removal of indexation benefits and the full TDS deduction on the sale value have increased the tax burden for NRIs. For instance, if an NRI bought a property in 2010 for Rs 1 crore and sells it in 2025 for Rs 2 crore, the tax liability would be Rs 14.95 lakh, including surcharge and cess [1].

- Cash Flow Management: NRIs may need to manage their cash flows more carefully due to the higher TDS deductions. They may need to file ITR (Income Tax Return) to claim refunds if the TDS deducted exceeds their actual tax liability.

- Planning Opportunities: NRIs can mitigate their tax outgo by reinvesting gains in eligible properties or bonds, thus availing exemptions under Section 54 and Section 54EC.

Conclusion

The new tax rules for NRIs selling property in India have made the tax calculation simpler but have also increased the tax burden. NRIs must understand these changes to manage their tax obligations effectively. While the new rules may present challenges, they also offer opportunities for tax planning and management.

References

[1] https://www.financialexpress.com/money/how-much-tax-nris-have-to-pay-on-selling-property-in-india-understand-the-new-math-3916639/
[2] https://cleartax.in/s/capital-gain-tax-on-sale-of-property-shares-gold