Long-Term Capital Gains Tax on Sale of Immovable Property by NRIs

Non-Resident Indians (NRIs) planning to sell immovable property in India should understand the tax rules associated with such transactions. The taxation of capital gains for NRIs differs from that of resident individuals. This guide outlines how long-term capital gains (LTCG) are taxed for NRIs for the financial year 2024–25.

Understanding LTCG for NRIs on Property Sale (Long-Term Capital Gains Tax)

When NRIs sell property in India, the nature of the gain—whether short-term or long-term—depends on how long the property was held:

• If the property was owned for more than 24 months, the profit from the sale is considered long-term capital gain (LTCG).

  • For transfers completed before July 23, 2024, LTCG is taxed at 20% (plus surcharge and cess).

  • For transfers made on or after July 23, 2024, a revised tax rate of 12.5% (plus surcharge and cess) applies.

• If the property was held for 24 months or less, it results in short-term capital gains (STCG). These gains are added to the NRI’s total taxable income in India and taxed as per the applicable income tax slab rates, which may go as high as 30%.

TDS (Tax Deducted at Source) on Sale of Property by NRIs

TDS on Long-Term Capital Gains (LTCG):
For property sales made by NRIs before July 23, 2024, TDS is generally deducted at 20%, plus applicable surcharge and cess. However, for transactions occurring on or after July 23, 2024, the TDS rate has been reduced to 12.5% of the sale consideration, in addition to any surcharge and cess.

TDS on Short-Term Capital Gains (STCG):
If the transaction leads to short-term capital gains, the TDS is typically 30%, along with the applicable surcharge and cess.

Key Points to Remember:

• TDS Certificate (Form 16A):
  The buyer must issue Form 16A to the NRI as evidence of the TDS deducted.

• Lower or Nil TDS Certificate (Form 13):
  NRIs have the option to apply for a certificate from the Income Tax Department to deduct tax at a lower or nil rate, helping reduce upfront TDS liability.

LTCG Exemptions Available to NRIs

NRIs may be eligible for capital gains tax exemptions under the following provisions:

Section 54 – Reinvestment in Residential Property

NRIs can avoid LTCG tax by reinvesting the capital gain in a residential property in India within 2 years (purchase) or within 3 years (construction). The new property must be held for a minimum of 3 years.

Section 54EC – Investment in Capital Gains Bonds

NRIs can invest up to ₹50 lakhs in specified bonds such as NHAI or REC within 6 months of the sale. These bonds must be held for 5 years to qualify for exemption.

Section 54F – Sale of Non-Residential Assets

If an NRI sells a capital asset (other than a residential house), they can reinvest the entire sale proceeds in one residential house in India to claim exemption under this section.

How NRIs Can Calculate Tax on Property Sales in India

Step-by-Step Guide to Calculating Long-Term Capital Gains (LTCG)

1. Identify the Holding Period:
Begin by checking how long the property was owned—from the purchase date to the date of sale. If it was held for more than 24 months, the profit qualifies as Long-Term Capital Gain (LTCG). If held for 24 months or less, it is treated as Short-Term Capital Gain (STCG).

2. Compute the Net Sale Value:
Estimate the total sale consideration received, then deduct any direct expenses related to the sale. These can include brokerage fees, stamp duty, and registration charges.

3. Determine the Acquisition and Improvement Cost:
Add the original purchase price and any documented improvement costs (renovations or upgrades).

• For properties sold before July 23, 2024, use the Cost Inflation Index (CII) to calculate the indexed cost of acquisition/improvement.
  Formula: Indexed Cost = Original Cost × (CII in year of sale / CII in year of purchase/improvement)

• For sales made on or after July 23, 2024, indexation benefits do not apply.

4. Calculate Capital Gains:
Subtract the acquisition and improvement costs (indexed if applicable) from the net sale value. The resulting figure is your capital gain.

5. Apply the Relevant Tax Rate:

• STCG: Taxed at regular income tax slab rates applicable to NRIs.

• LTCG:

  • Before July 23, 2024: 20% tax with indexation.

  • On or after July 23, 2024: 12.5% tax without indexation.

6. Add Surcharge and Cess:
Include any surcharge applicable based on total income, then add 4% health and education cess on the tax plus surcharge.

Repatriating Sale Proceeds Abroad

NRIs must follow RBI guidelines when transferring property sale proceeds overseas:

• Funds must first be deposited into an NRO account.

• Up to USD 1 million per financial year can be repatriated under FEMA regulations.

• Form 15CB (CA certificate) and Form 15CA submission on the income tax portal is compulsory before remitting the funds.

DTAA (Double Taxation Avoidance Agreement) – A Key Advantage for NRIs

To prevent being taxed twice—once in India and again in their country of residence—Non-Resident Indians (NRIs) can benefit from Double Taxation Avoidance Agreements (DTAA) that India has with several countries. These agreements allow NRIs to either claim a tax credit, seek exemption, or opt for reduced tax rates on capital gains earned in India, depending on the treaty terms.

Smart Tax Planning Tips for NRIs

• Utilize Exemptions: Make use of provisions under Section 54, Section 54EC, and Section 54F to reduce or eliminate long-term capital gains tax.

• Apply for a Lower TDS Certificate: File Form 13 to request a lower or nil TDS certificate, which minimizes tax deduction at source.

• Use DTAA Benefits: Leverage DTAA provisions to avoid paying tax in both countries and reduce the overall tax burden.

Conclusion

Proper tax planning is essential for NRIs selling property in India. By claiming applicable exemptions, applying for reduced TDS, and utilizing DTAA relief, NRIs can effectively lower their tax liability and stay compliant with Indian tax regulations. For best results, consult a qualified CA or NRI tax specialist to navigate the complexities smoothly.

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